The ballooning cost estimates for renovating the CFPB’s Washington, D.C. headquarters was the subject of verbal sparring between Director Cordray and Republican Congressmen during Director Cordray’s most recent appearance before the House Financial Services Committee. That sparring is likely to become even more heated as a result of a letter issued earlier this week by the Office of Inspector General (OIG) for the Fed and CFPB evaluating the CFPB’s renovation budget.

The OIG evaluation was requested by Republican Congressman Patrick McHenry, who chairs the Committee’s Subcommittee on Oversight and Investigations. The letter indicates that the CFPB’s approval processes require major investments to be reviewed by the CFPB’s Investment Review Board (IRB) and while IRB approval is not necessary for the CFPB to include a major investment in its budget, such approval is needed for budgeted funds to be available for expenditure. To obtain IRB approval, a CFPB program office must complete an IRB “business case” which, according to the CFPB’s internal guidance for making a “sound business case,” requires consideration of alternatives, including a comparison of the costs and benefits of alternatives and the rationale for the investment. It also requires a return on investment to be shown and stresses the importance of a quantitative analysis.

The OIG found that that CFPB did not follow all of its internal guidance when completing the business case for the renovation. By way of example, the OIG found that while the CFPB listed alternatives in its business case, it did not complete any analyses of those alternatives and did not include any quantitative information or calculations related to a return on investment. The OIG was informed by CFPB officials that the IRB approved the business case without such information “because funding approval was viewed as a formality given that the decision to proceed with the renovation had already been made.” The CFPB, however, was unable to locate for the OIG any documentation of the decision to fully renovate the building.

The OIG observes that “while the decision to renovate may pre-date the current IRB policies, these policies were in place when the business case was submitted for funding approval.” Although the OIG states that it could not conclude that a complete analysis would have changed the decision to approve funding, it comments that without such an analysis, “the value of the IRB process as a funding control is diminished and a sound business case is not available to support the funding of the renovation.” The OIG further comments that “expected cost information is not available as a baseline to facilitate management of changes in estimated renovation costs.”