FY 2003 FCS Survey

Published by the Farm Credit Administration, Office of Inspector General on 2003-10-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

Office of
Inspector General
               FARM CREDIT SYSTEM
                   ANNUAL SURVEY

                    Fiscal Year 2003

                        October 2003
Memorandum                                                       Farm Credit Administration
                                                                 1501 Farm Credit Drive
                                                                 McLean, Virginia 22102-5090

October 30, 2003

To:           Roland Smith, Chief Examiner
              Office of Examination

From:         Stephen G. Smith
              Inspector General

Subject:      Fiscal Year 2003 Farm Credit System Examination Survey

The Office of Inspector General is pleased to issue the results of its post examination survey of
the Farm Credit institutions for Fiscal Year (FY) 2003. We sent 101 surveys and received
55 responses. The survey objectively measures the quality and consistency of the Agency’s
examination and enforcement functions.

Overall, Farm Credit institutions provided favorable ratings. The ratings were slightly less
favorable than the ratings in FY 2002. At the same time the 54 percent response rate on the
survey was a significant decrease over last year’s rate of 80 percent. Several individual
examiners received particularly high praise in survey responses and may merit recognition. I
will provide you this information in a separate communication.

I believe the survey results are self-explanatory and therefore, I have not scheduled a briefing.
However, I would be glad to do so at your request.


Copy to: Michael M. Reyna, Chairman and CEO
         Doug Flory, Board Member
         Nancy Pellett, Board Member
         Jim Ritter
         Cheryl Macias
                       Farm Credit System
                         Survey Results
                        Fiscal Year 2003

                            Table of Contents

Annual Summary and Analysis of Responses for Fiscal Year 2003……………………….……1

Appendix I – Summary of Responses Received to Questions 1 – 11…………………………...6

Appendix II – Written Responses to Questions 12a, 12b and 24………………………….……13

Appendix III – Numeric Results of Responses Received to Questions 1 – 11………….……. 18

Appendix IV - Comparison of Average Ratings for Fiscal Years 2000, 2001………………….19
              2002, and 2003

Appendix V – Graph of Survey Responses by Questions……………………………………….20

                       FARM CREDIT SYSTEM SURVEY
                           FISCAL YEAR 2003


The Farm Credit Administration (FCA) is an independent Federal financial regulatory
agency of the United States government with regulatory, examination, and supervisory
responsibilities for the Farm Credit System (FCS) banks, associations, and related
institutions that are chartered under the Farm Credit Act of 1971, as amended.

FCA’s 2000-2005 Strategic Plan includes an objective to obtain measured feedback
from FCS institutions on the quality and consistency of the Agency’s examination and
enforcement activities as a means to enhance improvement. The Office of Inspector
General (OIG) established this on-going survey of FCS institutions as the means to
achieve that objective.


The survey objective is to get feedback from FCS institutions that candidly assess how
well FCA is performing its examination and enforcement activities.

The survey instrument includes statements designed to rate and monitor Agency
performance of examination and enforcement activities in the following specific areas:

•   the effectiveness of FCA’s communications with institutions;
•   the reasonableness of Agency requests for data and information;
•   the quality of examiners’ decision making during the exam process;
•   the quality of written examination reports;
•   the professionalism of FCA examination staff; and
•   examiners’ responsiveness to the institutions’ concerns throughout the examination

The questions along with the responses received throughout the fiscal year are included
as Appendix I and II. A numeric breakdown of answers received is included as
Appendix III.

The OIG e-mails the survey to the Chairman of the Board and the Chief Executive
Officer of each FCS institution after the FCA’s Office of Examination (OE) presents its
Report of Examination (ROE) to the institution board, or on issuance of the report if no
board presentation is planned. We ask the board and management to jointly complete
the survey and encourage narrative comments. All institutions are asked to answer
questions 1 through 12. The institutions can complete the survey online or mail a paper
copy directly to the Inspector General. The OIG is responsible for analyzing,
summarizing and ensuring the confidentiality of the responses.

During FY 2003, OIG sent 101 surveys and received 55 responses–a 54 percent
response rate. This is a decrease of 24 percent from the last reporting period. We sent
1,158 surveys since the beginning of this survey process. We received a total of 818
replies—a 71 percent overall response rate.

                                ANALYSIS OF RESPONSES

Overall ratings for FY 2003 continue to be favorable. The survey asks respondents to
rate each statement from 1 (completely agree) to 5 (completely disagree), thus the
lower the number, the more favorable the result. The overall average rating for the
eleven survey statements applicable to all institutions was 1.6. This is very similar to
the results from FY 2001 and FY 2002.

Over 91 percent of the responses either agreed or completely agreed and less than 4
percent indicated disagreement. This remains constant from FY 2002. The best
individual average rating (1.2) was received for question 8, which reads, “The
examination team acted courteously and professionally.” Question 8 has received the
best overall rating since the inception of the survey.

The least favorable average rating of 1.9 (which was still a favorable rating) was for
questions 7 and 9. Question 7 reads, “The examiner’s interpretation of the statues,
regulations, and other guidance was consistent with previous examinations.” Question
9 reads, “The examiners’ recommendations for corrective actions were reasonable and
consistent with FCA’s role as an arm’s length regulator.”


As part of our analysis, we sorted the data to find out if there was any meaningful
correlation between ratings given on the survey and the following attributes: size of the
institution; institution type; CAMELS rating; FCS District; examining field office; and
whether the institution was under an enforcement action.


                       Number of Range of Average Overall Average Overall Average
    Total Assets      Institutions    Rating          Rating          Rating
     (millions)       Responding     FY 2003         FY 2003         FY 2002
   Less than $100           3           1.18 – 1.91          1.64             1.64
     $100 - $199            9           1.00 – 2.45          1.68             1.40

     $200 - $299            6           1.09 – 2.27          1.72             1.69

     $300 - $399            5           1.00 – 1.82          1.45             1.27

     $400 - $599           10           1.00 – 2.91          1.63             1.85

     $600 - $799            8           1.00 – 2.82          1.63             1.52


                        Number of Range of Average Overall Average Overall Average
    Total Assets       Institutions    Rating          Rating          Rating
     (millions)        Responding     FY 2003         FY 2003         FY 2002
    $800 and over             13         1.00 – 2.18           1.51              1.50
        Other                 1          1.54 – 1.54           1.54              1.55

Observations: Again this year, institutions with total assets from $300 million to $399
million gave the best overall ratings. The overall rating was marginally less favorable
(1.45) than last year (1.27). This is the second year that a slightly less favorable overall
rating has been received.


                        Number of Range of Average Overall Average Overall Average
 Type of Institution   Institutions    Rating          Rating          Rating
                       Responding     FY 2003         FY 2003         FY 2002
        FLCA                  3          1.00 – 1.91           1.30              1.45
       OTHER                  2          1.40 – 1.47           1.47              1.27
        FCB                   3          1.27 – 1.82           1.48              1.41
        ACA                   47         1.00 – 2.91           1.63              1.54

Observations: The overall ratings by institution type were less favorable than last year
with the exception of FLCA’s. ACA’s are the largest group and gave the least favorable
rating, though only slightly less favorable than last year.


No responses were received from institutions with a CAMELS rating of “3” or higher.

                     Number of     Range of     Overall Average Overall Average
    CAMELS          Institutions Average Rating     Rating          Rating
     Rating         Responding      FY 2003        FY 2003         FY 2002
  NO RATING               1           1.54 – 1.54            1.54               1.27
        1                40           1.00 – 2.91            1.57               1.42
        2                14           1.00 – 2.82            1.70               1.67

Observations: As in previous years, there appears to be a slight correlation between
CAMELS ratings and survey results–the better the CAMELS rating, the better the
overall survey rating. The overall average ratings in FY 2003 for institutions with
CAMELS ratings of both “1” and “2” was slightly less favorable then in FY 2002.


Responses were sorted by the entity with responsibility for the institution.

                     Number of          Range of         Overall Average   Overall Average
     District       Institutions      Average Rating         Rating            Rating
                    Responding           FY 2003            FY 2003           FY 2002
     Wichita              5             1.00 – 1.64           1.33              1.64
      Other               2             1.40 – 1.54           1.47              1.27
     AgFirst             20             1.00 – 2.27           1.54              1.58
      Texas               7             1.00 – 2.09           1.62              1.25
     Western              6             1.00 – 2.64           1.64              1.23
    AgriBank             11             1.00 – 2.91           1.65              1.59
     CoBank               4             1.00 – 2.82           2.07              2.00

Observations: Wichita district institutions gave the most favorable overall average
ratings, an improvement from 1.64 last fiscal year. AgFirst was the only other institution
that presented slightly more favorable ratings this fiscal year.     CoBank had the least
favorable ratings. Western district had the most significant decline in ratings over last
fiscal year. Last fiscal year Western district institutions gave the most favorable ratings.
AgAmerica district did not have any institutions responding.


Responses were sorted by the six OE examining offices. The Special Examination
division did not have any institutions responding.

                        Number of         Range of     Overall Average Overall Average
    Field Office       Institutions     Average Rating     Rating          Rating
                       Responding          FY 2003        FY 2003         FY 2002
       Denver                 8            1.00 – 1.82           1.42            1.71
       Dallas                 13           0.00 – 2.09           1.60            1.67
    Sacramento                5            1.00 – 2.64           1.61            1.18
      McLean                  22           1.00 – 2.82           1.64            1.70
    Bloomington               7            1.00 – 2.91           1.70            1.68

Observations: The Denver field office had the most improved rating over last year’s
results. The Sacramento field office had the most significant decline in ratings. McLean
and Dallas field offices had slightly more favorable ratings, while Bloomington had a
slightly less favorable rating.

                          COMMENTS BY RESPONDENTS

Many of the comments reflect the favorable ratings in the survey. There were many
comments reflecting praise for the quality of work performed and the professionalism of
the examiners. A complete set of survey comments is included as Appendix I and II.
OIG inserted or removed text to clarify or keep anonymity.

The most common concerns were expressed about the examination of Young,
Beginning, and Small Farmer (YBS) programs and electronic commerce. In addition,
several institutions expressed concern about FCA’s interpretation of scope of lending
regulations.     Finally, there were a few comments about timeliness of reports,
consistency between reports and the exit conference, and a desire for more efficiency
by making board presentations optional.

                                                                                                Appendix I

                                FARM CREDIT SYSTEM SURVEY
                                  SUMMARY OF RESPONSES
                                     FISCAL YEAR 2003

                     Question                         Completely Agree       Completely Disagree   Average
                                                        1        2       3          4       5
    1. The Report of Examination identified
                                                       21       29       3          2       0       1.7
       and prioritized all significant risks facing
       the institution.

▪      Not certain that the E-commerce activities of this Association warranted such high priority.
       The regulation is vague and no clear direction was given by the audit report.
▪      Major focus was on the YBS program which is not a significant risk facing [Institution].
▪      Total number of Directors responding 8.
▪      As required by McLean the report had a lot of focus on YBS – mostly data.
▪      Key risk areas were identified. Emphasis on YBS programs is over-emphasized for a
       wholesale bank.

                     Question                         Completely Agree       Completely Disagree   Average
                                                        1        2       3          4       5

    2. The Report of Examination fairly
                                                       23       29       1          0       0       1.6
       presented management’s response to
       issues discussed in the report.

▪      There were no issues which required management response.
▪      Especially well done since [Institution] is the first of its kind in the U.S. FCA worked hard
       to understand the new structure.
▪      Total number of Directors responding—8.
▪      Management’s practices and philosophy were fairly represented.

Comments in brackets are added by the OIG to clarify or keep anonymity.                                      6
                   Question                        Completely Agree       Completely Disagree   Average
                                                     1        2       3          4       5
    3. The Report of Examination was factually
                                                    25       25       3          1       0       1.5
       correct and presented well supported
       and relevant conclusions about the
       condition and performance of the

▪     The examination indicated there was nothing the Association had done to affect the safety
      and soundness, however the Board feels FCA’s request in the first requirement to diverst
      of certain loans was excessive.
▪     Reviewers took time and effort to research issues.
▪     Total number of Directors responding—8.
▪     The report and board presentation were accurate and complete.

                   Question                        Completely Agree       Completely Disagree   Average
                                                     1        2       3          4       5
    4. The Report of Examination was clearly
                                                    30       23       1          0       0       1.5
       written, concise, and understandable.

▪     We continue to believe that FCA Examination Reports could be shorter and more concise.
      Findings are discussed in several sections and this causes duplication and confusion in
      reading and understandings of the points being made.
▪     Except for the E-commerce recommendations which were lacking in specifity.
▪     Total number of Directors responding—8.
▪     The report was appropriately brief and concise.

Comments in brackets are added by the OIG to clarify or keep anonymity.                                   7
                    Question                       Completely Agree       Completely Disagree   Average
                                                     1        2       3          4       5
    5. The Report of Examination was
                                                    35       15       3          0       0       1.4
       received in a timely manner and,
       therefore, the issues in the Report of
       Examination were still relevant.

▪      Receipt of the Report was later than expected based upon receipt of prior year’s Report of
▪      We compliment the examiners on their quick “turn around time” in order to be able to
       deliver the report to our next board meeting.
▪      Total number of Directors responding—8.
▪      The report was presented as scheduled and the schedule was properly coordinated.

                    Question                       Completely Agree       Completely Disagree   Average
                                                     1        2       3          4       5
    6. The examiners conveyed consistent
                                                    30       21       2          0       1       1.5
       messages and tone throughout the
       examination process (i.e., in the exit
       conference, Report of Examination, and
       board presentation.

▪      The examiner in charge was new and did a very limited exit conference. Later other
       issues arose that had not been discussed with management in the exit conference.
▪      The report will be presented to the board on [date]. We did not meet in [month] due to
       attending the [Institution] Annual Meeting.
▪      The presentation to the Board conveyed more concern than the Exit Conference indicated.
▪      FCA, especially [examiner] was respectful, open and worked with much effort to be
       consistent and accurate.
▪      Improvement in consistency noted from previous exams.
▪      Total number of Directors responding—8.
▪      Examiners used concise and consistent communications throughout the process.

Comments in brackets are added by the OIG to clarify or keep anonymity.                                   8
                   Question                        Completely Agree       Completely Disagree   Average
                                                     1        2       3          4       5
    7. The examiners’ interpretation of the
                                                    19       26       6          2       1       1.9
       status, regulations, and other guidance
       was consistent with previous

▪     There were some inconsistencies with examiners and information given in previous
▪     The E-Commerce and affirmative action parts of the examination were rather new ground
      for our Board. Our Association’s interpretation of the E-Commerce regulations differed
      from those of the examiners.
▪     Seemed like far reaching interpretation of YBS reg—hopefully FCA will balance the
      regulatory perfect world with YBS.
▪     There has been a dramatic shift in interpretation of scope of financing/eligibility since our
      previous examination. The matter was referred to McLean and we were presented with a
      response on [date] during the examination presentation. We were surprised by and
      deeply concerned with the handling of this issue. Our concern was somewhat mitigated
      by the receipt of a revised letter from [examiner].
▪     Total number of Directors responding—8.
▪     No changes for YBS & data integrity.
▪     Emphasis on YBS issues has increased significantly over past three examinations.
▪     Scope and eligibility issues appear to be unclear.
▪     The exam surfaced new questions that have been reviewed in the past without comment
      (e.g. EEO and Director and Employee Standard of Conduct policies.)
▪     Exam identified one minor exception not noted in prior exams.

                   Question                        Completely Agree       Completely Disagree   Average
                                                     1        2       3          4       5
    8. The examination team acted
                                                    44       10       0          0       0       1.2
       courteously and professionally.

▪     With the exception of one examiner. The others acted courteously and professionally. In
      the case of one examiner, concerns were surfaced to the examiner-in-charge.

Comments in brackets are added by the OIG to clarify or keep anonymity.                                   9
                   Question                         Completely Agree       Completely Disagree   Average
                                                      1        2       3          4       5
    9. The examiner’s recommendations for
                                                     20       26       5          2       0       1.8
       corrective actions were reasonable and
       consistent with FCA’s role as an arm’s
       length regulator.

▪     There were no recommendations for corrective action.
▪     Some findings are believed to be non-risk-bearing items to the ACA.
▪     The Board felt the corrective measures were excessive, but FCA did present an
▪     No corrective actions were necessary.
▪     All if fine here—this examiner was particularly analytical with policy. This was
      substantiated by comparing required and recommended actions.
▪     Improvement noted since previous exams in the relevancy of the requirements and
      recommendations vs. the deficiencies noted.
▪     Total number of Directors responding—8.
▪     Asked for quarterly YBS report. Board happy with analysis.
▪     Examination generally focuses on safety and soundness issues (YBS is an exception.)
▪     Examiners carried out their role very well. However, increasingly they are stepping over
      the boundary of assessing safety and soundness and providing either direction or
      guidance relative to management responsibilities. Many of us like to comply to avoid
      future difficulties… but it is starting to infringe on directors responsibilities to govern and
      guide independently.

Comments in brackets are added by the OIG to clarify or keep anonymity.                                    10
                     Question                       Completely Agree       Completely Disagree   Average
                                                      1        2       3          4       5
    10. The examiners conducted examination
                                                     29       18       6          1       0       1.6
         and monitoring activities without undue
         interference with the operation of the
         institution, including the extent of
         information requested during these

▪       It expedited the on site review and was very helpful that copies of certain information was
        requested before the on site examination began. Likewise, it was very helpful that we
        received a list of items to have available before the examiners arrived.
▪       Many on site requests were duplications of previously furnished information.
▪       Due to our “cut-off” we have to provide the Regulator with three months of operating
        reports versus the normal two months of reports simply due to the selected review period.
        Also, we provided complete packages of all information prior to the on-site visit and
        continue to re-develop this information and re-provide it several times to various
        examiners during the course of the examination. If all examiners were provided with
        complete packages at the start of the review, hopefully this duplication and triplication
        could be avoided.
▪       During the last three years reviewers have visited several branches which is disruptive
        and unnecessary.
▪       Significant staff time commitment while review team is in the office.
▪       A more thorough list of loan files needed up front would have been less disruptive to the
        Association. Files needed for compliance and denials could have been requested at the
        outset of the exam with other files. This would have saved some additional trips between
        branches and headquarters by the Association personnel. Additionally, there seemed to
        be no one designated as the “second in command” on days when the EIC was not on-site.
        This resulted in some confusion and distraction.
▪       Total number of Directors responding—8.
▪       Most of the items identified are already know to board and management with strategies
        and action plans to correct implemented.
▪       Very courteous and professional.
▪       The exam team is experienced and professional. Industry practices were used to obtain

Comments in brackets are added by the OIG to clarify or keep anonymity.                                    11
                      Question                        Completely Agree       Completely Disagree   Average
                                                        1        2       3          4       5
    11. The board and management believe the
                                                       18       23       10         2       0       1.9
        findings of the examination will assist (or
        have assisted) the institution in
        correcting identified weaknesses.

▪       There were no identified weaknesses.
▪       Possibly more specific direction is needed in the area of E-commerce.
▪       Positive board and management response to the audit.
▪       The Association has already amended its Business Plan to incorporate FCA’s findings.
▪       Total number of Directors responding—8.
▪       Not what so ever.
▪       The Board and management work hard to identify any problems or issues well in advance
        of them becoming safety or soundness issues, but always value the input and
        observations of the exam team.

Comments in brackets are added by the OIG to clarify or keep anonymity.                                      12
                                                                                     Appendix II

                              FARM CREDIT SYSTEM SURVEY
                                 WRITTEN RESPONSES
                                   FISCAL YEAR 2003


12a. What aspects of the examination did you find most beneficial?

▪    Renewed focus in compliance area.
▪    Even though there were no identified weaknesses, the examination was very thorough
     and it was helpful to jointly consider and discuss the operation of [Institution] from the
     safety and soundness perspective of FCA.
▪    Communication between examiner-in-charge and senior management.
▪    Frank discussion of issues concerning [Institution], i.e. portfolio management and credit
     quality. Well prepared summary of evaluation.
▪    Verbal comparisons to peer organizations. Charts and graphs.
▪    Internal controls and credit administration.
▪    Open communication with examiners and management (FCA).
▪    Close out of Board meeting. a) Good communication between ACA management and the
     review team, b) Internal control evaluation, c) Loan portfolio management evaluation, d)
     Risk identification and management evaluation.
▪    Interaction with the Board both at the examination exit conference and the final formal
     presentation. Finding related to credit quality, earnings, and capital.
▪    The review and indication of improvement in the YBS portfolio; Business plan
     recommendations; the identification of the strengths and weaknesses of the Association
     and the recommendations for correction; being granted a C.A.M.E.L.S. rating of #1; the
     discussion on participation loans; it is beneficial to receive a second opinion on credit
     applications. A good examination is like a good insurance policy-we endorse the
     examination process.
▪    E-commerce issues. Validation of credit quality & process.
▪    Pre audit discussion with FCA, Subsid. Presidents & Board Chairman and Vice Chairman.
     On site discussion with audit [team]. FCA closeout w/Exec Bd. Member.
▪    The relevancy of required actions.
▪    Discussions on capital, allowance, concentration risks, and asset quality.
▪    Continued monitoring of AgBusiness, participation and YBS loans. Confirmation that
     [program] business efforts and results are adequate and correctly focused.
     Recommendation for trends reporting and more comprehensive portfolio monitoring.

Comments in brackets are added by the OIG to clarify or keep anonymity.                           13
▪    e-commerce regulations, YBS report.
▪    Credit and financial.
▪    The opportunity to have an "entrance meeting" with the examiners to discuss significant
     events and policy changes since the previous exam. This results in all of the examiners
     having a good understanding of the status and trends of significant issues at the outset of
     the exam, eliminating a lot of questions later. Additionally, the ability of the examiners to
     accept electronic files containing requested data vs. hard copies.
▪    With the exception of scope of financing issue validation that we’re on the right track.
▪    Whenever an examiner recommend changing a rating on a loan, sometimes the examiner
     is right or wrong, but the discussion provides reflection which is beneficial. - submitted by
▪    Second opinion on the condition of the association.
▪    The statistical information spreadsheets and reasonable recommendations.
▪    Ongoing discussions about examination areas.
▪    The review team did a good job conveying their expectations well before the review,
     during and after. [Examiner] and [examiner] did an admirable job.
▪    Guidance concerning earnings and capital challenges being faced by the Association.
▪    It is always helpful to have a third party view of operations. The exam team, in the past
     two exams, have been more open to make suggestions for enhancement in operations
     areas rather than simply finding areas of disagreement.
▪    Good communication throughout the exam process.
▪    portfolio, financial.
▪    Brief, concise report. Close-out discussion and final report were consistent.
▪    Dialogue with exam team. Opportunity to provide input on issues they found.
▪    Report was concise and discussion with board and management was direct and well
▪    The role of the agency plays in helping achieve consistency in credit classification from
     institution to institution around the country. This continues to provide confidence in the
     investor world, in congress and with others that are interested in the health of the system.
▪    Outside review of our policies, procedures, controls, etc.
▪    Most beneficial is the ability with an examiner, on the ground, and in real time.
▪    Discussion regarding various means of keeping Association earnings at a satisfactory
▪    Reported areas which needed improvement; Provided assurance that the Association was
▪    The open and candid fashion in which FCA worked with us during the process was helpful
     – particularly given the fact that we were working through a merger during ‘02.

Comments in brackets are added by the OIG to clarify or keep anonymity.                              14

12b. What aspects of the examination did you find least beneficial?

▪    YBS focus.
▪    None [from 6 separate responses].
▪    Emphasis on Young Beginning Small Farmer Program.
▪    Exam focus is moving away from safety and soundness issues toward management and
     “social policy.” That should not be the role of a regulator.
▪    Web based e-commerce aspect of the exam.
▪    I guess it is amount of time the association staff must devote to the exam.
▪    Excessive time and effort spent on E-commerce and YBS program.
▪    Inclusion of minor compliance infractions in the examination report.
▪    FCA should exercise it’s role as an arms length regulator and not get involved in
▪    The examiners were asked to provide examples of E-commerce activity that presented
     risk to our Association but were unable to respond to the question. The level of E-
     commerce concern seemed a bit overdone when far greater technology issues need to be
     addressed at the AgriBank level.
▪    Examiners seem reluctant to use their own judgment when interpreting regulations.
▪    Excessive time and resources devoted to YBS issues given the associations level of
▪    Occasionally - the narrow focus of quantity--misses the qualitative assessment of what
     happened. One example is the YBS assessment which was silent on bold & creative
     efforts w/YBS farmer. The same was silent largely on the new [association] structure.
▪    None – The time needed (and effort) to respond to FCA’s identified weaknesses is
     considered by this Association to be constructive.
▪    Comments, discussions concerning YBS and the Association's Public Mission seem to be
     over-done. We are well aware of the political implications involved. Safety and
     soundness should be the primary issues. Also, FCA staff spending time and money to
     present a clean report to a board is a waste, especially when the findings have been
     presented and discussed with a Board Audit Committee.
▪    Additional requests for file folders after the initially requested folders had already been
     transported to the headquarters office.
▪    Comments and extent of effort on YBS program. Change in FCA interpretation of what
     constitutes an eligible loan and lack of consistency from the past several examinations.
▪    I don't think that there is a lender in our area that is doing more for the young, beginning or
     small farmer, but we are constantly pressured as if we aren't doing near enough. Wrong
     focus - submitted by a director.
▪    Most of the findings are already known by board and management.

Comments in brackets are added by the OIG to clarify or keep anonymity.                            15
▪    Some of the YBS areas. We know we have always done a great deal here. But, also
     recognize the need to tabulate and report on our efforts.
▪    Some of the comments/suggestions related to our Young, Beginning, and Small Farmer
     program and activities tend to put more emphasis on reporting than on results.
▪    The most recent examinations spent an "inordinate" amount of time and energy on YBS.
     We fully understand the importance of YBS and we will stack our results up against
     anyone in the country. But the amount of time and questioning devoted to this one issue
     was way overboard!
▪    YBS, database.
▪    The exam concentrated too much on YBS issues.
▪    All aspects were beneficial. We noted that exam organization and coordination was
     improved over last year. We appreciate attention to this.
▪    The tendency of the review team to broaden the scope of exams to non-safety and
     soundness issues. It is costly and non-productive to have exam teams critiquing
     management and board decisions and reporting philosophies especially when the
     institution is strong.
▪    The emphasis on continued reinforcement of the Association's commitment to serve YBS
     farmers and ranchers when we are excelling in this area.

Comments in brackets are added by the OIG to clarify or keep anonymity.                        16

    24. If you have other comments about the report of examination or the examination process
        or experience, please enter them here.

▪       The exam crew was very professional.
▪       We received a modified off site examination, with a smaller review team and only one
        week spent on site. It is our opinion that the examination was adequate given the
        condition, performance, and rating of the institution.
▪       FCA staff was very professional and completed the exam with little or no disruption to the
        association daily work. Good exam team.
▪       [One comment reported an issue with submitting a response online because the
        examination was not “as of” a month end.]
▪       We had a good presentation to the board by [examiner] and [examiner]. Both were
        professional and in particular, [examiner] handled herself well when pressed by board
        members on issues. They are both to be commended.
▪       The examination team of [examiner], [examiner], [examiner] and [examiner] were a
        pleasure to have here. All were very professional, polite, friendly and most helpful with
        their recommendations. They were always ready and willing to answer any questions we
        might have and offer advice when requested to do so. It was a pleasure working with
▪       The examination team was very professional.
▪       The Examination process is inefficient! The focus should be on safety and soundness
        issues. The examination team have too many blanks to check and therefore spend more
        time on the papers than the real issues they should be studying. The time involved in an
        exam could be easily reduced by 25% and probably more. The knowledge level of some
        examiners should match the area they are examining and this is not always apparent.

Comments in brackets are added by the OIG to clarify or keep anonymity.                              17
                                                                                                                       Appendix III

                                                EXAMINED DURING FY 2003

                                                 Questions Applicable To All Institutions

        Question       Completely Agree      Agree             Neither       Disagree     Completely Disagree    Total     Average
                             (1)               (2)               (3)            (4)               (5)          Answered   Response
                       Number    Percent Number Percent    Number Percent Number Percent Number       Percent
     Question 1             21 38.18%        29 52.73%          3     5.45%    2    3.64%        0       0.00%         55       1.7
     Question 2*            23 43.40%        29 54.72%          1     1.89%    0    0.00%        0       0.00%         53       1.6
     Question 3**           25 46.30%        25 46.30%          3     5.56%    1    1.85%        0       0.00%         54       1.5
     Question 4**           30 55.68%        23 42.59%          1     1.85%    0    0.00%        0       0.00%         54       1.5
     Question 5*            35 66.04%        15 28.30%          3     5.66%    0    0.00%        0       0.00%         53       1.4
     Question 6**           30 55.56%        21 38.89%          2     3.70%    0    0.00%        1       1.85%         54       1.5
     Question 7**           19 35.19%        26 48.15%          6 11.11%       2    3.70%        1       1.85%         54       1.9
     Question 8**           44 81.48%        10 18.52%          0     0.00%    0    0.00%        0       0.00%         54       1.2
     Question 9*            20 37.74%        26 49.06%          5     9.43%    2    3.77%        0       0.00%         53       1.8
     Question 10**          29 53.70%        18 33.33%          6 11.11%       1    1.85%        0       0.00%         54       1.6
     Question 11*           18 33.96%        23 43.40%         10 18.87%       2    3.77%        0       0.00%         53       1.9
     Total Responses       294 49.75%       245 41.46%         40     6.77%   10    1.69%        2       0.34%       591        1.6

                                  Questions Applicable to Institutions Under Enforcement Actions

     There were no institutions under enforcement actions that responded to the survey this year.
     Total Number of Surveys Sent to Institutions:            101

     Total Number of Surveys Received From Institutions:      55
                                                                            Appendix IV
                 for Fiscal Years 2000, 2001, 2002 and 2003

            FY 03 Annual       FY 02 Annual           FY 01 Annual      FY 00 Annual
Question      Average of         Average of             Average of        Average of
           55 Respondents     77 Respondents         59 Respondents    79 Respondents

  #1              1.7                  1.58                1.66              1.46

  #2              1.6                  1.43                1.58              1.39

  #3              1.6                  1.65                1.66             1.56**

  #4              1.5                  1.38                1.54              1.42

  #5              1.4                  1.32                1.53              1.42

  #6              1.5                  1.53                1.69              1.48

  #7              1.9                  1.66                1.71              1.53

  #8             1.2*                  1.14*              1.20*              1.15*

  #9              1.8              1.78**                  1.78             1.56**

  #10             1.6                  1.39                1.53              1.41

  #11            1.9**                 1.70               1.82**             1.48

Average           1.6                  1.51                1.61              1.44

   * best overall individual average           ** worst overall individual average

                                                                                                                       Appendix V

                                                            Farm Credit System Annual Survey
                                               Average of Overall Resposnes to Questions 1-11 By Fiscal Year



              Average Response




                                       FY 97   FY 98        FY 99          FY 00         FY 01     FY 02       FY 03
     Average Response                  1.87     1.82         1.67           1.44          1.61      1.51        1.6
                                                              Fiscal Year and Average Response





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