oversight

FY 2009

Published by the Farm Credit Administration, Office of Inspector General on 2009-11-04.

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

Office of
Inspector General


        Audit of FCA’s Financial Statements
                           Fiscal Year 2009




                               November 2009
                                    TABLE OF CONTENTS




Inspector General’s Transmittal Letter of Auditor’s Report ________________________ 1

Auditor’s Opinion Letter on the Financial Statements ____________________________ 5

Auditor’s Opinion Letter on Internal Control ____________________________________ 6

Auditor’s Opinion Letter on Compliance with
Certain Laws and Regulations _______________________________________________ 7




For the financial statements and related notes to each fiscal year’s financial audit report, refer to
FCA’s Performance and Accountability Report (PAR) for that year. The PARs can be found at
www.fca.gov/reports/performance_reports.html.
Farm Credit Administration                                       Office of Inspector General
                                                                 1501 Farm Credit Drive
                                                                 McLean, VA 22102-5090
                                                                 (703) 883-4030




November 4, 2009


The Honorable Leland A. Strom
Chairman of the Board
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Chairman Strom:

This letter transmits the report on the audit of the Farm Credit Administration’s (FCA or Agency)
financial statements, internal control over financial reporting, and compliance with certain laws
and regulations for the fiscal year (FY) ended September 30, 2009. The Office of Inspector
General (OIG) contracted with the U.S. Department of Treasury’s Bureau of the Public Debt
(BPD) for Brown & Company CPAs, PLLC (Brown & Co.), an independent accounting firm, to
perform the audit.

Brown & Co. issued an unqualified opinion on the Agency’s financial statements. They opined
that FCA’s principal financial statements present fairly, in all material respects, the financial
position of the Agency as of the FYs ended September 30, 2009 and 2008, in conformity with
generally accepted accounting principles. Brown & Co. issued two other reports. Its report on
internal control noted no matters considered to be material weaknesses. Brown & Co.’s report
on compliance with laws and regulations relating to the Agency’s determination of financial
statement amounts cited no instances of noncompliance. In the OIG’s opinion, Brown & Co.’s
work provides a reasonable basis on which to render its opinion and we concur with their
reports.

The OIG’s contract with BPD required that Brown & Co. perform the audit in accordance with
“Government Auditing Standards” issued by the Comptroller General of the United States and
Office of Management and Budget Bulletin No. 07-04, “Audit Requirements for Federal Financial
Statements, as amended.” To ensure the quality of the work performed, the OIG:

   •   reviewed Brown & Co.’s approach to and planning of the audit;
   •   evaluated the qualifications and independence of the auditors;
   •   monitored the progress of the audit;
   •   examined work papers; and
   •   reviewed the audit reports.
                                                                                             2




                        Management and Performance Challenges

As part of the Agency’s annual Performance and Accountability Report, the Inspector General is
required by law to provide a summary statement on the most serious management and
performance challenges facing the Agency. These challenges fall into two general categories.
First are the challenges related to the FCA’s mandate of ensuring a safe, sound, and
dependable Farm Credit System (FCS or System) as a source of credit and related services to
agriculture and rural America. Some of these challenges may be influenced by events that are
outside the control of the Agency. Second, but no less important, are the challenges related to
Agency operations.

                                    Farm Credit System

Safety and Soundness

The System is a lender to a single industry, agriculture, and is therefore vulnerable to the
economic volatility and risks in that industry. While the FCS remains generally safe and sound,
recent adversity in several major commodity groups has caused deterioration in a number of
FCS institutions. The Agency’s challenge is to continue to ensure the System’s ability to
withstand such vulnerabilities in the long-term, and remain safe and sound.

Mission

Further, the environment facing agriculture, rural America, and the institutions of the FCS is
ever-changing, presenting new opportunities and altering historical perspectives on System
operations. FCA’s challenge is to continue to maintain an independent and objective, yet
flexible and responsive, regulatory environment for the System, geared to continually ensuring
the FCS fulfills its public policy purpose.

                                 Farm Credit Administration

Agricultural Economic Downturn

There are many factors in agriculture today that have caused deterioration in a number of FCS
institutions and may cause increased stress for FCS institutions. For example,
   •   the System has experienced rapid growth for several years, which has had the effect of
       eroding the System’s capital to assets ratio;
   •   large shared assets among many System institutions are experiencing serious difficulty;
   •   several major commodity groups are experiencing extreme stress;
   •   asset quality at many associations and several Farm Credit banks has deteriorated; and
   •   land values, which may not be sustainable, are high.

Thus, a challenge for the Agency is to ensure its ongoing ability to timely assess economic and
operational conditions affecting the welfare of System institutions, and to take preemptive or
remedial actions to ensure the ongoing safety and soundness of the System. The first line of
preparedness for the Agency in accomplishing this is an effective examination and risk
assessment program.
                                                                                                 3




Aligned with this is the challenge for the Agency to effectively and timely utilize its enforcement
authorities. When significant deterioration in a System institution(s) is first evident, the Agency
should expeditiously consider implementing appropriate rehabilitative enforcement measures.

Agency Governance

In early FY 2010, the FCA Board will likely receive two new members, filling out the FCA
Board’s statutory three-person complement. Two new members at virtually the same time
imposes on the Chairman and Agency staff the need to ensure an environment in which new
members may quickly learn their duties and responsibilities, and the mission and functioning of
the Agency and the System. In recognizing this need, the Agency has taken initial steps toward
an orientation and training program. However, the challenge for the Agency is to formalize and
institutionalize an effective orientation and ongoing training program for FCA Board members.
This should enable FCA Board members to readily become knowledgeable about Agency and
System operations and issues, and be able to properly focus Agency resources through, for
example, the strategic planning mechanism.

Strategic Planning

Since the adoption of the FYs 2008-2013 strategic plan in May 2008, the FCA Board has a new
Chairman. This change in leadership and the probability of two new FCA Board Members in FY
2010 will provide an opportunity and a challenge to ensure the new FCA Board’s vision is
timely incorporated into the next strategic plan.

In 2005, the FCA Board established a Strategic Planning Committee (SPC) composed of
Agency staff to facilitate FCA Board input into the plan and the planning process. The SPC
should ensure the updating and issuance by the FCA Board of the next 6-year strategic plan in
FY 2011 covering FYs 2011-2016.

Human Capital

In 2006, a 5-year strategic human capital plan was completed spanning FYs 2007-2011. The
Agency has adopted a strategy of annually updating the plan, resulting in a moving 5-year plan.
The plan is comprehensive and, because of the ongoing updating, reflective of current human
capital issues facing the Agency. For example, in addressing the attrition of seasoned staff, the
Agency has been actively recruiting and hiring at both the entry- and midcareer-levels,
particularly as it pertains to ensuring the ongoing capability of examination staff. FCA’s
challenge is to continue to emphasize, implement, and update the human capital plan to ensure
FCA has the staff it needs to effectively regulate a constantly evolving FCS, as managing
human capital is an ever-present and evolving necessity. This is particularly important as it
applies to the training and commissioning program for newly hired entry- and midcareer-level
examination staff.

Leveraging Technology

The Agency’s ability to leverage investments in new technologies is a key element in
management’s efforts to continually improve Agency performance by increasing the efficiency
and effectiveness of operations. The Agency has an active information resource management
planning process that identifies, reviews, and prioritizes new information technology (IT)
initiatives that will improve Agency operations. Over the past couple of years, the Agency made
                                                                                                 4




significant investments in new technologies and began implementing several tools that improve
communication, collaboration, and efficiency of operations. FCA’s challenge is to take full
advantage of the new capabilities the IT infrastructure provides. The successful implementation
of new technologies will provide FCA staff with the IT tools and skills that will enable the Agency
to:

   •   improve the quality and availability of data without creating an undue burden on the
       FCS;
   •   streamline business processes and enhance communication and collaboration to
       improve the effectiveness of how FCA interacts with the FCS, the public, and business
       partners;
   •   build business intelligence that will provide decision makers with timely management
       information;
   •   develop an electronic recordkeeping and knowledge management capability that
       effectively manages electronic data, documents, and reports; and
   •   protect FCA information systems and data from increasing external and internal threats.


Respectfully,



Carl A. Clinefelter
Inspector General
                                                                                                              5



~~~~==== BROWN & COMPANY CPAs, PLLC= = = = = = =.
                    CERfIFIED PUBLIC ACCOUNTANTS AND MANAGEMENT CONSULTANTS

            INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS


  Farm Credit Administration
  The Board and Office of Inspector General

  We have audited the accompanying balance sheet of the Farm Credit Administration (FCA) as of
  September 30, 2009 and 2008, and the related statements of net cost, changes in net position, and
  budgetary resources, for the years then ended (collectively referred to as the financial statements). These
  financial statements are the responsibility of FCA's management. Our responsibility is to express an
  opinion on these financial statements based on our audit.

  We conducted our audit in accordance with auditing standards generally accepted in the United States of
  America and the standards applicable to financial audits contained in Us. Government Auditing
  Standards, issued by the Comptroller General of the United States; and, Office of Management and
  Budget (OMB) Bulletin No. 07-04, Audit Requirements for Federal Financial Statements. Those
  standards and OMB Bulletin No. 07-04 require that we plan and perform the audit to obtain reasonable
  assurance about whether the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
  An audit also includes assessing the accounting principles used and significant estimates made by
  management, as well as evaluating the overall financial statement presentation. We bel ieve that our audit
  provides a reasonable basis for our opinion.

  In our opinion , the financial statements referred to above present fairly, in all material respects, the
  financial position of the FCA as of September 30, 2009 and 2008 and its net costs, changes in net
  position, and budgetary resources for the years then ended in conformity with accounting principles
  generally accepted in the United States of America.

  In accordance with Us. Government Auditing Standards and OMB Bulletin No. 07-04, we have also
  issued a repOli dated November 4, 2009 on our consideration of the FCA internal control over financial
  reporting and its compliance with provisions of laws and regulations. Those reports are an integral part of
  an audit performed in accordance with Us. Government Auditing Standards and should be read in
  conjunction with this report in considering the results of our audit.

  The FCA ' s Management's Discussion & Analysis contains a wide range of information, some of which is
  not directly related to the financial statements. We do not express an opinion on this information.
  However, we compared this information for consistency with the financial statements and discussed the
  methods of measurement and presentation with FCA officials. Based on this limited work, we found no
  material inconsistencies with the financial statements, U.S. generally accepted accounting principles, or
  OMB guidance.

  This report is intended solely for the information and use of the management of the FCA, the Office of
  Inspector General of FCA, OMB and Congress, and is not intended to be and should not be used by
  anyone other than these specified parties .

    ~~~
  Largo, Maryland
  November 4, 2009

                 LARGO                                                           RICHMOND 

  1101 MERCANTILE LANE , SUITE 122                                   1504 SANTA ROSA ROAD, SUITE 107 

            LARGO, MD 20774                                                 RICHMOND, VA 23229 

   (240) 492-1400 • FAX: (301) 773-2090                              (804) 288-2006 • FAX: (804) 288-2233 

         mail @ brow nco-cpas.com                                          tdavis@brownco-caps .com 

                                                                                                                 6


           •
~~~~==== BROWN & COMPANY CPAs, PLLC= = = = = = =.
                    CERrIFIED PUBLIC ACCOUNTANTS AND MANAGEMENT CONSULTANTS



                              INDEPENDENT AUDITOR'S REPORT 

                      ON INTERNAL CONTROL OVER FINANCIAL REPORTING 




  Farm Credit Administration
  The Board and Office of Inspector General

  We have audited the financial statements of the Farm Cred it Administration (FCA) as of and for the year
  ended September 30, 2009 and have issued our report thereon dated November 4, 2009. We conducted
  our audit in accordance with auditing standards generally accepted in the United States of America; and
  the standards applicable to financial audits contained in Us. Government Auditing Standards, issued by
  the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No.
  07-04, Audit Requirementsfor Federal Financial Statements.

  In planning and performing our audit, we considered the FCNs internal control over financial reporting
  by obtaining an understanding of the FCA ' s internal control, determined whether internal controls had
  been placed in operation, assessed control risk, and performed tests of controls in order to determine our
  auditing procedures for the purpose of expressing our opinion on the financial statements. We limited our
  internal control testing to those controls necessary to achieve the objectives described in OMB Bulletin
  No. 07-04. The objective of our audit was not to provide an opinion on internal control and therefore, we
  do not express an opinion on internal control.

  Our consideration of the internal control over financial reporting would not necessarily disclose all
  matters in the internal control over financial reporting that might be sign ificant deficiencies. Under
  standards issued by the American Institute ofCel1ified Public Accountants and OMB Bulletin No. 07-04,
  a significant deficiency is a deficiency in internal control, or a combination of deficiencies, that adversely
  affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in
  accordance with generally accepted accounting principles such that there is more than a remote likelihood
  that a misstatement of the entity's financial statements that is more than inconsequential will not be
  prevented or detected . Our consideration of the internal control over financial reporting would not
  necessarily disclose all matters in the internal control over financial repol1ing that might be a material
  weakness. A material weakness is a significant deficiency, or combination of significant deficiencies,
  that result in a more than remote likelihood that a material misstatement of the financial statements will
  not be prevented or detected. Because of inherent limitations in internal controls, misstatements, losses,
  or non-compliance may nevertheless occur and not be detected. However, we noted no matters involving
  the internal control and its operation that we considered to be significant deficiencies or material
  weaknesses as defined above.

  This repol1 is intended solely for the information and use of the management of the FCA, the Office of
  Inspector General of FCA, OMB and Congress, and is not intended to be and should not be used by
  anyone other than these specified pal1ies .

    ~~~
  Largo, Maryland
  November 4, 2009


                 LARGO                                                               RICHMOND 

  1101 MERCANTILE LANE, SUITE 122                                      1504 SANTA ROSA ROAD, SUITE 107 

            LARGO, MD 20774                                                    RICHMOND, VA 23229 

   (240) 492 ·1400 • FAX: (301) 773·2090                                (804) 288-2006 • FAX: (804) 288-2233 

          mail @brownco·cpas.com                                              tdavis @brownco-caps.com 

                                                                                                                7



ifi~e::~======= BROWN & COMPANY CPAs, PLLC==========.
                   CERTIFIED PUBLIC ACCOUNTANTS AND MANAGEMENT CONSULTANTS




                               INDEPENDENT AUDITOR'S REPORT ON 

                            COMPLIANCE WITH LAWS AND REGULATIONS 




  Farm Credit Administration
  The Board and Office of Inspector General

  We have audited the financial statements of the Farm Credit Administration (FCA) as of and for the year
  ended September 30, 2009, and have issued our report thereon dated November 4, 2009. We conducted
  our audit in accordance with auditing standards generally accepted in the United States of America, and
  the standards applicable to financial audits contained inu.s.Government Auditing Standards, issued by
  the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No.
  07-04, Audit Requirementsjor Federal Financial Statements.

  The management of the FCA is responsible for complying with laws and regulations applicable to the
  FCA. As part of obtaining reasonable assurance about whether the FCA's financial statements are free of
  material misstatement, we performed tests of its compliance with celi ain provisions of laws and
  regulations, noncompliance with which could have a direct and material effect on the determination of
  financial statement amounts, and certain other laws and regulations specified in OMB Bulletin No. 07-04.
  We limited our tests of compliance to these provisions and we did not test compliance with all laws and
  regulations applicable to the FCA.

  The results of our tests of compliance disclosed no reportable instances of noncompliance with other laws
  and regulations discussed in the preceding paragraph that are required to be repolied under                  u.s.
  Government Auditing Standards or OMB Bulletin No. 07-04 .

  Providing an opinion on compliance with certain provisions of laws and regu lations was not an objective
  of our audit, and , accordingly, we do not express such an opinion. However, we noted no noncompliance
  with laws and regulations, which could have a direct and material effect on the determination of financial
  statement amounts .

  This report is intended solely for the information and use of the management of the FCA, the Office of
  Inspector General of FCA, OMB and Congress, and is not intended to be and should not be used by
  anyone other than these specified paliies.

    ~~~
  Largo, Maryland
  November 4 , 2009




                  LARGO                                                           RICHMOND 

  1101 MERCANTILE LANE, SUITE 122                                    1504 SANTA ROSA ROAD, SUITE 107 

            LARGO, MD 20774                                                  RICHMOND, VA 23229 

   (240) 492 -1400 • FAX: (301) 773-2090                              (804) 288-2006 • FAX: (804) 288-2233 

          mail @brownco-cpas .com                                           tdavis@brownco-caps.com 

        R E P O R T
Fraud   |    Waste    |   Abuse     |   Mismanagement




             FARM CREDIT ADMINISTRATION
            OFFICE OF INSPECTOR GENERAL


    • Phone: Toll Free (800) 437-7322; (703) 883-4316
    • Fax:      (703) 883-4059
    • E-mail: fca-ig-hotline@rcn.com
    • Mail:     Farm Credit Administration
                Office of Inspector General
                1501 Farm Credit Drive
                McLean, VA 22102-5090