oversight

FY 2010 Audit of FCA's Financial Statements

Published by the Farm Credit Administration, Office of Inspector General on 2010-11-08.

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 2010




                              November 2010


                                  TABLE OF CONTENTS


Inspector General’s Transmittal Letter of Auditor’s Report………………………………. 1

Auditor’s Opinion Letter on the Financial Statements……………………………………. 4

Auditor’s Opinion Letter on Internal Control..……………………………………………… 5

Auditor’s Opinion Letter on Compliance with
     Certain Laws and Regulations………………………………………………………… 6




For the financial statements and related notes to each fiscal year’s financial audit reports, 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 8, 2010


The Honorable Leland A. Strom, Chairman and Chief Executive Officer
The Honorable Kenneth A. Spearman, Board Member
The Honorable Jill Long Thompson, Board Member
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Chairman Strom and Board Members Spearman and Long Thompson:

This letter transmits the reports on the audit of the Farm Credit Administration’s (FCA’s or
Agency’s) financial statements, internal control over financial reporting, and compliance with
certain laws and regulations for the fiscal year (FY) ended September 30, 2010. 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. It opined that
FCA’s principal financial statements present fairly, in all material respects, the financial position
of the Agency as of the fiscal years ended September 30, 2010 and 2009, 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 its reports.
All three reports from Brown & Co. are dated November 8, 2010.

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.” 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 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, although very recently this deterioration seems to have stabilized. The
Agency’s challenge is to continue to ensure the System’s ability to withstand such
vulnerabilities in the long term and to 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
that the FCS fulfills its public policy purpose.

                                 Farm Credit Administration

Agricultural Economic Downturn
Several factors have caused deterioration in a number of FCS institutions in recent years. This
deterioration and the effect these factors have on the ongoing condition of the FCS continue to
warrant the careful attention of FCA. Some of these factors are

 •		 inadequate oversight and management by institution boards and management teams,
     respectively;
 •		 price volatility in several major commodity groups, such as feed grains;
 •		 volatility in livestock operations as a result of swings in feed prices;
 •		 continued risk concentrations in large shared assets among many FCS institutions; and
 •		 escalated land values that may not be sustainable.

Thus, a challenge for the Agency is to continue to assess in a timely manner economic and
operational conditions affecting the welfare of System institutions, and to take prompt
preemptive or remedial actions to ensure their ongoing safety and soundness.
                                                                                                 3





Strategic Planning
In accordance with the Government Performance and Results Act, the FCA Board issued in
May 2008 a revised six-year strategic plan for FYs 2008–2013. Since that issuance, the FCA
Board has acquired a new Chairman and two new FCA Board Members. The Agency’s
Strategic Planning Committee is currently working with the FCA Board and senior staff to
ensure the issuance by the FCA Board of a revised six-year strategic plan covering
FYs 2011–2016. The challenge for the Agency is to ensure that the current FCA Board’s vision
and leadership are incorporated into the revised strategic plan and that the plan is issued in a
timely manner.

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 to improve Agency operations. Over the past few years, the Agency made significant
investments in new technologies and began implementing several tools to 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 build business intelligence to provide decision makers
     with timely management information;
 •		 develop electronic recordkeeping and knowledge management capability for capturing,
     maintaining, and sharing institutional knowledge; and
 •		 protect FCA information systems and data from increasing external and internal threats.

Respectfully,



Carl A. Clinefelter
Inspector General
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                      CERI'IFIED PUBLIC ACCOUNTANTS AND MANAGEMENT CONSULTANTS
                                                                                                                  4




              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, 2010 and 2009, 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 audits 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 believe that our audit
    provides a reasonable basis for our opinion.

    In our opinion, the fmancial statements referred to above present fairly, in all material respects, the
    financial position of the FCA as of September 30, 2010 and 2009 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 reports dated November 8,2010 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~a~d~
    November 8, 2010
                     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
             roail@brownco-cpas.com                                            tdavis@brownco-cpas.com
                                                                                                                   5

            ~=====JBW:>WN& COMPANY CPAs, PLLC============3~
                   CERTIFIED 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 Credit Administration (FCA) as of and for the year
ended September 30, 2010 and have issued our report thereon dated November 8, 2010. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America; 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.

In planning and performing our audit, we considered the FCA's internal control over financial reporting
by obtaining an uoderstanding 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 fmancial reporting that might be a material weakness or significant
deficiency. Under standards issued by the American Institute of Certified Public Accouotants and OMB
Bulletin No. 07-04, a material weakness is a deficiency, or combination of deficiencies, in internal
control, such that there is a reasonable possibility that a material misstatement of the entity's fmancial
statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a
deficiency in internal control, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit attention by those charged with governance. 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 a material weakness as defined above.

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 8, 2010




                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@browncowcpas.com                                                 tdavis@brownco-cpas.com
                                                                                                             6


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




                            INDEPENDENT AUDITOR'S REPORT ON 

                         COMPLIANCE WITH LAWS AND REGULATIONS 



Fann Credit Administration
The Board and Office of Inspector General

We have audited the financial statements of the Fann Credit Administration (FCA) as of and for the year
ended September 30,2010, and have issued our report thereon dated November 8, 2010. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America; 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.

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 perfonned tests of its compliance with certain 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 laws and
regulations discussed in the preceding paragraph that are required to be reported under Us. Government
Auditing Standards or OMB Bulletin No. 07-04.

Providing an opinion on compliance with certain provisions of laws and regulations 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 infonnation 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.


Lar~l~~
November 8, 2010




                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
         mai1@brownco-cpas,com                                            tdavis@brownco-cpas.com
        R E P O R T 

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         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