oversight

First Quarter FY 2010 FCS Survey

Published by the Farm Credit Administration, Office of Inspector General on 2010-03-29.

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

                    First Quarter FY 2010 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_______________________________________________________________________________________________________



                                  First Quarter Fiscal Year 2010
                                 (October 1- December 31, 2009)

   Office of Inspector General’s (OIG) Survey of Farm Credit System (FCS) Institutions
                      Regarding the Agency’s Examination Function

Introduction

Based on the interface FCS institutions had with the Agency's examination function during the
period October 1, 2009 – December 31, 2009, the Office of Examination (OE) identified 14
FCS institutions that were in a position to provide meaningful survey responses.

The OIG sent surveys to those 14 institutions on January 27, 2010. All 14 institutions
responded.

The OIG will continue to provide an e-mail report to you based on each fiscal year quarter-end,
i.e., December 31, March 31, June 30, and September 30, so that you may timely take
whatever action you deem necessary to address the responses. The fourth quarter report as
of September 30 will continue to include fiscal year summary data.

The survey asks respondents to rate the nine survey statements from "1" (Completely Agree)
to "5" (Completely Disagree). The rating options are as follows:

        Completely Agree                1
        Agree                           2
        Neither Agree nor Disagree      3
        Disagree                        4
        Completely Disagree             5

There is also an available response of “6” (Does Not Apply) for each survey statement.

Narrative responses are provided verbatim, except that any identifying information has been
removed and any grammatical or punctuation errors may have been corrected. Any narrative
in “brackets” is explanatory information provided by the OIG based on communication with the
institution.

Survey Results – 1st Quarter FY 2010

The average numerical responses to survey statements 1 - 9 ranged from 1.8 to 2.1.

The average response for all survey statements was 1.9.

The majority of narrative comments to survey statements 1 - 9 were positive. However, there
were several negative or somewhat negative comments (color coded in red) that should
provide opportunities for you to refine examination methodology and communications, and
examiner training.




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                     First Quarter FY 2010 OIG Summary Report on the Survey of FCS Institutions
                                         Regarding the Examination Function
 _________________________________________________________________________________________________________


 Survey item 10a asks for feedback on the most beneficial aspects of the examination process.
 Consistent with prior quarters’ responses to this survey item, many very positive comments
 were provided about the examiners and the examination process.

 Survey item 10b asks for feedback on the least beneficial aspects of the examination process.
 These comments should also provide opportunities for you to refine examination methodology
 and communications, and examiner training.

 Survey item 11 asks for any other comments. All comments were positive.

 Responses to Survey Statements 1–9

                                        Examination Process

 Survey Statement 1:             The scope and frequency of examination activities focused on
                                 areas of risk to the institution and were appropriate for the size,
                                 complexity, and risk profile of the institution.

     Average Response:           1.8

     Comments:
             • Review was detailed and correct.
             • Don’t necessarily agree with a cookie-cutter approach to examinations for all
               institutions.
             • The examination was very appropriate considering our institution’s size and
               the economic uncertainties.

 Survey Statement 2:             The examination process helped the institution understand its
                                 authorities and comply with laws and regulations.

     Average Response:           1.9

     Comments:
             •       Examiner was helpful and effective.
             •       Our relationship with the examination team is one of complete transparency
                     and “no surprises.” Discussions with examiners help us understand agency
                     views and interpretations.


 Survey Statement 3:             The results and recommendations of the examination process
                                 covered matters of safety and soundness, and compliance with
                                 laws and regulations.

     Average Response:           1.9

     Comments:
             •       They were very timely.
             •       Some suggestions involved best practices and these suggestions will be
                     helpful.


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                     First Quarter FY 2010 OIG Summary Report on the Survey of FCS Institutions
                                         Regarding the Examination Function
 _________________________________________________________________________________________________________



 Survey Statement 4:             Examiners were knowledgeable and appropriately applied laws,
                                 regulations, and other regulatory criteria.

     Average Response:           1.9

     Comments:
            • The 2009 examination team was much more knowledgeable than past exam
               teams.
            • Professional and detailed.
            • Vickie Cosentino and Linda Jew are experienced reviewers and know
               California agriculture. Discussions onsite and offsite have been a useful
               “value added” benefit.
            • Redundancy when FCA IT examinations cover areas we believe were
               already thoroughly covered by other expert processes, such as SOX. Also,
               IT exams seem to us to be broad-based, rather than focused on existing
               conditions and controls specific to our organization or areas of specialization.

                          Communications and Professionalism

 Survey Statement 5:             Communications between the Office of Examination staff and the
                                 institution were clear, accurate, and timely.

     Average Response:           1.9

     Comments:
             •       Very good/professional communication with EIC before, during and after the
                     onsite exam.
                 •   Our institution personnel were complimentary about the approach and follow
                     up of the examiners.
                 •   We have a very open relationship with the exam team, which we believe is
                     beneficial to both the institution and the agency. Our regular quarterly
                     meetings help us understand the agency’s upcoming areas of concern or
                     emphasis and provide us the opportunity to discuss our plans and opinions.
                 •   Communications were better than ever.


 Survey Statement 6:             Examination communications included the appropriate amount
                                 and type of information to help the board and audit committee
                                 fulfill their oversight responsibilities.

     Average Response:           1.9

     Comments:
            • Excellent presentation with good solid recommendations.
            • The written communications are clear. The face-to-face discussions are a
               good practice that helps us comply with and understand any concerns.
            • Our audit committee is very active and the communications between
               examiners and the committee were appropriate and helpful.


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                     First Quarter FY 2010 OIG Summary Report on the Survey of FCS Institutions
                                         Regarding the Examination Function
 _________________________________________________________________________________________________________




 Survey Statement 7:             The examiners were organized and efficiently conducted
                                 examination activities.

     Average Response:           2.0

     Comments:
             •       The exam team had to re-visit several loans due to initial incomplete field
                     work.
                 •   Time was well spent.
                 •   Redundancy when FCA IT examinations cover areas we believe were
                     already thoroughly covered by other expert processes, such as SOX. Also,
                     IT exams seem to us to be broad-based, rather than focused on existing
                     conditions and controls specific to our organization or areas of
                     specialization. [Same commenter as bullet 4 under statement 4.]


 Survey Statement 8:             Examiners fairly considered the views and responses of the
                                 board and management in formulating conclusions and
                                 recommendations.

      Average Response:          2.0

      Comments:
             • Professional and positive.
             • Findings were discussed in detail and conclusions were made after
                discussions.


 Survey Statement 9:             FCS-wide examination guidance from the Office of Examination
                                 (e.g., examination bulletins, informational memoranda, etc.) was
                                 timely, proactive and helpful.

      Average Response:          2.1

      Comments:
             • There were no misunderstandings.
             • Exam bulletins and Informational Memorandums are becoming quite prolific.
                FCA needs to make sure that when it requires items to be discussed with
                the institution Board that it actually warrants that importance.
             • Not sure the institution fully understands or agrees with the [FCA]
                Chairman’s position on mergers. The regulations should be focused on the
                safety/soundness and not take away from the Board of Directors, and more
                importantly, the stockholders, the ability to determine the future of the
                cooperative structure of their Farm Credit entities.
             • Sometimes difficult to see the applicability to our institution.
             • Timely sharing of concerns and information is very much appreciated.




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                     First Quarter FY 2010 OIG Summary Report on the Survey of FCS Institutions
                                         Regarding the Examination Function
 _________________________________________________________________________________________________________


                 Responses to Additional Survey Items 10a, 10b, and 11


 Survey Item 10a:        What aspects of the examination process did you find most beneficial?

         •   Timely communication with EIC throughout the examination cycle.
         •   One on one loan discussions.
         •   Professional approach and positive recommendations.
         •   Experienced auditors with proactive suggestions.
         •   As Audit Committee Chair, I comment only on the areas in which I was part of the
             process. I felt the exit conference to be very informative and revealing on the scope
             and specific preliminary findings.
         •   The examination process keeps the institution up to date on policies, procedures and
             Regulation interpretations and compliance.
         •   Credit philosophy applications.
         •   Provides measurement of safety and soundness.
         •   Onsite and ongoing communication with examination staff.
         •   Regular, ongoing discussions between examination team and executive management.
             Annual discussions with the Audit Committee of the board.
         •   Ongoing direct communication with the Examiner-in-Charge during and between
             exams improved clarification, priorities and interpretation of regulations and
             supervisory communications for board members and management.
         •   As our institution has become larger, new and in some cases different concerns were
             shared. Because of timely sharing of these concerns, we have been able to be
             proactive.

 Survey Item 10b:        What aspects of the examination process did you find least beneficial?

         •   I would like the Audit Committee to be more aware of the specific areas that the
             examiners are concerned about. [There needs to be more communication between
             examiners and the Audit Committee.]
         •   Time consuming.
         •   The time delay between the onsite examination and the final report.
         •   IT examinations. [Same commenter as bullet 4 under statement 4.]



 Survey Item 11:         Please provide any additional comments about the examination process
                         and related communications.

         •   Time well spent which will help make our institution more effective.
         •   Overall good people doing a good job.
         •   The examination process and related communications are very thorough and on
             point relative to risk, safety and soundness, and compliance.




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