oversight

First Quarter FY 2011 FCS Survey

Published by the Farm Credit Administration, Office of Inspector General on 2011-03-28.

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

                     First Quarter Fiscal Year 2011 OIG Summary Report on the Survey of FCS Institutions
                                          Regarding the Examination Function
_________________________________________________________________________________________________________




                     First Quarter Fiscal Year (FY) 2011 Summary Report
                               (October 1 – December 31, 2010)


   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 – December 31, 2010, 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 February 2, 2011. Of the 14 institutions
surveyed, 12 submitted completed surveys. If the nonresponding institutions subsequently
send a completed survey, they will be included in the next quarterly report.

The OIG will continue to provide an email report to you based on each FY 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 FY 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.

Survey Results – First Quarter FY 2011

The average numerical responses to survey statements 1-9 ranged from 1.4 to 2.1.

The average response to all survey statements was 1.7.

The majority of narrative comments to survey statements 1-9 were positive. However, there
were three ratings of “4” (Somewhat Disagree), one each with respect to survey statements 2,
6, and 8. Only one institution provided a corresponding comment. See the first bullet under
survey statement 2 for this comment.
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                      First Quarter Fiscal Year 2011 OIG Summary Report on the Survey of FCS Institutions
                                           Regarding the Examination Function
 _________________________________________________________________________________________________________



 In this first quarter, half of the comments to survey statements 1-9 were positive and half were
 negative or particularly interesting. (All negative or interesting comments are color coded in
 red.)

 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.
 Five of the eight comments were negative. Three were positive.

 Survey item 11 asks for any additional comments. Only the first bullet was negative and
 should be read in context with the first bullet in 10b.


 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:
             •       Am new to committee chairmanship and do not yet have broader experience
                     outside the institution for the needed perspective.
                 •   Thoroughly appropriate for the size, complexity, and risk profile of the
                     institution.
                 •   Adequate and appropriate for this institution.
                 •   Actually the amount of time and resources were probably more than needed
                     for an institution with $80,000,000 in assets.
                 •   Examination was not really risk-based, it was focused on reviewing policy,
                     procedures, and practice in accordance with the numerous IM’s, Bookletters
                     and Loan Portfolio Management Module that had been issued in the past 2
                     years.

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

     Average Response:           1.9

     Comments:
             •       The examination process did not provide any insight into compliance with
                     laws or regulations that were not already known and understood.
                 •   Always good to check our understanding of the regulations and how we are
                     complying with it and changes to the regulations.


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                      First Quarter Fiscal Year 2011 OIG Summary Report on the Survey of FCS Institutions
                                           Regarding the Examination Function
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 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:           1.5

     Comments:
             •       Exam focused appropriately on compliance. Excellent and very appropriate
                     concentration on safety and soundness especially as related to individual
                     credit exposure.

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

     Average Response:           1.9

     Comments:
             •       The variance in experience and tenure resulted in some more
                     knowledgeable than others.
                 •   It appeared so but I cannot judge the extent of their knowledge except to say
                     that it is beyond my own.
                 •   Knowledgeable and easy to work with in all areas of the examination.
                 •   Tenure of examination team is improving which aids in the process. There
                     is still a gap between interpreting and enforcing regulations versus having to
                     comply and carry them out.
                 •   The examination requires the institution to change its commodity
                     concentrations policies from policies based on permanent capital and
                     percent of portfolio to a risk funds index while the agency’s own guidance
                     memorandum does not require that.


                              Communications and Professionalism

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

     Average Response:           1.4

     Comments:
             •       Examination team communicated well with institution staff.
             •       Verbal communication has been exceptional. The written examination is far
                     too slow. (Over three months from the examination.)




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                      First Quarter Fiscal Year 2011 OIG Summary Report on the Survey of FCS Institutions
                                           Regarding the Examination Function
 _________________________________________________________________________________________________________


 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:           1.7

     Comments:
             •       The report of examination provided good information and was helpful to the
                     board/audit committee in fulfilling their oversight and governance
                     responsibilities.

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

     Average Response:           1.5

     Comments:
             •       Did not observe this (only see examiners when they issue their report to the
                     Board in person).
                 •   Onsite examination began on XX and our exit conference was held on XX [6
                     months]. The process involved intermittent contact over several months.
                     This is difficult for examiners and institution staff to remain focused on
                     completion of the exam. We were reviewed to the new LPM prior to having
                     the opportunity to prepare for the questions. And, it was done by phone
                     calls over a period of weeks. Staff was apologetic for the method, but we
                     are aware that another institution was sent a questionnaire in advance giving
                     them time to gather the information to more effectively answer the questions.
                     This would have been very helpful in making the process more efficient.

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

      Average Response:          1.8

      Comments:
             • Examiners have been more aggressive on loan classifications, perhaps
                partly due to environmental forces, but I am not in position to adjudicate.

 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 is a lot of guidance being issued requiring institutions to document
                that they are actually complying with policy, procedure and regs. This is

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                      First Quarter Fiscal Year 2011 OIG Summary Report on the Survey of FCS Institutions
                                           Regarding the Examination Function
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                     time consuming and mostly resulted in us committing to paper that which we
                     have already been doing. The guidance is helpful, but having to confirm
                     compliance with each is time consuming.


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

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

                 •   The open communication with the Examiner in Charge is most helpful. It is
                     good to know what they are looking at and also have a good dialog of findings
                     and observations once the examination is completed.
                 •   Examiner was very professional and an excellent communicator. He
                     explained FCA’s views very well.
                 •   They appear as links in a chain and I’m not sure which links were strongest
                     nor weakest.
                 •   Conversations and information from this year’s on site activities provided
                     good information related to emerging issues, best practices and stress
                     testing expectations.
                 •   The give and take discussions. It was a lot less one sided preaching than
                     some sessions I’ve been in. Open dialogue.
                 •   The examination process and discussions on individual accounts were
                     informative.
                 •   Policy, procedure, credit administration, credit quality.
                 •   More experienced staff who listened to institution point of view.
                 •   I can’t say that the exam is supposed to be helpful to management. Rather
                     it is supposed to be descriptive. It was accurate. The on-site visit was most
                     beneficial.
                 •   From the Board’s perspective, the exit interview with Examiners. There was
                     no material interim communication during the review process with the Board.

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

                 •   Lack of cost information—see question 11 [see first bullet]. While Question
                     13 [do you want the OIG to call] is answered “no” it would be helpful to
                     receive a letter or email with cost information as noted in Question 11.
                     Thank you.
                 •   I (CEO) spent a disproportionate amount of time with one examiner and it
                     seemed redundant.
                 •   No specific aspect was not beneficial. Information and recommendations
                     presented were helpful and relevant to the size and scope of the institution.
                 •   I thought it was all pretty useful. Tendency to create more cost by high level
                     of redundant reporting.
                 •   The examination in general was beneficial and we did not think that any area
                     was not beneficial.
                 •   High costs associated with the review – and our FCA duties.
                 •   Lengthy process.



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                      First Quarter Fiscal Year 2011 OIG Summary Report on the Survey of FCS Institutions
                                           Regarding the Examination Function
 _________________________________________________________________________________________________________


                 •   The written letter. Everything was already discussed verbally several weeks
                     ahead of the letter. Many items had already been addressed by the time the
                     letter was received.

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

                 •   In evaluating the service it would be helpful to have a cost breakdown:
                     (1) institution-specific costs (variable), and (ii) a breakdown of how system-
                     wide joint costs are apportioned to this institution.
                 •   This was the most positive and well managed examination experience we
                     have had in several years. The focus on credit was a welcome experience.
                 •   We feel the examination of our institution was constructive and beneficial to
                     the Board and Management.
                 •   It is what it is! After 40 years some seems redundant, but in all examiner-in-
                     charge did a good job. I am open to contact but do not feel the need.
                 •   Examiner was very helpful and I rely on his expertise.
                 •   The institution was going through a difficult succession period, that due to
                     the size of the institution was more intense and required exceptional board
                     members involvement. This, I believe, was not appropriately contextualized
                     in the ROE findings.




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