oversight

First Quarter FY 2014 FCS Survey

Published by the Farm Credit Administration, Office of Inspector General on 2014-03-26.

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

                        First Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________



                     First Quarter Fiscal Year (FY) 2014 Summary Report 

                               (October 1 – December 31, 2013) 


 OFFICE OF INSPECTOR GENERAL’S (OIG) SURVEY OF FARM CREDIT SYSTEM (FCS) 

       INSTITUTIONS REGARDING THE AGENCY’S EXAMINATION FUNCTION 



Introduction

During the period October 1 – December 31, 2013, the Office of Examination identified 14
Farm Credit System institutions that were in a position to provide meaningful survey responses.

The OIG sent surveys to those 14 institutions on January 23, 2014. Of the 14 institutions
surveyed, 10 submitted completed surveys. When outstanding responses from prior quarters
are received, they are included in the next quarterly report. One response to the survey issued
for the fourth quarter of FY 2013 was received and is included in this first quarter FY 2014
report. Therefore, this report includes a total of 11 responses.

The OIG will continue to provide an email 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 eight 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. These
responses are not included in averages.

Narrative responses are provided verbatim, except 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 conversations with
institution management.

Survey Results – First Quarter FY 2014

Average numerical responses to survey statements 1–8 were 1.4 to 2.1.

The average response for all survey statements was 1.8.

In this quarter, there were more positive than negative narrative comments to survey
statements 1 - 8. (Negative comments of any degree are color coded in maroon.)


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                        First Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________


Survey item 9 asks for feedback on the most beneficial aspect 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 10 asks for feedback on the least beneficial aspect of the examination process.
While most were negative, as would be expected, several comments provide a perspective that
should prove constructive.

Survey item 11 asks for any additional comments from the Board as a whole. It elicited a
number of thoughtful responses from full Boards, which was the objective of the question.

Responses to First Quarter Survey Statements 1–8

                                       Examination Process

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

    Average Response:           2.0

    Comments:
            	 I am an outside director of this institution and had over 30 years experience
               in the securities and the banking industry. I cannot believe an audit was
               done without speaking to the audit committee or at least checking with the
               chair of the audit committee.
            	 Exam team focused on high risk areas, had strong technical knowledge and
               broad Farm Credit System knowledge. Good input on money movement
               controls.
            	 The focus and scope of the review was relative to the size of our institution.
               Our institution is highly reliant upon portfolio-level data to manage a loans
               portfolio in the billions of dollars. The FCA examination team does an
               appropriate level of review at both the customer and portfolio level. As
               risk/business practices continue to evolve through new and more advanced
               technology, methodologies, and data management practices, FCA will need
               to continue to focus on the level of understanding of these practices and the
               skill set of the staff to evolve their perspective as well.
            	 We most generally feel that a focus on asset quality should outweigh the
               ancillary issues.

Survey Statement 2: 	           Examiners appropriately applied laws, regulations, and other
                                regulatory criteria to examination findings and conclusions.

    Average Response:           1.8

    Comments:
            	 Generally agree – examiners seem to vary in their interpretation of the
               regulations. Some seem to interpret with their own personal bias as to how it
               should be.


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                        First Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________


                   Exam work was effectively tied to relevant laws and regulations.

Survey Statement 3: 	           The recommendations, required actions, and any supervisory
                                agreement with FCA assisted the board and management in
                                addressing the risks of the institution.

    Average Response:           1.7

    Comments:
            	 Exam team’s observations were valuable in highlighting operating risks
               (especially in money movement area) for management and the board.
            	 While the most recent exam had overall positive results, the exam team’s
               suggestions for further focus and/or enhancements to our current risk
               processes were reasonable and appropriate.

Survey Statement 4: 	           The examiners were professional and efficiently conducted
                                examination activities.

    Average Response:           1.4

    Comments:
            	 As I said in response to question no. 1, I never met them, never talked to
               the…, very inappropriate in my opinion.
            	 Examiners were always very professional and interacted well with our
               institution’s management and staff.
            	 The examination teams serving our institution have consistently provided a
               professional service to our functional team members and our senior
               leadership.

                                          Communications

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

    Average Response:           1.6

    Comments:
            	 This comment refers only to the presentation that was made via phone to
               the entire board.
            	 Reporting was clear and timely. Lead examiner keeps in close contact
               during the year.
            	 The examination team appropriately communicates with the institution
               leadership prior, during, and post exam.
            	 Generally agree but timeliness could be improved.




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                        First Quarter FY 2014 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:           2.1

    Comments:
            	 No communication between the audit committee and exam.
            	 Examination report was clear with the right level of detail for the board and
               audit committee.
            	 The Board appreciates the onsite presentation of the examination.


Survey Statement 7: 	           Examiners fairly considered the views and responses of the
                                board and management in formulating conclusions and
                                recommendations.

     Average Response:          1.8

     Comments:
            	 The exam team appropriately considered management’s positions when
               drafting their report.
            	 FCA exam team has been open to spending the time to understand the
               institution’s issues and perspectives while still carrying out the key role of a
               regulator.
            	 They listened to the Board’s comments and questions with interest and
               consideration.


Survey Statement 8:	            FCS-wide guidance from the Office of Examination was proactive
                                and helpful.

     Average Response:          2.0

     Comments:
            	 Updates have been timely and relevant.
            	 The Office of Examination’s current level of communication has been
               positive. Efforts to coordinate with the System’s Risk Management
               Workgroup has led to appropriate levels of collaboration in finalizing loan
               administration modules, and the deliberate communication of exam focus
               areas has enabled better understanding of key issues facing the System —
               from a regulator’s standpoint.




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                        First Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________


                             General Questions 9, 10, and 11

Survey Item 9: 	        What aspect of the examination process did you find most beneficial?

                	 The people doing the audit work were experienced and seemed to understand
                   the role of the institution.
                 Credit Review.
                 Input related to money movement was valuable and, as always, their tech
                   knowledge gives us valuable feedback.
                 Dialogue with the examiners.
                 The meeting with the auditors at our board meeting was beneficial in explaining
                   what areas we needed to be more informed and where the board needed to be
                   more involved.
                 Examiners provided good feedback when deficiencies were noted.
                 The examination team’s pre-exam coordination/communication process.
                 Asset review.
                 Best practice information provided by the examiners.


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

                	 No contact between audit and the examiners: no pre meetings to discuss
                   scope of the audit and to have that scope examined for appropriateness.
                	 Recommendations re: board policies may be more appropriate to the
                   establishment of operating procedures.
                	 Regarding ALL, the auditors suggested we need to increase ALL, however they
                   didn’t tell us how much to increase it. We realize this is subjective, and since
                   we have had very little loan loss it is difficult to determine. Other than that, all
                   aspects were beneficial to the bank.
                 Minor discrepancies in Director bios.
                 Time and staff resources are challenged for a small institution during the exam
                   process.


Survey Item 11:	        Please provide any comments from the Board as a whole regarding the
                        examination process not provided in the preceding responses.

                	 [Same answer given to Item 10] Recommendations re: board policies may be
                   more appropriate to the establishment of operating procedures.
                	 During the board close out presentation it was felt to be not appropriate the
                   way a question of insurance rebating when there was no complaint filed by a
                   competing insurance agency, no facts had been requested from management
                   nor had there been any previous discussion with management. While it was
                   appreciated by some that the examiners asked the question to allow them to
                   gain knowledge of their own in regards to the issue, the method and manner of
                   when and how it was raised created defensiveness. This question and matter
                   was not part of this examination scope.
                	 Audit was adequate.


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                        First Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________


                	 The board was impressed with the auditors communicating well with us, and
                   the auditors’ willingness to assist us with audit scope concerns for our
                   institution.
                	 We feel the examination is a necessary process to help our institution operate
                   in a safe and sound manner.
                	 The Board believes the opportunity for an executive session with the examiners
                   in delivering the report is an essential part of the process.




  March 26, 2014                                                                                            6