Loan Account Reporting System

Published by the Farm Credit Administration, Office of Inspector General on 2003-08-28.

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

Office of
Inspector General

            Loan Account Reporting System


                              August 2003
August 28, 2003

The Honorable Michael M. Reyna
Chairman of the Board and
 Chief Executive Officer
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Mr. Reyna:

The Office of the Inspector General completed an audit of the Loan Account Reporting System
(LARS). The overall objective of this audit was to determine whether LARS is effectively
utilized. Specific audit objectives included (1) determining the adequacy of LARS data; (2)
determining whether information provided is duplicative; and (3) assessing LARS future data

We found that LARS is not providing sufficient and efficient loan data to support the Agency’s
mission. Specifically LARS data is deficient, the system is outmoded and system improvements
is challenging. As a result LARS is under-utilized and without significant reengineering we
question whether the system is effective in realizing Agency goals and mission.

 We conducted the audit in accordance with Government Auditing Standards issued by the
Comptroller General for audits of Federal organizations, program, activities, and functions. We
conducted fieldwork from February 2003 through May 2003. We provided a draft report to
management on July 22, 2003. We conducted an exit conference and discussed the draft report
with the Office of Policy and Analysis on July 23, 2003. The management response to the report
indicated general agreement and is included. Where actions were presented to the Office of
Inspector General that would resolve audit findings, the recommendation was changed to agreed
upon action.

If you have any questions about this audit, I would be pleased to meet with you at your


Stephen G. Smith
Inspector General
                                  TABLE OF CONTENTS

BACKGROUND _________________________________________________________________________1

OBJECTIVES AND SCOPE _______________________________________________________________1

FINDINGS AND RECOMMENDATIONS______________________________________________________2
  Information System Investment ___________________________________________________________ 2
  Loan Account Reporting System Data ______________________________________________________ 2
  Directing Resources ___________________________________________________________________ 4
  Roles and Responsibilities _______________________________________________________________ 5
  Appendix 1: LARS Survey Results _________________________________________________________7


   In 1986 the Loan Account Reporting System (LARS) became operational with the quarterly collection of
   detailed borrower data from the Farm Credit System (FCS) institutions. The LARS objective was to
   provide the Farm Credit Administration (Agency) with accurate loan information needed to successfully
   carry out its responsibilities in examining, regulating and supervising FCS institutions. Historically,
   LARS provided information that helped in the statistical selection of loans during on-site examinations
   and in the institution’s loan loss evaluation. In April 1987, after an Office of Examination (OE) review,
   LARS was revised. The modified system reduced the data elements to 30 common variables. These
   30 variables were identified as critical to OE review responsibilities. In March 1993, LARS was further
   revised to 29 data elements. Since 1993 LARS has not been revised. In January 1998, the Office of
   Policy and Analysis (OPA) began managing LARS. LARS is primarily used for monitoring, analyzing
   policy, reporting purposes, and responding to Congressional and public inquiries.

   In Fiscal Year (FY)’03 the LARS redesign project began. According to the Information Resource
   Management (IRM) Project data the estimated redesign project cost is $99,000 for FY’03-04. The
   overall project objective is to provide FCS institution loan level data needed in conducting
   examinations, monitoring portfolio risk, modeling loan performance relationships and conducting risk
   analysis. According to the IRM Project data specific objectives include:

           •    Converting the existing LARS data collection process into a more useful and easy-to-use
                electronic data source.

           •    Providing continuous access to loan level trend data on a consistent basis.

           •    Coordinating and working with the OE to develop a loan level data collection system that
                meets the needs for examination purposes including integrating this effort with the OE
                modernization project.

           •    Reducing the reporting burden on FCS institutions by coordinating the Agency’s collection
                of loan level data.

       The project will span over two years. OPA has established a work group that includes OPA, OE,
       Office of the Chief Information Officer and Office of the General Counsel representatives. The
       work group’s first objective is to publish a notice to the public, with request for comments on how
       best to modify the existing LARS requirement (i.e., data elements). The work group plans to have
       the notice published in 2003.


       The objective of this audit is to determine whether LARS is effectively utilized. Specific audit
       objectives include (1) determining the adequacy of LARS data; (2) determining whether information
       provided is duplicative; and (3) assessing LARS data future use. We reviewed LARS
       documentation dating from July 1990 through May 2003 including background information,
       feasibility studies, mission and operational needs and budget documents. We conducted
       interviews with Agency personnel responsible for maintaining LARS data and key personnel who
       use LARS data. In addition, we conducted a survey to assess satisfaction with the LARS

         program. We reviewed 37 survey responses from Agency users. We also discussed the loan data
         collection system with another federal government regulatory agency.


         LARS is not providing sufficient and efficient loan data to support the Agency’s mission.
         Specifically LARS data is deficient, the system is outmoded and system improvement is
         challenging. As a result, LARS is under-utilized and without significant reengineering, we question
         whether the system is effective in realizing Agency goals and mission.

Information System Investment

             LARS is rooted in the past, aimed at earlier needs. Thus, LARS is poorly positioned to meet
             the Agency’s current and future goals. The LARS redesign project is focused on improving the
             Agency’s loan-level data collection process. According to the project manager, efforts will be
             focused on designing a process that is the greatest benefit to the Agency and its customers.
             The drive for realizing dramatic improvements should focus on fundamentally rethinking how
             the Agency works as a whole. The Agency must begin managing LARS as an information
             management system investment. By looking at LARS as an information management system
             investment, attention is placed on assessing and managing risks between LARS continued
             funding or focusing resources on other potential loan data collection systems. The decision
             should be based on an explicit set of criteria that answer questions such as:

                  •   Is LARS providing the Agency with essential loan data?

                  •   Are resources directed toward improvement that will achieve the greatest benefit?

                  •   Are the right people involved in the decision making process?

             By answering these types of questions the Agency can better assess which core processes
             need improvement to fulfill mission goals, satisfy customers and stakeholders’ needs, reduce
             costs and provide high quality products and services.

Loan Account Reporting System Data

         LARS is an under-utilized loan data system. Most staff feel the system is no longer an effective
         tool in providing them with pertinent loan data information. Specifically, LARS data is not
         comprehensive, data accuracy is questionable and ease of use could be improved. To assess
         LARS we sent a survey to 87 employees who had access to the system. The survey received a
         43% response rate.       Based on survey results, users expressed dissatisfaction with the
         completeness, usefulness, relevance, accuracy, and ease of use.

                         LARS Survey Results



         40%                                                  Dissatisified

                                                              Some Dissatisifcation













      More detailed survey results are in Appendix 1.

Comprehensive Data. LARS does not provide comprehensive loan data information needed to
meet the Agency’s current and future goals and mission. LARS has not been revised since 1993
therefore much of the information provided is based on past loan data needs. According to LARS
users, the data collected needs a reassessment to improve comprehensiveness and relevance.
Currently, LARS collects data on most FCS loans but not all. LARS excludes information on
cooperative loans, participations and syndications. Participation and syndications are among the
fastest growing areas in the FCS.

According to users, to be effective LARS should collect data on all FCS loans. In addition,
information should be pertinent to Agency needs. Most examiners dismiss LARS as a key
information source because they believe LARS data is not useful. A senior manager stated that
only 50% of LARS information is useful in making important management decisions. Economists
and analysts also stated more basic borrower information would be helpful. Finally, a redesign
should include useful information in future regulatory requirements. For example, LARS data
needs to include useful Basel Capital Accord requirements information.

The OPA is trying to improve LARS loan data information. The LARS redesign project includes an
objective to determine the Agency’s loan data needs. As part of that objective emphasis will be
placed on capturing all loans. We commend the OPA for taking actions to determine loan data
needs as part of the redesign project. However, to ensure loan data information remains relevant
in the future, OPA should perform annual reviews on LARS data.

 Accurate Data. To be an effective information management system, LARS must provide the
Agency with accurate loan information. Without accurate information, data analysis could result in
erroneous decisions and improper conclusions. LARS users believe the data definitions are
sometimes interpreted differently resulting in discrepancies in reported data. In addition, some
FCS institutions expressed concerns that they understood LARS definitions and requirements
differently and therefore discrepancies may appear in data reported. For example, some FCS
institutions have used various commodity codes to report the same commodity. This can result in

         masking high commodity concentrations. These types of discrepancies undermine the data
         creditability and can result in misrepresented and interpreted information.

         LARS system managers have taken steps to improve data accuracy. For example, systematic
         checks are performed to ensure various data elements meet the definitions. In addition, quarterly
         comparison checks are run at the district levels comparing various results with current quarter
         results. If the comparison check indicates a significant change from previous quarters, a follow-up
         is conducted to determine if the change was accurate. However, because LARS data is used in
         significant Agency services such as responses to Congressional requests and Board briefings,
         FCS institutions should certify data accuracy and LARS data should be reviewed during on-site
         examinations. These checks will require the Agency to view LARS as a cross-functional process
         requiring resources from the OPA and OE.

         Ease of Use. Improvements are needed in the LARS program to make it user-friendly. Because
         of the large volume of information contained within LARS, users find it difficult to abstract data and
         time consuming to find specific information. For example, one district has approximately 274,000
         records. Very few FCA staff are knowledgeable about how to write queries to produce reports from
         these records. In addition, without knowing where to look for information, searching and
         determining where data is can be time consuming. Users suggest that standard reports be
         available without writing queries and a user guide should be on-line. In addition, splitting LARS
         information into more usable tables, possibly by institution, could facilitate finding data.

         Also, LARS does not maintain historical data. Therefore, comparisons across time periods cannot
         be easily made. Because of the data volume maintained each quarter, the feasibility of storing
         more than one quarter of information on-line is limited. Alternatives to providing historical
         information must be considered. For example, summary reports that include pertinent historical
         information could be posted on the Plans and Reports database.

         Agreed Upon Actions

          1. The Office of Policy and Analysis should establish a process to ensure LARS
             information remains relevant and useful.

          2. The Office of Policy and Analysis should require FCS institutions to certify LARS data

          3. The Office of Policy and Analysis should coordinate with the Office of Examination to
             validate LARS data during on-site institution examinations.

          4. The Office of Policy and Analysis should include in the redesign project the
             development of standard reports. LARS users should provide input on reports that
             would be useful.

          5. The Office of Policy and Analysis should develop a LARS users’ manual and place the
             manual on-line.

Directing Resources

         Agency resources should focus on projects that maximize technology potential to improve
         performance. Within the past 10 years, FCS institutions’ accounting systems have changed
         dramatically allowing examiners to have direct access to institutions’ loan data. Building on the

          LARS concept, various offices within the OE have developed their own loan databases that are
          used during examinations of institutions in their districts. Over time these databases have become
          an integral part of the examination process because they are more comprehensive and accurate
          than LARS. However, the type of data collected and the way it is presented can vary from office to
          office. Because each institutions system varies, information is not standardized and system-wide
          loan analysis can be difficult. In addition, data security cannot be assured on loan information
          collected by examiners.

          FCS institutions report loan data in a consistent standardized format in LARS thereby making
          system-wide analysis easier. However, given LARS weaknesses, system-wide analysis using the
          data can be incomplete and questionable. Therefore, as part of the LARS redesign effort, the
          Agency should have a comprehensive understanding of whom its customers are and their needs
          and expectations. This is essential for improving the loan data collection process. Resources
          should be expended in system development that will have the greatest Agency impact. Before
          investing significant funds in redesigning LARS, consideration should be given to leveraging off
          existing loan databases to obtain necessary data. In addition, more emphasis needs to be placed
          on trying to integrate the Agency’s various loan data collection processes. According to the LARS
          system managers, the redesign project will include reviewing various loan level data collection
          processes to assess the risks, costs and benefits of each. Given this, prior to expending significant
          funds on redesigning LARS, Board members should be provided information on the various
          processes reviewed and the Chief Executive Officer should decide on the system that best meets
          the Agency goals and mission.

          Agreed Upon Actions

          6. The Office of Policy and Analysis should report to the Farm Credit Administration Board
          on the risks, costs and benefits of possible loan data collection systems reviewed during
          the redesign project. The Chief Executive Officer should decide on the system that best
          meets the Agency goals and mission.

          7. The Office of Policy and Analysis should demonstrate through performance measures
          how LARS is improving Agency operations and mission effectiveness.

Roles and Responsibilities

          If the Agency decides to continue with the LARS redesign project, the chief executive officer needs
          to understand the various organizational changes involved. LARS system managers are working
          diligently to develop a project plan, however, given LARS decreased use and high user
          dissatisfaction, Agency staff may not be fully committed to a redesign project. Reengineering
          projects need support with the right roles, responsibility and skills. Historically, efforts to improve
          LARS have produced minimal results. For example, a LARS Feasibility Study conducted in 1991
          addressed some of the same issues that remain today such as data accuracy and ease of use.
          Further, in 1994 a review was conducted to produce standard reports from LARS without much
          success. A significant amount of resources were wasted on these projects because they lacked
          the necessary Agency commitment to ensure their success.

               Roles. For a project to be a success the Agency must create ownership. Studies have
          shown that chief executives who played a strong leadership role in improving information
          technology programs have resulted in successful projects. Chief executives’ involvement helps
          reinforce information management decisions, accountability and focuses system development on
          activities that promote measurable mission outcomes. Without such accountability, it is easy for
          the project to become delayed and fail to reach the initial goal.

     Responsibility. It is critical that the LARS redesign project incorporate the right staff into the
planning process. Given the various offices involved in the Agency loan data collection process,
work group members should include staff representation to facilitate communication and maintain
momentum during project development.             In addition, because the redesign project will require
work process innovation, cutting across program and functional lines; accountability must also be
aligned with a decision-making authority that is able to raise issues above existing stovepipes.
Therefore, the LARS project oversight should be at a level that can eliminate bottlenecks and
resolve thorny operational issues that can easily stall improvement initiatives. By aligning project
responsibility with Agency authority, staff will work effectively to change processes.

      Technical skills. Because of the project intricacy, the work group needs to include Agency
staff that has the technical skill and informational knowledge to assist with project development.
Work group members need to include Agency staff knowledgeable in the various loan database
systems already developed within the Agency. For example, work group members should include
examiners who have developed the various OE loan database systems. In addition, the work
group should include a member who is knowledgeable in institutions’ loan accounting systems.
Further, the Office of the Chief Information Officer should be involved in the process early on to
facilitate future development plans. If the Agency feels it lacks the necessary resources to carry
out the project, consideration should be given to involving a consultant to help guide the Agency’s
effort. However, before pursuing a consultant, the Agency should have a strong business case
that the redesigning effort is the best alternative to meeting the Agency needs. In addition, the
Agency should have enough of a skill base so it can retain leadership and control over the project.

Agreed Upon Actions

8. The Office of Policy and Analysis should provide periodic reports on the LARS redesign
effort to the Farm Credit Administration Board members.

9. As part of the LARS redesign project, the Office of Policy and Analysis should conduct
an assessment to determine whether the Agency has adequate resources to support the
project. The assessment should identify the necessary skills and knowledge needed to
develop the project. In addition, a determination should be made on whether the Agency
employees that possess those skills and knowledge will be available to assist with system


      The chart below shows users’ responses to survey questions concerning LARS information and
      content. The survey was sent to 87 users who had access to LARS. We received 37 responses
      (43% response rate). Ten users who responded to the survey did not express an opinion on the
      issues listed below because they use other sources for loan-level data. The majority of those who
      did not express an opinion were examiners.

                             Very                                   Some
                           Satisfied            Satisfied       Dissatisfaction        Dissatisfied

      Completeness             0                   5                   10                   12

      Usefulness               0                   6                   12                    9

      Relevance                0                   10                  11                    6

      Accuracy                 0                   10                  10                    7

      Ease of Use              0                   12                  11                    4

Management Response
Farm Credit Administration                               1501 Farm Credit Drive
                                                         McLean, Virginia 22102-5090
                                                         (703) 883-4000

August 26, 2003

Mr. Stephen Smith, Inspector General
Office of the Inspector General
Farm Credit Administration
1501 Farm Credit Drive
McLean, VA 22102-5090

Dear Mr. Smith

We appreciate the opportunity to comment on the Office of The Inspector General's (GIG)
audit report on LARS. Overall, the report is a reasonable discussion of the Farm Credit
Administration's (agency) current use of LARS and the data it provides for policy analysis
and supervisory monitoring purposes. We agree with the nine recommendations contained
in the draft report, and will implement corrective actions as soon as possible. We also expect
the report to add value to our work on the LARS Redesign effort already underway in the

We agree with the report's conclusions about the comprehensiveness of LARS data in
providing detailed loan level information. The data limits of the current LARS are
understood and recognized. For instance, the current LARS specification of loan level
data excludes participations and loans made by CoBank, ACB. We also acknowledge
the need to follow a comprehensive and inclusive approach to identifying changes to
loan level data requirements of the agency as we move to re-engineer LARS.

We also concur with the report's conclusion that LARS data needs to be accurate and
that users currently believe the data is inaccurate. We also want to thank you for noting
that we have taken steps to improve data accuracy. CPA will continue to work to
implement cost- effective and efficient approaches to strengthening the accuracy and
quality of LARS data.

The report also cited concerns with LARS' ease of use and the need for standardized
and historical reports. While we agree in general that such changes are needed to
reach a broader user population, we wish to point out that users can easily access
LARS data and download information for analysis and monitoring needs. LARS is fully
integrated in the agency's information systems. However, we acknowledge that we can
improve in this area. We plan to focus our LARS Redesign project on improving
substantially the ease of accessing and using loan level information in summary and
other reports. Meanwhile, we are considering simpler ways in making the LARS loan
level information available to a broader user group.

We agree with the report's conclusion that we need to review how we collect loan level
data from Farm Credit System (System) institutions and collaborate closely with OE on
their needs, including how they collect loan level data for examination purposes. OPA is
committed to developing a loan level data collection system that is cost-effective and

Fundamental to this commitment is reducing the reporting burden on the System and
meeting the information needs of critical user groups. As we move forward with the
LARS Redesign project, we are focused on re-engineering the current collection system
by considering new approaches and possible avenues to coordinate loan level data
collection agencywide.

Throughout the LARS audit, OIG staff was courteous and responsive to OPA's
questions and suggestions. We appreciate their efforts and look forward to working
together as we move forward in implementing the recommendations contained in the

Thank you and your staff for this valuable insight. I believe it will help us develop a more
viable and useful LARS and contribute to the overall efficiency and effectiveness of the



Michael V. Dunn, Director
Office of Policy and Analysis






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