Office of Chief Financial Officer Final Report

Published by the Farm Credit Administration, Office of Inspector General on 2002-01-24.

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

Office of Chief Financial Officer

January 24, 2002

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 Office of Chief Financial Officer
(OCFO) at the Farm Credit Administration. The objective of this audit was to evaluate whether
the Office of Chief Financial Officer is operating efficiently and determine whether initiatives to
improve the office have been effective.

We found that the implementation of the Federal Financial System is a promising step toward
improving the OCFO efficiency. However, OCFO still lacks key elements to ensure the office is
operating in the most cost effective manner. Specifically, the Chief Financial Officer is not
effectively managing staff, the OCFO is not issuing financial products timely and funds are
wasted on products and services. As a result, in FY 2001 OCFO expended approximately
$196,000 in questioned costs and $49,000 in funds be put to better use.

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 August 16, 2001 through November 16, 2001. We provided a draft
report to management on December 6, 2001. We conducted an exit conference and discussed
the draft report with the Chief Financial Officer and the Audit Followup Official on December 12,
2001. 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
 Office of Chief Financial Officer____________________________________________________________________ 1

OBJECTIVES AND SCOPE _______________________________________________________________1

FINDINGS AND RECOMMENDATIONS______________________________________________________1

Federal Financial System __________________________________________________________________________ 1

Improvements Still Needed_________________________________________________________________________ 2
  Workforce Planning Strategy ______________________________________________________________________ 2
  Staff Skills and Workload _________________________________________________________________________ 5
  Office Communication ___________________________________________________________________________ 6
  Financial Services _______________________________________________________________________________ 6
  Expenditures ___________________________________________________________________________________ 7

    01-05                                 FINAL REPORT                             TABLE OF CONTENTS

           The Farm Credit Administration (FCA or Agency) is an independent Federal financial regulatory
           agency. FCA has regulatory, examination and supervisory responsibilities for the Farm Credit
           System banks, associations, and related institutions. FCA employs fewer than 300 people.
           Personnel costs account for about 81 percent of the Agency’s $37 million Fiscal Year (FY) 2001

           Office of Chief Financial Officer

           The Office of Chief Financial Officer (OCFO) provides financial services to the FCA and other
           customers, in accordance with laws, regulations and professional standards applicable to Federal
           entities. OCFO operational costs were approximately $2.2 million in FY 2001. The OCFO goals
           and objectives include:

                Developing and implementing financial management policies and practices; and providing
                financial management oversight.
                Preparing and submitting timely and accurate financial reports and statements.
                Performing daily accounting duties timely and accurately.
                Implementing, maintaining and enhancing financial management systems that meet Federal
                standards and support on-going financial operations.
                Developing and maintaining planning and budgeting policies and procedures.
                Providing financial management guidance to the FCA Board, Chairman and management.


           The objectives of this audit were to evaluate whether the OCFO was operating efficiently and
           determine whether initiatives to improve the office have been effective. We interviewed OCFO
           staff, reviewed measures for determining staff size, benchmarked OCFO operation against another
           Federal agency, discussed with Board members financial products received, and reviewed
           contracted services. We also reviewed the goals and objectives of recently implemented


           Implementation of the Federal Financial System (FFS) is a promising step toward improving the
           OCFO efficiency. However, OCFO still lacks key elements to ensure the office is operating in the
           most cost effective manner. Specifically, the Chief Financial Officer (CFO) is not effectively
           managing staff, the OCFO is not issuing financial products timely and funds are wasted on
           products and services. As a result, in FY 2001 OCFO expended approximately $196,000 in
           questioned cost and $49,000 in funds be put to better use.

Federal Financial System

           In FY 2000 FCA determined the financial management system, Federal Financial Assistant
           (FINASST), did not substantially comply with the Federal Financial Management Improvement Act.
           As a result, FCA contracted with the Department of Interior, National Business Center to replace
           FINASST. The National Business Center uses Federal Financial System (FFS or system) to
           process FCA financial transactions. In October 2000, the OCFO began implementing the FFS to

   01-05                                 FINAL REPORT                                     PAGE 1 OF 8
               support all the core accounting systems including budget execution, accounts payable,
               disbursements, purchasing, travel, accounts receivable, general ledger, document tracking and
               external reporting. OCFO worked aggressively to implement the system and as a result the
               system was in production in June 2001. During the short time the FFS has been in production,
               office efficiency has improved. For example, the time necessary to process travel vouchers and
               disbursements is reduced significantly, resulting in less overtime work. In addition, financial data is
               more reliable and the consistency in processing financial transactions has improved. OCFO plans
               to continue to enhance the FFS to further improve office efficiency.

Improvements Still Needed

               OCFO has realized success in producing more reliable financial data with implementing the FFS.
               However, other improvements are needed. Specifically, OCFO needs to:

                          develop a workforce planning strategy,
                          ensure staff skills are evolving to meet office goals and objectives,
                          improve the disparity of staff workload,
                          improve the communication between management and staff personnel,
                          provide timely financial data to Board members and FCA management, and
                          manage expenditures more efficiently.

               Workforce Planning Strategy

               OCFO does not have an effective strategy to determine the number of employees needed to carry
               out its goals and objectives. OCFO is organized into three major divisions, financial management
               support, accounting and reporting and payment management. Currently, OCFO has eleven
               employees. For FY 2002 OCFO has budgeted for 13 full-time equivalents (FTE) costing
               approximately $1.2 million. The organizational chart below shows office organization.

                                                            Office of Chief Financial Officer

                                                                       Chief Financial Officer

                                               Operation Manager
                                               Senior Accountant

Financial Management System Support Division                       Accounting and Reporting Divison      Payment Management Division
           Assistant Chief Financial Officer                            Financial Opeartion Specialist           Payment Officer
                 Systems Accountant                                     Financial Management Analyst            Payment Processor
                                                                          Accountant & Technician

               According to the CFO, FTEs are determined based on workload observations and skill
               weaknesses. For example, the CFO identified weaknesses in system accounting and financial
               statement preparation, therefore two additional FTEs were requested in the FY 2002 budget.
               Although OCFO may lack skills in these areas, it is questionable whether OCFO workload justifies
               additional employees. During OCFO staff interviews, several employees stated they were under-
               utilized. In addition, the CFO stated some employees are under-utilized because they lack the
               skills and knowledge necessary to perform work needed. Consequently, increases in staff level

   01-05                                                     FINAL REPORT                                      PAGE 2 OF 8
        are based on office skill shortfalls versus the appropriate number of competent people needed to
        meet office goals and objectives.

        The Time Recording System (TRS) tracks the time employees spend on various projects. The
        data in the TRS indicates OCFO recorded 2,349 staff days on projects other than leave in FY
        2001. Staff recorded time on various projects is as follows.

                                             OCFO Time Spent on Various Projects

                                                       Internal Control              Other
                                                             1%                       1%

                                               FCSIC Support
                                                    8%                                       Financial Reports and
                                   Accounting Duties

                         Financial Management Policies

                               Financial Management Systems
                                                                  Budgeting & Analysis

        The chart shows the following:

            •    OCFO staff spends approximately 30 percent of their time on financial reports and
                statements. The need for more staff on this task is questionable.

            •   Eight percent that is currently devoted to Farm Credit System Insurance Corporation
                (FCSIC) support will be freed up after January 2002. FCSIC will be obtaining services
                directly from the National Business Center at a significantly lower cost. According to the
                TRS records, an employee expended 62 percent of his time doing FCSIC support work in
                FY 2001.

            •   Only 1 percent of OCFO time was spent on training. This level of training is extremely low
                given the CFO’s assessment of employees’ skills.

        To better assess the number of FTEs needed for finance and accounting operations, we compared
        OCFO organizational structure to the Commodity Futures Trading Commission’s (CFTC) finance
        and accounting department. The CFTC is an independent agency with the mandate to regulate
        commodity futures and option markets in the United States. CFTC receives appropriated funds.
        CFTC implemented the FFS and travel manager in 1999. CFTC financial products parallels
        OCFO. The comparison of the finance and accounting function is as follows.

01-05                                        FINAL REPORT                                                            PAGE 3 OF 8
                Description                       FCA                        CFTC

         Number of FTEs                           284                          500

         FY 2001 Budget                        $37 million                 $68 million

         Finance and Accounting                    11                           7
         Staff Level

         Contractors cost                      $196,000                       None

        The comparison shows that even though CFTC has a larger number of employees and a
        significantly larger budget its finance and accounting staff level is significantly lower than OCFO.

        OCFO personnel levels in the upcoming years will change based on technological advances
        providing opportunities for efficiencies in carrying out OCFO goals and objectives. Therefore, the
        CFO needs to develop a workforce planning strategy to systematically and comprehensively
        assess its human capital requirement. The workforce planning strategy should identify the skills
        and knowledge needed to meet office goals and objectives and determine the number of staff
        needed to possess such skills and knowledge. Further, the CFO workforce planning strategy
        should address gaps in employees’ skills and knowledge to competencies needed. In addition,
        based on the workforce planning strategy, the CFO should re-evaluate job positions and ensure
        they fit the organization’s need. The evaluation should include making adjustments to incorporate
        new job requirements and removing outdated requirements. Without the workforce planning
        strategy the CFO’s current method of determining FTEs can result in overstaffing.

        Agreed Upon Actions

        1) The CFO should develop a workforce planning strategy to include the following:

            a. identify the current and future skills and knowledge needed to meet office goals
               and objectives.

            b. identify the number of employees needed to possess the skills and knowledge

            c. a workforce profile identifying the OCFO personnel skills and knowledge.

            d. compare the skills and knowledge needed to workforce profiles and integrate a
               strategy for how OCFO will allocate staff.

        2) The CFO should ensure staff accurately records time in the time reporting system to
            make it a useful management tool for workforce planning.

        3) The CFO should redesign the organizational structure based upon a complete review of
            all job requirements. The review should include a re-evaluation of all job position
            descriptions to incorporate new job requirements and eliminate outdated job

01-05                                  FINAL REPORT                                       PAGE 4 OF 8
        Staff Skills and Workload

        OCFO faces a challenge in developing a workforce that has the specialized skills and knowledge
        required to accomplish office goals and objectives. According to the CFO, a significant portion of
        OCFO employees lacks the technical skills necessary to meet office goals and objectives. The
        CFO stated there is no longer a need for data entry accountants; instead accounting personnel
        need to be proficient in system accounting and data analysis. The CFO feels employees, who for
        a long period of time have worked at FCA, have not adequately developed their skills to keep up
        with the changing financial environment. As a result, their skill levels are not where they need to be
        to meet office goals and objectives. OCFO employees’ technical skill gaps may be the
        consequences of the lack of office continuity. In the past five years, FCA’s accounting and finance
        division has had six management changes and implemented three different financial management
        systems. Continual changes such as these can result in a lack of systematic means for assessing
        workforce needs and as a result can significantly impact employees’ skill development.

        Although the CFO recognizes there are employee skill problems, the CFO does not have a
        strategy to resolve the problem. According to the CFO, employees work according to their
        capabilities. Therefore, the CFO places more responsibilities on employees he feels can get the
        job done. This results in some employees being under utilized and some employees overworked.
        In FY 2001 six employees worked almost 500 hours of overtime, with one employee working 198
        hours of overtime. We discussed with OCFO employees their duties and responsibilities. Several
        employees stated because there is a perception in the office that certain people cannot do certain
        work there is a workload disparity. Employees stated they tried to reduce the workload disparity by
        asking the CFO for work and offering to help other employees with their workload. However, the
        CFO has not been responsive to their requests and employees are unwilling to share their work.
        The CFO stated the current workload environment would remain until there are personnel changes
        either through reassignment or retirement. The CFO comments are fostering a lack of trust in the
        office resulting in pitting one group of employees against another and causing employees to be
        reluctant to share work.

        OCFO employees need strong continuous leadership dedicated to helping them develop their skills
        and knowledge. The CFO needs to develop a training strategy that will improve employees’
        knowledge in areas where the office lacks technical skills. In addition, the CFO needs to monitor
        the effectiveness of the strategy and foster an office culture of continuous learning. Through
        initiatives such as cross training, employees can learn from each other and share job
        responsibilities. This promotes a teamwork environment resulting in employees feeling valued,
        appreciated, trusted and respected. Together the CFO and employees must be proactive in
        improving weaknesses in office efficiency.

        Agreed Upon Actions

        4) The CFO should develop a training strategy identifying the critical skills and training
            needed to support the workforce planning strategy and meet office goals and
            objectives. At a minimum the strategy must include:

            a. reviewing and approving individual development plans to ensure that training is
               linked to critical skills needed.

            b. monitoring training to ensure training received is effective and applied on the job.

            c. counseling each employee by discussing employee expectations and ensuring
               work assignments promote growth and development.

01-05                                   FINAL REPORT                                        PAGE 5 OF 8
            d. establishing a cross training plan that provides developmental opportunities to
               help employees build their competencies in areas where the office lacks skills or
               needs backup staff.

        Office Communication

        A considerable portion of employees interviewed stated the CFO does not communicate with office
        employees. Therefore, they are unclear on office goals, objectives and workload. Employees
        stated they would like to have regular staff meetings to discuss office plans, extra help needed, and
        problems or progress with the FFS. According to the CFO, information discussed at previous staff
        meetings was not relevant to the entire office, therefore the CFO discontinued the meetings.

        Given the office is experiencing problems with employee skills and staff workload, staff meetings
        could be an effective tool to address these issues. The lack of communication contributes to the
        lack of skill development of the staff. In addition, with the recent implementation of the FFS, staff
        meetings would be useful to address system concerns and goals. The CFO can establish an
        agenda for the meetings; limit discussion time on various issues; and meet biweekly or monthly. If
        properly planned, staff meetings are a positive forum for communicating office issues and can be
        helpful to management and staff.

        Agreed Upon Action

        5) The CFO should develop a forum where management direction and employees’
            concerns are communicated and addressed.

        Financial Services

        The main mission of OCFO is to provide timely financial services to FCA. Board members and
        management rely on timely data to make informed business decisions. Currently, OCFO is
        experiencing problems with producing reports from the FFS and as a result are not always able to
        provide Board members and FCA management with timely financial data. For example, according
        to Policy Statement 64, “Rules for the Transaction of Business and Operational Responsibilities of
        the Farm Credit Administration Board”, Board members are to receive financial data on reallocation
        of funds over $25,000 and procurements over $100,000. To further enforce this policy, in a letter
        dated October 20, 2000, the Chief Operating Officer stated the CFO would provide these reports
        and a budget variance report monthly. To date, the CFO has not provided the reports monthly
        because there are problems with the FFS producing the reports. OCFO is working on fixing the
        problem however; the CFO could not give a definite date when Board members would be receiving
        monthly reports. As a result, Board members make budget decisions without prescribed financial

        The FFS does have a report table listing various system reports. However, according to the CFO
        the report table is not very useful in providing information for the Board members or management.
        In addition, OCFO has Crystal Report, a software package that is used with the FFS, to generate
        ad-hoc financial reports. CFTC successfully uses Crystal Report to generate management
        financial reports. According to OCFO Assistant Chief Financial Officer, who is the system
        administrator, Crystal Report is used to generate FCSIC financial reports. However, FCA financial
        reports are not generated using Crystal Report due to security concerns and implementation
        problems. In cases where OCFO is not able to provide Board members and management with
        timely financial data, alternatives should be considered to ensure business decisions are made
        with appropriate financial information. Exploring alternatives will ensure Board members and
        managers have adequate information to make sound business decisions.

01-05                                  FINAL REPORT                                        PAGE 6 OF 8
        Agreed Upon Action

        6) The Chief Operating Officer should establish accountability by reflecting adherence to
            Board Policy in the CFO’s performance plan and performance evaluation.


        In FY 2001, OCFO has expended approximately $196,000 in questioned cost and $49,000 in
        funds be put to better use. Specifically, OCFO did not maximize the $100,000 spent for accounting
        services; expended $96,000 for services possibly available in-house, and expended $49,000 for a
        product and service not used.

        To make the most of funds expended on contracts, contractors should not take over employees’
        workload. Instead resources are more effectively used if contractors assist, train and develop
        employees’ skills. In FY 2001, OCFO used an accounting firm for five months, costing
        approximately $100,000, because employees did not have the skills necessary to prepare FY 2000
        financial statement. This is in addition to approximately $378,000 spent on salaries and benefits
        attributable to financial reports and statements. OCFO’s FY 2002 budget includes contracted
        services to prepare the financial statement at a cost of $100,000. According to the CFO, the
        financial statement cost was included in the FY 2002 budget as a precautionary measure. In FY
        2002, the CFO plans to hire an additional employee whose primary responsibility will be preparing
        the financial statement. The hiring of the additional employee should preclude the need for
        contracted services to assist with financial statement preparation. In addition, contracted services
        were not used to prepare FY 2001 financial statement. As mentioned previously, it is questionable
        whether OCFO workload justifies additional employees given some employees are under-utilized.
        Resources could have been used more effectively if the CFO had established a course of action
        such as a partnership enabling the contractor to develop employees’ skills, resulting in OCFO
        current staff being able to do the work without the hiring of additional staff. Therefore, if contracted
        services are used, the contractor’s statement of work should include a clause offering services to
        work with and train OCFO staff on financial statement preparation.

        OCFO used a software consulting company for six months, at a cost of $96,000, to develop and
        generate financial reports from the FFS. This was not reviewed or approved by the Information
        Resources Management Operations Committee (IRMOC). According to FCA Policies and
        Procedures Manual 900, “Information Resources Management Planning,” the CFO needs to
        request this type of information service through the Chief Information Officer and the IRMOC. The
        Agency established a technology planning and investment process to ensure resources are used
        in the most cost-effective manner.

        As part of the IRMOC review, information services are explored for new ways offices can work
        together and use FCA’s skilled workforce efficiently and effectively. For example, the Office of
        Chief Information Officer (OCIO), at a much lower cost, could possibly perform the software
        company services. OCFO uses the OCIO to produce some FCSIC reports. However, OCFO
        does not use OCIO to produce FCA reports. The chart below illustrates the difference in cost to
        generate financial reports between the software company and OCIO.

                                        Hourly Rate             Hours Worked             Potential Savings

        Difference   between
        contractor cost and
        OCIO cost.                          $51                        911                     $46,461

01-05                                   FINAL REPORT                                         PAGE 7 OF 8
        OCFO plans to continue using the software company in FY 2002. To minimize contracted service
        cost, the IRMOC should review all of the OCFO information service requests and incorporate the
        requests in the IRM plan as it deems appropriate.

        OCFO expended approximately $49,000 for products and services not used. In March 2001,
        OCFO expended $45,575, including maintenance cost of $7,595, for a travel manager program it
        has never used. According to the CFO, the office does not have the employees necessary to
        set-up the program. The CFO stated the program might be implemented in March 2002, however,
        this would depend on employee workload. The CFO also stated he included $110,000 travel
        manager implementation cost in the FFS maintenance contract cost with National Business
        Center. The CFO did not plan for the effective implementation of the travel manager program.
        According to Agency policy, the CFO needs to request this type of information services through the
        Chief Information Officer and the IRMOC, prior to purchasing software programs, to ensure
        resources are used in the most cost-effective manner. In addition, prior to purchasing the program
        the OCFO should ensure the program could be implemented within a reasonable time. As a result
        of poor planning, OCFO has expended funds and is incurring maintenance cost for a program not

        From October 2000-August 2001, OCFO paid $3,450 for interpreter services not received. OCFO
        has established a purchase order to receive weekly interpreter services, for a deaf employee, for
        office meetings. According to the purchase order, services are automatically billed unless
        canceled three days before service performance. Invoices are paid automatically using a
        purchasing agent credit card in the Office of Chief Administrative Officer. The purchasing agent
        stated that unless someone in OCFO informed the Office of Chief Administrative Officer the
        services were not received there was no reason to question the cost. Consequently, interpreter
        services were not canceled in accordance to the purchase order agreement and, as a result, FCA
        paid invoices for interpreter services that were never received. According to OCFO, they have
        contacted the company providing the services and are no longer automatically billed for services.

        Agreed Upon Actions

        7) The CFO should include in the statement of work for the financial statement that
            employees will be trained on financial statement preparation.

        8) The CFO should immediately cease further work and cost associated with report
            development until the IRMOC reviews and approves detailed technical requests from
            the OCFO.

        9) The OCFO should submit detailed technology requests to the IRMOC for review and
            recommendation for all information management services. For information service
            request, the CFO with the assistance of the Chief Information Officer and the IRMOC
            will develop a cost-benefit analysis to determine the best source to obtain the service.
            The analysis will be part of the IRMOC recommendation submitted to the Chief
            Executive Officer for budget approval.

01-05                                 FINAL REPORT                                      PAGE 8 OF 8





        TOLL FREE 1-800/437-7322
   Washington , DC Area 703/883-4316
    E-Mail fca-ig-hotline@starpower.net
1501 Farm Credit Drive McLean, Virginia 22102-5090