oversight

Office of Examination Travel Expense Budgeting, Usage, and Control

Published by the Farm Credit Administration, Office of Inspector General on 2009-07-23.

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

OFFICE OF
                      Report of Audit
INSPECTOR GENERAL
                        Office of Examination
                     Travel Expense Budgeting,
                         Usage and Control

                             A-09-02


                       Veronica McCain
                       Auditor-in-Charge




                          July 23, 2009


                    FARM CREDIT ADMINISTRATION
Farm Credit Administration	                                      Office of Inspector General
                                                                 1501 Farm Credit Drive
                                                                 McLean, Virginia 22102-5090




July 23, 2009


The Honorable Leland A. Strom
Chairman of the Board
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Chairman Strom:

The Office of Inspector General completed an audit of the Office of Examination’s (OE) Travel
Expense Budgeting, Usage and Control.

We found OE’s travel expense budgeting process, usage and control to be satisfactory. The
travel budget is well defined and supported, and travel expenditures are appropriately tracked
by functions performed by the OE. Our analysis of travel usage shows that organizational
changes and examination methodology have primarily contributed to travel costs increasing,
but not inappropriately. OE continuously monitors travel expenditures to ensure they do not
exceed budgeted amounts. In addition, technology is being used as an alternative to travel.
OE and the Agency as a whole can achieve additional travel expenditure savings through the
increased use of technology.

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 January 2009 through June 2009, provided a discussion draft report
to management on June 24, 2009, and held an exit conference regarding the discussion draft
report with the Chief Examiner on July 21, 2009.

We appreciate the courtesies and professionalism extended to the audit staff. If you have any
questions about this audit, I would be pleased to meet with you at your convenience.

Respectfully,


Carl A. Clinefelter

Carl A. Clinefelter
Inspector General
                              Table of Contents




BACKGROUND_______________________________________________________ 1


OBJECTIVE AND SCOPE_______________________________________________ 1


CONCLUSIONS_______________________________________________________ 2


AUDIT RESULTS

  Travel Budgeting Process _________________________________________________ 3

   Travel Budget Usage _____________________________________________________ 4

   Travel Expenditure Control _________________________________________________ 5

 BACKGROUND

The Office of Examination (OE) is the largest organizational unit in the Farm Credit
Administration (FCA or Agency) and responsible for the Agency’s ongoing examination and
supervision of Farm Credit System (FCS or System) institutions. Over the past several years,
OE has undergone significant organizational change. This was based in large part on
recommendations made from a 2005 strategic study of OE and other Agency operations that
was completed by an outside firm. Prior to FY 2006, OE’s organizational structure consisted of
five field offices that conducted examinations primarily within their geographic territory. In FY
2006, while there remained five field offices, OE changed its organizational methodology from a
geographical to a functional structure. That is, each of the field offices contributes staff to the
examination and supervision functions on a national versus regional basis. Put another way, the
functional organizational structure is intended to allow OE to bring to examinations the needed
skills and resources regardless of their geographic location.

The new organizational structure does require OE staff to travel to locations outside their
geographic location; however, OE feels it makes all efforts to accomplish its mission by using its
human resources as efficiently as possible.


 OBJECTIVE AND SCOPE

The objective of this audit was to evaluate OE’s budgeting process, usage and control regarding
travel expenses.

The scope of the audit work included the following:

    •	 Interviews with the Chief Operating Officer, Chief Examiner, Chief Information Officer
       and OE budget staff.
    •	 Review of the Agency’s strategic study entitled Organizational Needs for the Office of
       Examination, Office of Policy and Analysis, and Office of Secondary Market Oversight
       dated March 31, 2005, conducted by KPMG.
    •	 Review of OE’s organizational charts, travel information, operational plans, staffing data,
       bank examination information and time recording system data.
    •	 Review of various OE travel budget/expenditure data provided by the Office of

       Management Services for FYs 2004-2009.


The audit was performed at FCA headquarters in McLean, Virginia, from January 2009 through
June 2009, in accordance with generally accepted auditing standards for Federal audits.




FARM CREDIT ADMINISTRATION - OFFICE OF INSPECTOR GENERAL                                         1
 CONCLUSIONS

OE’s travel budgeting process, usage and control are satisfactory.

        Travel Budgeting Process. We found OE’s process for determining its travel budget was
        satisfactory. OE’s travel budget process is a detailed systematic assessment of
        projected travel costs for the various functions performed by the office. The travel
        budget is well defined and supported.

        Travel Budget Usage. Travel expenditures are appropriately tracked by functions
        performed by OE. This process provides a clear perspective on how travel funds are
        being used. Our analysis of travel usage shows that organizational changes and
        examination methodology has primarily contributed to travel costs increasing but not
        inappropriately.

        Travel Expenditure Control. OE has implemented processes to control travel costs.
        Travel expenditures are continuously monitored to ensure expenditures do not exceed
        budgeted amounts. Examination schedules are coordinated so that travel is conducted
        economically and efficiently. In addition, technology is being used as an alternative to
        travel.

        While OE has made strides in its use of technology to reduce travel costs, OE and the
        Agency as a whole can achieve additional travel expenditure savings through the
        increased use of technology.




FARM CREDIT ADMINISTRATION - OFFICE OF INSPECTOR GENERAL                                        2
 AUDIT RESULTS

Travel Budgeting Process

OE’s travel budget is well defined and supported. OE uses a functions/activities matrix approach for
generating its travel budget. This matrix process breaks travel into manageable areas for estimating travel
costs. The diagram below shows how the process works. This diagram is for illustrative purposes only.




                                                                                OE’s travel budget is broken out into six main
                                                                                areas of responsibilities.




                                                                                Within each of the main areas are function
                                                                                activity line items which account for all the work
                                                                                performed by OE.




                                                                                Each function activity line item has a sponsor
                                                                                within OE who is responsible for initially
                                                                                developing that portion of the travel budget.




                                                                                The sponsors determine the number of days and
                                                                                costs for travel planned for their specific function
                                                                                activity line item. Travel budget estimates are
                                                                                based on historical information and projected
                                                                                travel needs.




                                                                                The sponsor forwards their budget estimates
                                                                                with supporting documentation to the
                                                                                responsible Division Director. The Division
                                                                                Director reviews the information and discusses
                                                                                the data with the sponsor, as needed.




                                                                                The Division Directors forward their information
                                                                                to OE budget personnel. Budget personnel
                                                                                review budget information for reasonableness
                                                                                and support. and consolidates the data into the
                                                                                overall OE travel budget spreadsheet.




FARM CREDIT ADMINISTRATION - OFFICE OF INSPECTOR GENERAL                                                        3
The consolidated spreadsheets are forwarded to the OE Executive Management Team and
Chief Examiner for review and discussion, and are adjusted as needed. The consolidated
spreadsheets are then forwarded to Agency senior management for review. The Chief Examiner
discusses the proposed budget with Agency senior management and makes revisions as
needed. The budget is then submitted for FCA Board approval.

Travel Budget Usage

The chart below shows a break-down of actual travel expenses in OE’s six main categories of
operations from FYs 2005-2008.


   2,500,000


                                                                                                    Policy & Guidance
   2,000,000

                                                                                                    Management & Administrative
                                                                                                    Support
   1,500,000
                                                                                                    Planning, Reporting & Controls


   1,000,000                                                                                        Human Capital Administration &
                                                                                                    Development
                                                                                                    General Examination Support
     500,000
                                                                                                    Risk Identification & Supervision

             0
                      2005           2006           2007            2008


The chart shows travel expenditures are mainly in the areas of risk identification and
supervision, general examination support, and human capital administration and development. It
also shows the level of travel funds used in each of these areas has varied over the years.
Based on discussions with the Chief Examiner and budget staff, travel cost increases in these
areas can mainly be attributed to the following organizational and examination methodology
changes.

     •	 Risk Identification and Supervision - Decreased travel costs from FY 2005-2006 were
        due to OE reorganizing and changing its examination philosophy to a more risk-based
        approach 1. The risk-based examination approach resulted in nearly half of the FCS
        institutions not receiving the examination related travel they had experienced in prior
        years. Also examination staff was reduced by 13 employees from FY 2005 -2006.


1
  An examination approach that seeks to stay abreast of risk in an individual FCS institution and focus examination efforts and
resources in areas that could materially impact the safety and soundness of the FCS institutions.


FARM CREDIT ADMINISTRATION - OFFICE OF INSPECTOR GENERAL                                                                          4
         The increase in cost in FY 2007 was due to 14 new associate examiners traveling to
         FCS institutions for on-the-job training. In addition, OE implemented its National
         Examination Program which included onsite examinations in the areas of call reporting,
         information technology and compliance, and shared assets. Also, due to risk at FCS
         institutions toward the end of FY 2007, OE managers began to increase onsite
         examination activity.

    •	 General Examination Support - Prior to FY 2005, Agency senior management decided
       to limit the executive management meetings and there was no OE annual conference.
       This resulted in little travel funds being expended on general examination support and a
       smaller baseline for measuring growth in this area in future years.

        In FY 2006, there was increased work and meetings at various field offices to orient the
        staff to the new organizational structure and risk-based examination process. In
        addition, improvements were made with the way travel expenditures were being
        recorded in the travel system resulting in a more accurate assessment of general
        examination support travel costs.

        Overall, the reorganization that began in FY 2006 has resulted in about two years of
        adjustments with additional travel funds being expended on examination support activity.

    •	 Human Capital Development - Human capital development and training increased in
       FY 2006 due to increase travel for recruiting new examiners.

        In FY 2007 and FY 2008, there were further increases in training-related travel due to
        the revamping of the commissioning program and placing greater emphasis on formal
        training for the new associate examiners hired in FY 2006-2008.

OE is taking steps to control travel costs in these areas. This includes placing greater emphasis
on technology to reduce travel between field offices and FCS bank examination travel.


Travel Expenditure Control

OE’s travel expenditures are monitored throughout the year to ensure costs remain under
budget. In addition, technology is being used to reduce travel costs.

Monitoring Costs - OE’s actual travel costs are continuously monitored by OE and other
Agency staff.

        OE Travel Budget Staff - OE has a staff member who is responsible for overseeing the
        travel budget. The Office of Management Services Finance Team (OMS/FT) provides
        this person the following reports to assist with monitoring travel costs:

                 •	 Detailed monthly reports on all travel vouchers filed and authorized
                    outstanding, with a summary of days and dollars expended for travel in the
                    six broad area budget categories,


FARM CREDIT ADMINISTRATION - OFFICE OF INSPECTOR GENERAL                                         5
                    •	 Quarterly reports on total nights traveled by each examiner, and
                    •	 OE and OMS/FT then work together to complete various analyses on OE’s
                       travel data.

          Field Office Directors and Supervisors - On a quarterly basis, OE budget staff provide
          field office directors and supervisors a summary of the travel expenses used to date
          compared with the budgeted amounts.

          As part of their operating plan, field office directors review their examination schedule
          and coordinate examinations to minimize staff travel time and ensure that the most
          economical and efficient way of conducting examinations is utilized.

          Agency Senior Management - As part of OE’s quarterly operation report to the Chief
          Operating Officer and Board members’ Executive Assistants, OE provides year-to-date
          actual travel cost expenditures by functional activities compared to budgeted amounts.

Actual versus Budget Travel Costs - The continuous monitoring of travel costs has
contributed to OE not exceeding their travel budget.


                    Fiscal Years         Approved Travel Budget                   Actual Travel Costs

                          2005                     $1,839,323                           $1,414,939

                          2006                     $2,082,213                           $1,800,629

                          2007                     $2,130,900                           $2,038,798

                          2008                     $2,394,000                           $2,258,985



Leveraging Technology - OE is using technology to reduce travel costs. For example,
recently OE used Live Meeting 2 to conduct a training session on the new financial institution
rating system oversight template. The Live Meeting was hosted by the McLean office and each
of the field offices were connected on-line. The training was presented using a PowerPoint
presentation. Field office staff was able to follow the PowerPoint presentation and ask
questions using the whiteboard tool. The Agency plans on purchasing additional webcams
which can be used with Live Meeting and is also in the process of upgrading the infrastructure in
the field offices to increase bandwidths.

Technology development is also being incorporated to assist with reducing travel costs for bank
examinations. For example, five of the largest FCS institutions have signed an interconnect
agreement with the Agency which allows FCA direct access to their financial information. Also
the Agency has been working on the loan database to improve the sources of data to help with

2
  Live meeting is an online meeting space that allows you to collaborate in real-time even over long distances. Meeting attendees
can deliver presentations, kick off a project, brainstorm ideas and collaborate on white boards from their personal computer without
raveling.


FARM CREDIT ADMINISTRATION - OFFICE OF INSPECTOR GENERAL                                                                          6
off-site oversight. The Agency’s Chief Information Officer stated in the future the Agency will
encourage more FCS institutions to take part in the interconnect agreement, but
hardware/software compatibility and security concerns must be carefully considered.

Agencywide Technology Advancement

The Agency has also made investments in other technology such as Microsoft Communicator, a
tool that enables users to communicate better when using instant messaging, voice, desktop
sharing and video. It is used more for smaller group communication such as discussions and
chats. In addition, the Agency has upgraded its videoconferencing to High Definition
videoconferencing. The videoconferencing picture is better, much clearer and does not have
as many problems with connections as in the past.

Technology investments such as Live Meeting, Microsoft Communicator and High Definition
videoconferencing are Agencywide initiatives that can help FCA work more efficiently. As the
Agency continues to invest in technology to improve operations, measures need to be in place
to ensure these investments are being fully utilized and projected benefits realized.




FARM CREDIT ADMINISTRATION - OFFICE OF INSPECTOR GENERAL                                          7
                    R E P O R T 

          Fraud | Waste | Abuse | Mismanagement





                              FARM CREDIT ADMINISTRATION

                              OFFICE OF INSPECTOR GENERAL




                 • Phone: Toll Free (800) 437-7322; (703) 883-4316

                 • Fax: 	         (703) 883-4059

                 • E-mail:	 fca-ig-hotline@rcn.com
                 •	 Mail:         Farm Credit Administration

                                  Office of Inspector General

                                  1501 Farm Credit Drive

                                  McLean, VA 22102-5090





FARM CREDIT ADMINISTRATION - OFFICE OF INSPECTOR GENERAL              8