oversight

Second Quarter FY 2009 FCS Survey

Published by the Farm Credit Administration, Office of Inspector General on 2009-06-12.

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

                Second Quarter Fiscal Year 2009 OIG Summary Report on the Survey of FCS Institutions
                                         Regarding the Examination Function
_______________________________________________________________________________________________________




                                Second Quarter Fiscal Year 2009
                                  (January 1 – March 31, 2009)


      Office of Inspector General’s Survey of Farm Credit System (FCS) Institutions
                      Regarding the Agency’s Examination Function


Introduction

Based on the interface FCS institutions had with the Agency's examination function during the
period January 1 – March 31, 2009, the Office of Examination identified 16 FCS institutions that
were in a position to provide meaningful survey responses.

The OIG sent surveys to those 16 institutions on April 22, 2009. A follow-up e-mail was sent to
nonresponding institutions on May 21. Of the 16 institutions surveyed, 15 submitted completed
surveys. If the nonresponding institution subsequently sends a completed survey, it will be
included in the next quarterly report.

One response to the survey issued for the first quarter of FY 2009 was received subsequent to the
first quarter report and is included in this report. As a result, this report covers 16 responding
institutions.

The OIG will continue to provide an e-mail 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 September 30 report will
continue to include fiscal year summary data.

The survey asks respondents to rate the 9 survey statements from "1" (Completely Agree) to
"5" (Completely Disagree). The rating options are as follows:

        Completely Agree                1
        Agree                           2
        Neither Agree nor Disagree      3
        Disagree                        4
        Completely Disagree             5

There is also an available response of “6” (Does Not Apply) for each survey statement.

Narrative responses are provided verbatim, except that any identifying information has been
removed and any grammatical or punctuation errors may have been corrected. Any narrative
in “brackets” is explanatory information provided by the OIG based on communication with the
institution.




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                 Second Quarter Fiscal Year 2009 OIG Summary Report on the Survey of FCS Institutions
                                          Regarding the Examination Function
_________________________________________________________________________________________________________



Survey Results – 2nd Quarter FY 2009

Average numerical responses to survey statements 1 - 9 ranged from 1.7 to 2.1. (For the first
quarter FY 2009, the range averaged 1.6 to 2.2.)

The average response for all survey statements was 1.9. (For the first quarter FY 2009, the
average response was 2.0.)

The majority of narrative comments to survey statements 1 - 9 were positive. However, there
were a few negative comments that should provide opportunities for you to refine examination
methodology and communications, and examiner training. These are color coded in red.

Survey item 10a asks for feedback on the most beneficial aspects of the examination process.
Consistent with prior quarters’ survey responses to this survey item, many very positive
comments were provided about the examiners and the examination process.

Survey item 10b asks for feedback on the least beneficial aspects of the examination process.
Many of these comments should also provide opportunities for you to refine examination
methodology and communications, and examiner training.

Survey item 11 asks for any other comments. All comments but one were positive.


Responses to Survey Statements 1–9


                                       Examination Process

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

    Average Response:           1.8 (1st quarter was 2.0)

    Comments:

                • The frequency of examinations has increased in the past two years.
                • Scope and frequency have been appropriate.
                • The streamline category has been a real positive for our institution.
                  Differential supervision is the most effective and efficient way to conduct the
                  necessary exam function.




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                 Second Quarter Fiscal Year 2009 OIG Summary Report on the Survey of FCS Institutions
                                          Regarding the Examination Function
_________________________________________________________________________________________________________




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

    Average Response:           2.0 (1st quarter was 2.2)

    Comments:

                •   The scope of the examination was limited to two areas. There were no
                    noted violations of laws or regulations.
                •   Mainly in regards to minor/insignificant areas—major authorities, laws and
                    regulations were already well known to institution.
                •   Team members provided guidance regarding borrower’s rights and
                    distressed loan servicing, areas the institution has not been involved with in
                    a number of years.
                •   It provides good reinforcement and support.
                •   Positive relationship helps serve the Institution by being better informed.


Survey Statement 3:             The results and recommendations of the examination process
                                covered matters of safety and soundness, and compliance with
                                laws and regulations.

    Average Response:           1.8 (1st quarter was 2.0)

    Comments:
            •       Most of the findings were recommendations based on “Best Practice.”
            •       Minor/insignificant issues were appropriately dealt with in wrap-up
                    discussions and thus were not reflected in the final report.
                •   Have implemented action plans on all recommendations.


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

    Average Response:           2.1 (1st quarter was 1.9)

    Comments:

                •   New examiners inexperience shows up in several areas during reviews.
                •   When in doubt, they went to others to find the answers.




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                 Second Quarter Fiscal Year 2009 OIG Summary Report on the Survey of FCS Institutions
                                          Regarding the Examination Function
_________________________________________________________________________________________________________



                         Communications and Professionalism


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

    Average Response:           1.8 (1st quarter was 1.6)

    Comments:

                •   Excellent communication with onsite team as well as communication in
                    advance and subsequent to the exam.
                •   Both prior to, during and after the exam. Appreciated follow-up with the
                    institution Board after the exam was issued. Also, appreciated pre-exam
                    work with the Audit Committee.
                •   The staff seems to be especially alert to communicate well.


Survey Statement 6:             Examination communications included the appropriate amount
                                and type of information to help the board and audit committee
                                fulfill their oversight responsibilities.

    Average Response:           1.7 (1st quarter was 1.9)

    Comments:

                •   Yes, the examination staff met with the audit committee of the Board to
                    communicate the results of the examination.
                •   There seemed to be a good exchange of information between the FCA
                    examiners and the board at the exit conference.

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

    Average Response:           2.0 (1st quarter was 2.1)

    Comments:
            •       Most efficient exam the institution’s officers and board members have ever
                    experienced.
                •   Offsite examinations leave a lot to be desired. Again, inexperienced
                    examiners do not have the ability to make critical determinations about an
                    institution on an offsite basis. One-on-one discussions are always the best
                    way to explain issues that develop between the examiner and the institution.
                •   Continuing exam helps.




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                 Second Quarter Fiscal Year 2009 OIG Summary Report on the Survey of FCS Institutions
                                          Regarding the Examination Function
_________________________________________________________________________________________________________


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

     Average Response:          1.9 (1st quarter was 1.9)

     Comments:

                •   Examiners listened and were open-minded to management and board
                    comments and clarifications concerning operations.
                •   Very good open and frank dialog during and following the exam.
                •   New inexperienced examiners lack the common sense necessary to
                    adequately complete a review.


Survey Statement 9:             FCS-wide examination guidance from the Office of Examination
                                (e.g., examination bulletins, informational memoranda, etc.) was
                                timely, proactive and helpful.

     Average Response:          2.0 (1st quarter was 2.2)

     Comments:

                •   E-updates are helpful and timely.


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

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

        •   The examination was limited to one week and the focus of the exam was centered on
            two areas of risk to the institution.
        •   By using a risk-based approach, and thus including the institution in the “low risk”
            exam group, staff time was greatly reduced over the entire examination period.
        •   The ongoing communications between the examiners and the institution staff.
        •   FCA’s assessment of Board and Management in overall performance and specific
            operational areas.
        •   Identification of some areas of improvement in credit policies.
        •   One-on-one discussions with reviewers.
        •   Experienced exam team members who were very open to goals and actions of the
            institution while we are operating in a very difficult credit environment.
        •   Examiners were very helpful in making meaningful suggestions in several areas.
        •   It gives us an objective look at ourselves.
        •   Face-to-face feedback and meetings.
        •   Our examiner in charge, Melinda Huber, has built a very constructive and proactive
            relationship with us; Eric Rodney “gets it” – he has a very strong background in
            technology and security. (Names left in on purpose.)
        •   Audit exit conference.
        •   1. Streamlined process; 2. White papers and best practices memos are helpful.

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                 Second Quarter Fiscal Year 2009 OIG Summary Report on the Survey of FCS Institutions
                                          Regarding the Examination Function
_________________________________________________________________________________________________________



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

        •   Feedback on existing loans to specific industries and performance issues related to
            those specific areas.
        •   Critique of business plan included several items that in view of current market
            conditions seemed to be of minor importance.
        •   Usually at least one reviewer will tend to be biased on subject matter in his/her
            specialty area.
        •   We have to send the same information numerous times and sometimes to the same
            people.
        •   Some of the feedback on review of Annual Report and AMIS are too detailed.
            These reviews could be based more on the spirit of the guidelines, not on the exact
            letter.


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

        •   We appreciate the on-going discussion during the on-site examination to discuss
            and clarify any outstanding issues.
        •   Mr. Dickinson, Mr. Gist, and Mr. Ianetta were very professional in all
            communications and discussions. The “in person” meeting to introduce Mr. Ianetta
            as our new exam manager was very beneficial and appropriate. (Names left in on
            purpose.)
        •   Exam team was professional & courteous. Exam team provided management the
            opportunity to present and discuss relevant information during the process.
        •   Frequency of examinations does create a burden on staff and management.
        •   We give FCA very high ratings in both areas.
        •   Very professional, constructive and efficient. Little disruption institution operations.
        •   A constructive and professional process.




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