oversight

Second Quarter FY 2013 FCS Survey

Published by the Farm Credit Administration, Office of Inspector General on 2013-06-11.

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

                       Second Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                       Regarding the Examination Function
_________________________________________________________________________________________________________



                   Second Quarter Fiscal Year (FY) 2013 Summary Report 

                              (January 1 – March 31, 2013) 


   Office of Inspector General’s (OIG) Survey of Farm Credit System (FCS) Institutions 

                      Regarding the Agency’s Examination Function 


Introduction

During the period January 1 – March 31, 2013, the Office of Examination (OE) identified 17
FCS institutions that were in a position to provide meaningful survey responses.

The OIG sent surveys to those 17 institutions on April 24. Of the 17 institutions surveyed, 10
submitted completed surveys. If the outstanding responses are received, they will be included
in the next quarterly report.

The OIG will continue to provide an email report to you based on each FY quarter-end, i.e.,
December 31, March 31, June 30, and September 30, so that you may timely take whatever
action you deem necessary to address the responses. The fourth quarter report as of
September 30 will continue to include FY summary data.

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

        Completely Agree                1        

        Agree                           2        

        Neither Agree nor Disagree      3

        Disagree                        4                       

        Completely Disagree             5


There is also an available response of “6” (Does Not Apply) for each survey statement. These
responses are not included in averages.

Narrative responses are provided verbatim, except 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 conversations with
institution management. This quarter, one conversation was held with institution management.

Survey Result – Second Quarter FY 2013

Average numerical responses to survey statements 1 - 8 were 1.3 to 2.4. (For the first quarter
FY 2013 the range averaged 1.5 to 2.6.)

The average response for all survey statements was 1.7. (For the first quarter FY 2013 the
average response was 1.9.)




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                       Second Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                       Regarding the Examination Function
_________________________________________________________________________________________________________


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

Survey item 9 asks for feedback on the most beneficial aspect of the examination process.
Consistent with prior quarters’ responses to this survey item, many very positive comments
were provided about the examiners and the examination process.

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

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

Although a somewhat lower response rate, the responses were slightly higher compared to the
first quarter.

Responses to Survey Statements 1–8

                                       Examination Process

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

    Average Response:           1.7 (first quarter was 2.0)

    Comments:
            	 Scope examination from one year to another is consistent. Some time was
               spent on reviewing all the files of a customer when there was no recent
               activity, leaving a question of appropriate time management.
            	 Scope in Credit exam focused on large loans, and participations purchased.
            	 Asset Quality, Capital, and Earnings should be the main focus. More time
               was spent in other areas such as: Business Continuity Planning, Employee
               Ratings, and Standards of Conduct. We understand that there is a national
               plan to follow, but let’s not lose sight of what is important and where we see
               the real risk in the institution.

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

    Average Response:           1.6 (first quarter was 1.9)

    Comments:
            	 No conflict between FCA Regulations and examiners’ criteria was noted.




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                       Second Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                       Regarding the Examination Function
_________________________________________________________________________________________________________


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

    Average Response:           2.0 (first quarter was 2.0)

    Comments:
            	 The required and recommended actions will do nothing in assisting the
               board and management in addressing risks to the institution.
            	 Reasons and facts are well documented and provide clear direction to the
               Board and Management.
             No actions required.
             No response was required from Exam report. However, suggestions by the
               institution EIC, were insightful and helpful to Board and institution
               Management Team.
            	 The Board values feedback on the important issues, but ancillary findings
               need to be presented in that manner. We do not appreciate the “piling on”
               approach taken by examiners. For example, we just finished our National
               Compliance Audit and were in the process of researching regulations and
               policies to address an issue. Due to timing the issue was going to be
               addressed after year-end, but the EIC insisted on copying and pasting the
               issue into the Exam. This happens too frequently with our other
               independent reviews too. Management and Directors should be allowed
               time to respond to audit findings.
            	 Provides comfort to the board having another set of eyes reviewing.

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

    Average Response:           1.3 (first quarter was 1.5)

    Comments:
                  Well organized and efficient use of time onsite. 

                  The examination team and its leadership were very professional and 

                   pragmatic in their approach to this year’s exam.
                 Examiners acted in a positive manner.
                 Examiners demonstrated professionalism and were accessible to institution
                   personnel.
                	 Our examiners were professional and did a nice job. We question the need
                   to fly people in from four different areas of the country to complete our exam.
                   One seasoned examiner only looked at one loan for the entire week when
                   they were on site. [Less of inexperienced, new examiners compared to last
                   year.]
                 Very open and easy to discuss issues with. Executive sessions helpful.
                 All interactions with the exam team were professional and respectful.
                   Interruption to staff duties/schedules was kept to a minimum.




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                       Second Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                       Regarding the Examination Function
_________________________________________________________________________________________________________


                                          Communications

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

    Average Response:           1.5 (first quarter was 1.9)

    Comments:
            	 Examination team did a nice job listening to understand the institution’s
               approach to identified risks in its portfolio.
            	 Excellent communication demonstrated by EIC. [Name removed] also
               attended Board meeting when report was presented, which was helpful and
               appreciated by the institution board and management.
            	 They did a much better job of communicating (grouping thoughts and
               questions together and only calling once or twice a week) during this
               examination cycle.


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:           1.6 (first quarter was 1.7)

    Comments:
            	 Information was pertinent to Board and Audit Committee. Executive session
               was offered to the Audit Committee following personal presentation of the
               exam report, however, because FCA’s presentation was so thorough,
               executive session was not necessary.
            	 They provided some information to help us understand the findings.
            	 Report was lengthy. Somewhat difficult to identify areas of larger concern
               from smaller issues.
            	 Communications were good on-site during the exam. The recommendation
               on the credit plan was somewhat vague and there was some
               misunderstanding between FSO segmentation and market segmentation.


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

     Average Response:          1.6 (first quarter was 1.8)

     Comments:
                   Exit review and discussion was beneficial. 

                   This was done especially well this year and appreciated! 

                   Examiners were very open to discuss concerns and evaluate resolutions. 

                   The EIC and other examiners listened to institution management and asked 

                    questions regarding their views and opinions.
                   They did listen and consider our thoughts and views on the examination.

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                       Second Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                       Regarding the Examination Function
_________________________________________________________________________________________________________


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

     Average Response:          2.4 (first quarter was 2.6)

     Comments:
            	 Sometimes the guidance is too broad or general to provide appropriate
               assistance.
            	 Pertinent guidance is always helpful. The EIC regularly volunteers
               discussion of written communications from FCA.

                             General Questions 9, 10, and 11

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

                    Exit review findings and discussion. 

                    Having FCA staff on site to interact regarding questions and conclusions.

                    The exam team focused on areas of potential risk. They appropriately 

                     evaluated the risk and discussed findings with staff. Were open to discussions
                     and reached reasonable and satisfactory conclusions.
                    Credit administration review, review of institution stress testing, exchange and
                     communication with the EIC.
                	   The background information and supporting documentation on some of the
                     findings was helpful. We also appreciated the discussions and phone
                     conversation prior to the report being issued.
                	   Our institution is assigned to the training track for newer FCA employees. The
                     group that completed our most recent exam did a good job and they represent
                     the Agency well.
                	   Executive session with examiners.
                	   Communication level and quality; Participation of lead examiners with Board
                     Audit Committee was beneficial; Exam team very respectful of staff time and
                     availability.

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

                	 Pandemic Plan and certain disaster recovery area reviews.
                	 Of the several findings only one really mattered. Pulling resources away from
                   our mission to address ancillary issues is frustrating and time consuming. The
                   regulatory burden placed on our staff because we are in a good credit cycle is
                   becoming too cumbersome. If we had a downturn in the credit cycle, we would
                   have only had one examination finding.
                	 Length of report, all issues appeared equally important.




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                       Second Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                       Regarding the Examination Function
_________________________________________________________________________________________________________


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

                	 This was discussed with the entire board and it had no additional comments.
                	 Examiners met with the board to report on their findings. This meeting and
                   exam reports were complete and effective.
                	 Board was satisfied with scope and ease to read and understand the report.
                   The EIC and [name removed] attending Board meeting to present the report
                   was appreciated as well as their professionalism. Personal communication of
                   2013 oversight areas was meaningful as well.
                	 Managing an institution with [amount removed] million in assets isn’t that much
                   different than managing an institution with [amount removed] million in assets.
                   We are personal lenders, not procedural lenders.
                	 Pleased with conversation during executive session.




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