oversight

March 1998

Published by the Farm Credit Administration, Office of Inspector General on 1998-03-01.

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

Office of
Inspector General




                    Semiannual Report
                      to the Congress
                          October 1, 1997
                              through
                          March 31, 1998
April 28, 1998


The Honorable Marsha Pyle Martin
Chairman of the Board and
 Chief Executive Officer
Farm Credit Administration
McLean, Virginia

Dear Ms. Martin:

This semiannual report is submitted in accordance with the Inspector General Act of 1978, as
amended (Act), and is the eighteenth report on the activities of the Farm Credit
Administration’s (FCA) Office of Inspector General (OIG) since the office was created on
January 22, 1989. Section 5(b) of the Act requires that this report be submitted to the
appropriate Congressional committees and subcommittees within 30 days after the date of this
transmittal, together with management’s report on the status of audit recommendations.

The program management of FCA continues to benefit by your positive response to and support
for improvements offered through various OIG products. Your leadership also enhances the
productive working relationship between OIG and management.

Respectfully,



Eldon W. Stoehr
Inspector General




 __________________________________________________________________________________________

                                                                October 1, 1997 - March 31, 1998
                                               TABLE OF CONTENTS



                                      FCA Semiannual Report to Congress
                                                                                                                                            Page


Reporting Requirements...................................................................................................................1

Background .......................................................................................................................................2

Audit Reports Issued.........................................................................................................................2

Status of Unimplemented Recommendations..................................................................................3

Agency Financial Management Systems.......................................................................................4

Investigations ....................................................................................................................................4

Legislation and Regulations .............................................................................................................5

Other Activities.................................................................................................................................5


APPENDICES:

           Appendix I -- Audit Reports Issued by FCA OIG.........................................................7
           Appendix Ia -- Inspector General Issued Reports with Questioned Costs .....................8
           Appendix Ib -- Inspector General Issued Reports with Recommendations
                            That Funds Be Put To Better Use.........................................................9
           Appendix II -- Farm Credit Administration Organization Chart .................................10
           Appendix III -- FCA Office of Inspector General Organization Chart.........................11




  __________________________________________________________________________________________

                                                                                                        October 1, 1997 - March 31, 1998
                                                                                   FCA Semiannual Report to Congress




                           REPORTING REQUIREMENTS


INSPECTOR GENERAL ACT CITATION AND REQUIREMENT                                                                    PAGE

Section 4(a)(2)     Review of Legislation and Regulations ....................................................... 5

Section 5(a)(1)     Significant Problems, Abuses and Deficiencies.................................... none

Section 5(a)(2)     Recommendations With Respect to Significant
                       Problems, Abuses and Deficiencies................................................. none

Section 5(a)(3)     Prior Recommendations Not Yet Implemented .......................................... 3

Section 5(a)(4)     Matters Referred to Prosecutive Authorities ......................................... none

Section 5(a)(5)     Summary of Instances Where Information
 and 6(b)(2)           Was Unreasonably Refused or Not Provided ................................. none

Section 5(a)(6)     List of OIG Audit Reports............................................................................ 2

Section 5(a)(7)     Summary of Each Particularly Significant Report ...................................... 2

Section 5(a)(8)     Statistical Table on Management Decisions
                        on Questioned Costs............................................................................... 8

Section 5(a)(9)      Statistical Table on Management Decisions on
                        Recommendations That Funds Be Put to Better Use............................ 9

Section 5(a)(10)     Summary of Each Audit Over Six Months Old for
                       Which No Management Decision Has Been Made ........................ none

Section 5(a)(11)     Significant Revised Management Decisions........................................ none

Section 5(a)(12)     Significant Management Decisions With Which
                        the Inspector General Disagrees ..................................................... none

Section 5(a)(13)     Compliance of Agency Financial Management Systems .......................... 4




____________________________________________________________________________________________

1                                                                                October 1, 1997 - March 31, 1998
                                      BACKGROUND

The Farm Credit Administration (FCA or Agency) is an independent Federal agency of the
United States government responsible for the regulation, examination and supervision of
institutions chartered under the Farm Credit Act of 1971, as amended. FCA is a non-appropriated
agency with a fiscal year (FY) 1998 budget of $34,423,000 for administrative costs of the
Agency. The FY 1998 budget for the Office of Inspector General (OIG) is $710,433.

FCA currently has 310.5 established positions, about half of which are examiners located at five
field offices. Also included in the established Agency positions are the five approved positions
for the OIG. Appendix II displays the current organizational structure of FCA and Appendix III
displays the OIG within that structure.

FCA is a “designated Federal entity” within the meaning of the Inspector General Act of 1978, as
amended. The Inspector General is appointed by and is under the general supervision of the
Chairman of the FCA Board (Chairman).



                               AUDIT REPORTS ISSUED

Audits are conducted in accordance with audit standards established by the Comptroller General
of the United States for audits of Federal organizations, programs, activities, and functions. Two
audit reports were issued during this reporting period and are summarized below. Copies of these
reports are available by contacting the OIG on 703/883-4030 or via email at
BURRJ@FCA.GOV.

OIG STAFF AUDIT

FCA’s Regulation Development Process

The objective of this audit was to identify ways in which the current process could be improved
to make it more efficient and effective. The audit documented FCA’s current regulation
development practices and benchmarked them against those of other financial regulators,
particularly in the use of innovative rulemaking techniques. We also interviewed FCA staff
involved in the process to obtain their views about how well the current practices work and their
suggestions for how they might be improved.

We found that FCA’s regulation development activities compared very favorably with the other
Federal financial regulators. The process and organization of FCA’s regulation development
activities have evolved over the past two years as Agency leadership has taken action to
streamline and better define areas of responsibility in developing regulations. Participating
Agency staff provided favorable feedback about the process and their role in it. There was also
evidence of improved communication between the staff members involved in these activities,
particularly between those individuals involved in the review and approval of draft regulations.
____________________________________________________________________________________________

2                                                                October 1, 1997 - March 31, 1998
Recent revisions to policy and procedures are directed at early identification of issues and
managing the editing process.

No recommendations were presented in the report; however, we suggested that the FCA Board
consider: 1) enhancing the outreach program to become more “user friendly,” 2) endorsing the
use of clear and plain language in the writing of regulations, and 3) increasing the use of
technology as a means of achieving FCA Strategic Plan initiatives to improve the Agency’s
regulatory programs.

CONTRACTED AUDIT

Audit of FCA’s FY 1997 Financial Statements

The OIG contracted with the independent accounting firm of Tichenor & Associates, Certified
Pubic Accountants and Management Consultants (Tichenor & Associates), to audit FCA’s FY
1997 financial statements. Tichenor & Associates opined that the Agency’s financial statements
“…present fairly, in all material respects, the financial position of Farm Credit Administration as
of September 30, 1997, and the results of its operations and its cash flows for the year then ended
in conformity with generally accepted accounting principles.”

In accordance with Government Auditing Standards, Tichenor & Associates also issued reports
on: 1) FCA’s internal control structure, and 2) the Agency’s compliance with laws and
regulations. The report on internal control structure disclosed no material weaknesses; however,
it did disclose two reportable conditions. The reportable conditions Tichenor & Associates found
were: 1) inadequate procedures for recording asset acquisition and disposal in the financial
management system, and 2) inadequate segregation of duties over payroll processing and
personnel actions. The report on compliance disclosed no instances of noncompliance with
applicable laws and regulations.

Two recommendations were made to address the reportable conditions identified. Management
agreed with both recommendations.



     STATUS OF UNIMPLEMENTED AUDIT RECOMMENDATIONS

Audit recommendations were addressed through management decisions in a timely manner
and the number of open recommendations was substantially reduced. Nevertheless, at the end
of this reporting period, two open recommendations still exceed the 12-month criteria for
completion of final corrective action established by section 5 of the Inspector General Act of
1978, as amended.

Final action was taken on the following recommendations: one from the report on FCA’s
Practices versus FCA’s Expectations of Farm Credit System Institutions issued September 26,
1996; one from the report on FCA Financial Statements for Fiscal Years Ended 1996 and 1995
issued November 27, 1996; four from the report on the Agency Time Tracking System (ATTS)
____________________________________________________________________________________________

3                                                                 October 1, 1997 - March 31, 1998
issued January 16, 1997; five from the report on FCA’s Use of Task Forces which was issued
September 15, 1997; and one from the report on Audit of FCA’s FY 1997 Financial Statements
issued November 14, 1997.

The three recommendations still open at the close of the reporting period are as follows: two
remaining from the report on Agency Time Tracking System (ATTS) and one from the report on
Audit of FCA’s FY 1997 Financial Statements. Management has agreed with each of these
recommendations.



              AGENCY FINANCIAL MANAGEMENT SYSTEMS

The Federal Financial Management Improvement Act of 1996 requires agencies to implement
and maintain financial management systems that substantially comply with Federal financial
management requirements, government accounting standards, and the U.S. Government standard
general ledger. This Act also requires the OIG to report on the Agency's compliance.

FCA implemented off-the-shelf software in FY 1994, which was sufficient to support unqualified
opinions on the financial statements for fiscal years 1994, 1995, 1996, and 1997. However, the
auditors did identify some systemic weaknesses in that software, which were deemed a reportable
condition in FY 1996. During FY 1997, management selected new, highly advanced
replacement software, which is designed to satisfy all of the above mentioned Federal systems
requirements. The configuration, data conversion, testing, and implementation process began in
early FY 1998 and management expects to run the new software in parallel with the present
software for final acceptance evaluation during the third quarter of this fiscal year.



                                   INVESTIGATIONS

There were three open investigations at the beginning of this reporting period. No additional
investigations were opened during this reporting period. One of the three investigations open at
the beginning of this period was closed during this six-month period.

The investigation closed during this period concerned allegations of violations of Federal
personnel law and administrative weaknesses reported in an earlier period. Management took the
final actions required to resolve the problems that led to the allegations of wrongdoing. At the
close of this reporting period, two investigations remain open.

The OIG Hotline received twelve calls or walk-ins during this period which required action by
this office. Three of the calls dealt with Farm Credit System borrower complaints and were
either referred to the FCA division responsible for investigating such matters or we are awaiting
further information from the complainant.


____________________________________________________________________________________________

4                                                                October 1, 1997 - March 31, 1998
Three hotline calls concerned fraud in programs other than those under FCA’s jurisdiction and
were referred to the appropriate agency. Two calls concerned complaints/allegations internal to
FCA. One concern was successfully resolved without necessitating a formal investigation. The
second was reviewed but did not contain sufficient information to pursue or warrant opening a
case. The remainder of the Hotline calls required no investigative action by the OIG.



                        LEGISATION AND REGULATIONS

During this reporting period, OIG continued to track legislation of interest to the Inspector
General community, the Agency and the Federal government. We are closely tracking the
proposed amendments to the Government Performance and Results Act (H.R. 2883). OIG
reviewed one proposed Agency regulation.



                                 OTHER ACTIVITIES

Initiatives to Prevent Fraud, Waste, Abuse, and Mismanagement

We have begun an inspection program of FCA’s five field offices designed to review the
operations of field offices and provide feedback to field office directors and Agency
management. These inspections will report on weaknesses found and provide recommendations
for preventing fraud and waste in field offices as well as the Agency as a whole.

Our first inspection disclosed a few areas common to all FCA offices where improved controls
could help prevent and/or deter wrongdoing. Our findings and related recommendations will be
forwarded to Agency management for action. In the specific field office, we found a few
instances of noncompliance in the administrative areas; however, none posed a risk to their
operations and no inappropriate payments/actions were taken as a result of the noncompliance.
Our inspection included a review of administrative processes but focused on controls and
procedures, which ensure the physical safety of our field office employees. The security of
equipment and information located away from headquarters was also reviewed.

We also reviewed various operational processes of the examination function. We identified a few
opportunities for improvement in our first inspection. Future inspection results will assess
whether these areas are isolated in one office or more widespread and what actions, if any, need
to be taken.




____________________________________________________________________________________________

5                                                               October 1, 1997 - March 31, 1998
Survey of Farm Credit System (FCS) Institutions

OIG administers an ongoing survey of the regulated institutions of the FCS. This survey program
is designed to provide the FCA Board with independent feedback concerning how well FCA is
performing its examination and enforcement activities. OIG administers and reports the results of
the survey to assure the confidential treatment of individual responses from FCS institutions. The
chairman of the board and the chief executive officer of each FCS institution are surveyed
following their receipt of FCA’s report of examination to solicit their voluntary feedback on the
quality and consistency of the examination/enforcement processes. During this reporting period,
84 surveys were mailed out and 64 responses were received from institutions, a 76% response
rate.

OIG Performance Measures

OIG developed performance measures during FY 1995 and implemented them in FY 1996. We
have refined the measures in each subsequent year and have issued performance reports for both
FY 1996 and 1997. We have revised OIG’s time reporting system for FY 1998 to accumulate
better data to support the measures.

Staff Participation in Activities of the Professional Community

OIG staff are encouraged to participate in organizations which contribute to the mission of the
Inspector General community as well as their individual professional development. Most staff
are actively involved in one or more professional organizations in addition to ad hoc activities of
the Executive Council on Integrity and Efficiency/President’s Council on Integrity and
Efficiency.




____________________________________________________________________________________________

6                                                                 October 1, 1997 - March 31, 1998
                                                                                 APPENDIX I



                      AUDIT REPORTS ISSUED BY FCA OIG



                                                                           Recommendations
     AUDIT REPORTS              Number of              Questioned          That Funds Be Put
                             Recommendations             Costs               to Better Use

      FCA's Regulation
     Development Process              0                     $0                       $0


    Audit of FCA’s FY 1997
     Financial Statements             2                      0                         0


            Total                     2                     $0                       $0




____________________________________________________________________________________________

7                                                             October 1, 1997 - March 31, 1998
                                                                                APPENDIX Ia


                  INSPECTOR GENERAL ISSUED REPORTS
                       WITH QUESTIONED COSTS



                                                Number                    Dollar Value

                                                                 Questioned         Unsupported
                                         Reports     Recs.         Costs               Costs
A. For which no management decision
   has     been     made by     the
   commencement of the reporting
   period                                   0            0    $ 0                 $ 0
B. Which were issued during the
   reporting period                         0            0        0                   0
   Subtotals (A+B)                          0            0        0                   0
C. For which a management decision
   was made during the reporting
   period                                   0            0        0                   0
   (i)     dollar value of disallowed       0            0        0                   0
   costs
   (ii) dollar value of costs not
   disallowed                               0            0        0                   0
D. For which no management decision
   has been made by the end of the
   reporting period                         0            0        0                   0
E. For which no management decision
   was made within six months of
   issuance                                 0            0        0                   0




____________________________________________________________________________________________

8                                                             October 1, 1997 - March 31, 1998
                                                                                APPENDIX Ib


         INSPECTOR GENERAL ISSUED REPORTS WITH
     RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE


                                                              Number

                                                    Reports            Recs.          Dollar Value
A. For which no management decision has been
   made by the commencement of the reporting
   period                                              0                  0                 $0
B. Which were issued during the reporting
   period                                              0                  0                   0

   Subtotals (A + B)                                   0                  0                   0
C. For which a management decision was made
   during the reporting period                         0                  0                   0
   (i) dollar value of recommendations that
   were agreed to by management                        0                  0                   0
        --     based on proposed management
               action                                  0                  0                   0
        --     based on proposed legislative
               action                                  0                  0                   0
   (ii) dollar value of recommendations that
   were not agreed to by management                    0                  0                   0
D. For which no management decision has been
   made by the end of the reporting period             0                  0                   0
E. For which no management decision was
   made within six months of issuance                  0                  0                   0




____________________________________________________________________________________________

9                                                              October 1, 1997 - March 31, 1998