oversight

March 1999

Published by the Farm Credit Administration, Office of Inspector General on 1999-03-01.

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

Office of
Inspector General



                    Semiannual Report
                      to the Congress
                         October 1, 1998
                              through
                         March 31, 1999
April 22, 1999


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 twentieth report on the activities of the Farm Credit Administration’s
(Agency) 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.

Agency programs have continued to improve through management’s acceptance and
implementation of OIG advice and recommendations. Your support is very much appreciated.

Respectfully,



Eldon W. Stoehr
Inspector General
                    REPORT HIGHLIGHTS

Two audits and one inspection were issued during this period. As a result of these
and earlier reports, management took the following actions:

•   Established a “clear and plain” language initiative for Agency regulations
    and other documents.
•   Improved security for personal safety of field office employees and
    enhanced controls over property and equipment.
•   Improved procedures and controls over the Agency’s credit card
    purchasing program.
•   Broadened the expertise of subject matter specialists through rotational
    programs for Capital Markets Specialists and Information Systems
    examiners.
•   Eliminated financial control weaknesses reported by independent financial
    auditors as reportable conditions.
•   Segregated incompatible duties between the time entry conversion function
    and the payroll leave audit function.
•   Expanded its Examination Manual to provide guidance for reviewing officer
    and employee compensation and affirmative action plans for regulated
    institutions.

OIG initiated the use of management letters as a vehicle for more timely
identification and correction of management issues. We issued five management
letters and, even though those letters were issued late in this period, management
has already taken the following actions:

•   The Agency’s flexiplace program has been broadened, on a test basis.
•   The Information Resources Division (IRD) changed the methodology for
    assigning addresses to computers on the network.
•   An article was published in FCA This Week to ensure all employees know
    how to use remote access to the Time Recording and Consolidated
    Reporting Systems.

Special Highlighting of Developments Encroaching on the Independence of IGs.
(See page 6)
                                                TABLE OF CONTENTS



                                      FCA Semiannual Report to Congress
                                                                                                                                             Page


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

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

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

Inspection Reports Issued.................................................................................................................3

Status of Unimplemented Recommendations..................................................................................4

Year 2000 ..........................................................................................................................................4

Agency Financial Management Systems.........................................................................................5

Management Letters .........................................................................................................................5

Investigations ....................................................................................................................................5

Legislation and Regulations .............................................................................................................6

Other Activities.................................................................................................................................7


APPENDICES:

            Appendix I -- Audit/Inspection Reports Issued by FCA OIG.......................................9
            Appendix Ia -- Inspector General Issued Reports with Questioned Costs ...................10
            Appendix Ib -- Inspector General Issued Reports with Recommendations
                             That Funds Be Put To Better Use.......................................................11
            Appendix II -- Farm Credit Administration Organization Chart .................................12
            Appendix III -- FCA Office of Inspector General Organization Chart.........................13
                                                                                  FCA Semiannual Report to Congress




                           REPORTING REQUIREMENTS


INSPECTOR GENERAL ACT CITATION AND REQUIREMENT                                                                   PAGE

Section 4(a)(2)     Review of Legislation and Regulations ....................................................... 6

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 .................................... none

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/Inspection Reports.......................................................2-4

Section 5(a)(7)     Summary of Each Particularly Significant Report ...................................2-4

Section 5(a)(8)     Statistical Table on Management Decisions
                        on Questioned Costs............................................................................. 10

Section 5(a)(9)      Statistical Table on Management Decisions on
                        Recommendations That Funds Be Put to Better Use.......................... 11

Section 5(a)(10)     Summary of Each Audit Over Six Months Old for
                       Which No Management Decision Has Been Made .............................. 4

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 .......................... 5




____________________________________________________________________________________________

1                                                                                 October 1, 1998 - March 31, 1999
                                      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) 1999 budget of $36,017,177 for administrative costs of the
Agency. The FY 1999 budget for the Office of Inspector General (OIG) is $731,604.

FCA currently has 310 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” (DFE) 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 AND INSPECTION 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 Inspector General’s (IG) office on 703/883-4030 or via
email at BURRJ@FCA.GOV.

OIG STAFF AUDIT



CONTRACTED AUDIT

FCA's FY 1998 Financial Statements

The OIG contracted with the independent accounting firm of Tichenor & Associates (Tichenor),
Certified Public Accountants, to audit FCA’s Financial Statements. This audit included the
balance sheet as of September 30, 1998, and the related statements of; net cost, changes in net
position, budgetary resources, and financing, for the year ended September 30, 1998. Tichenor
issued an unqualified opinion on these financial statements.

Tichenor also issued two reports; both dated November 10, 1998, on FCA’s internal control
structure and FCA’s compliance with laws and regulations. The report on internal control
structure disclosed no material weaknesses; however, it did disclose two conditions that Tichenor
considered to be reportable. Specifically, Tichenor reported that: (1) inadequate procedures were
in place for detecting manipulation of financial statement information, and (2) inadequate
controls were in place over the payroll audit function.
____________________________________________________________________________________________

2                                                                 October 1, 1998 - March 31, 1999
The report on compliance with laws and regulations disclosed one instance of noncompliance
with applicable laws and regulations under Government Auditing Standards and OMB Bulletin
98-08. Specifically, Tichenor reported that under reporting requirements of the Prompt Pay Act,
all Federal agencies must report annually to the Director of OMB by November 30th of each year.
FCA did not submit its annual report for fiscal year 1997. Subsequently, on November 10, 1998,
this reporting requirement was repealed by Public Law 105-362.

As a result of the audit, two recommendations were made which focused on measures needed to
resolve the reportable conditions pertaining to internal control structure. Management agreed
with the recommendations and has taken corrective action.

INSPECTION

This reporting period OIG continued to expand the use of inspection reports in an effort to
provide a quick turnaround on issues important to management. The OIG issued the final report
on the Dallas Field Office inspection (summarized below) and completed the fieldwork for a
second field office inspection, although the final report will not be issued until the next reporting
period.

Dallas Field Office




                           STATUS OF UNIMPLEMENTED
                              RECOMMENDATIONS

During the reporting period, management continued to implement most recommendations in a
timely manner.

Audits

Management took final action on the following open recommendations: two from the audit report
on FCA’s IMPAC Program issued on August 11, 1998; two from the audit report on FCA's FY
1998 Financial Statements issued November 10, 1998; and two from the audit report on FCA’s
Specialization/Certification Programs issued January 5, 1999.

The open recommendations at the end of this reporting period are as follows: one from the audit
report on FCA’s IMPAC Program and three from the audit report on the FCA’s
Specialization/Certification Programs.

Inspections

Final action was taken on one recommendation from the report on the Inspection of the
Bloomington Field Office issued May 7, 1998, and one from the report on the Inspection of the
____________________________________________________________________________________________

3                                                                   October 1, 1998 - March 31, 1999
Sacramento Field Office issued October 16, 1998. A management decision has yet to be made on
the three recommendations from the Inspection of FCA’s Workmen’s Compensation Program
issued on September 30, 1998.

Management’s continued commitment toward timely final action on all open recommendations is
anticipated.


                                        YEAR 2000

The Agency is making reasonable progress in addressing year 2000 (Y2K) issues, both within
Agency operations and in the regulated institutions. OIG is making an on-going audit of the
Agency’s Y2K activities that will continue through the first half of 2000 with quarterly status
reports to the FCA Board. Further, OIG has engaged an independent consultant to make an
assessment of FCA’s complete network infrastructure.

              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 replacement software designed to
satisfy all of the above mentioned Federal systems requirements. The replacement configuration,
data conversion and testing of this replacement software began in early FY 1998 with the
expectation that implementation would occur at the beginning of FY 1999; however, problems
identified during testing have delayed implementation. Management engaged a consultant to
perform an independent validation and verification of the software in March 1999 and now
expects that the problems identified through that process will be corrected and the system
implemented at the beginning of FY 2000.


                             MANAGEMENT LETTERS

We have initiated the practice of developing management letters in order to bring issues to
managers’ attention in a timely fashion. During this period, we issued five management letters
concerning Prompt Payments, Travel, Remote Access to the Agency Network System, Supply
Room Security, and FCA’s Drug Free Workplace Program. We expect management to continue
to be receptive and responsive to this practice.



____________________________________________________________________________________________

4                                                               October 1, 1998 - March 31, 1999
                                   INVESTIGATIONS

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

The investigation closed during this period concerned allegations of employees receiving benefits
from travel which were not allowed for within the Federal Travel Regulations. We investigated
the allegations and the relevant laws and Comptroller General decisions concerning allowable
benefits to Federal employees. The allegation that FCA employees were receiving inappropriate
or unallowable benefits from official travel was not substantiated.

The OIG Hotline continues to receive few calls or walk-ins, which require investigative action by
this office. Five calls were received through the Hotline that dealt with FCS borrower
complaints. These calls were either referred to the FCA division responsible for investigating
such matters or we are awaiting further information from the complainant. Two calls pertained to
an allegation internal to FCA, but did not result in the opening of an investigation because the
preliminary review indicated that there was no support for the allegations. Another Hotline call
reported concerns over administrative procedures rather than violations of law and will be
considered to incorporate in a future audit or inspection. The remainder of the Hotline calls
required no investigative action by the OIG.


                        LEGISATION AND REGULATIONS

During this reporting period, four Agency regulations and an FCA public policy were reviewed.
We reviewed the regulations and public policy to assess their possible administrative effects and
the risk of fraud, waste and abuse under them.

                           Special Highlighting of Developments
                          Encroaching on the Independence of IGs

An issue that may need Congressional support or action involves the encroachment on the
independence of designated Federal entities (DFE) Inspectors General under on the Inspectors
General Act of 1978, as amended in 1988. DFE Inspectors General believe that the Inspector
General Act Amendments of 1988 intended to grant Inspectors General in the DFEs with the
same independence as the Presidentially appointed Inspectors General; however, the
independence of DFE Inspectors General has recently been challenged in two forums.

The first to question the independence of the DFE Inspectors General was the Professional Ethics
Committee of the American Institute of Certified Public Accountants (AICPA). That Committee
has proposed a revision of its rules that would define DFE Inspectors General as not sufficiently
independent to issue audit reports under Generally Accepted Auditing Standards (GAAS). Under
the proposed rules, the Presidentially appointed Inspectors General would be treated as
independent auditors, but the DFE Inspectors General would be treated as “internal auditors”
because they are appointed by their agency heads and are therefore considered to be less
____________________________________________________________________________________________

5                                                                October 1, 1998 - March 31, 1999
independent. In response, 24 DFE Inspectors General signed a letter challenging the AICPA’s
proposed revision, and asserting that the manner of an Inspector General’s appointment does not
vest Presidentially appointed Inspectors General with more independence than their DFE
counterparts.

The second challenge to the independence of DFE Inspectors General grew out of a hearing
before an Administrative Law Judge (ALJ) of the Federal Labor Relations Authority (FLRA) on
an Unfair Labor Practice charge against the Office of inspector General of the National Labor
Relations Board (NLRB). At issue was the alleged refusal of an investigator from the NLRB
OIG to permit an employee to be represented by his union during an investigative interview.
This very issue is pending a decision by the U.S. Supreme Court in FLRA v. National
Aeronautics and Space Administration and National Aeronautics and Space Administration
Office of Inspector General, 120 F.3d 1208 (11th Cir.1997), cert.granted, 119 S.Ct. 401(1998);
and oral argument was heard on March 23, 1999. The ALJ who decided the NLRB case,
however, felt that the case was not necessarily dependent on the outcome of the NASA case in
the Supreme Court. The ALJ found that since the NLRB case involved a DFE Inspector General,
and the pending NASA case involved a Presidentially appointed Inspector General, the cases
were sufficiently dissimilar. The ALJ stated:

       Unlike the Inspector General in NASA and the Inspectors General of other
       agencies defined by section 11 of the IG Act as “establishments,” the Inspector
       General of the NLRB is appointed by its Chairman, who may also remove him
       or her. Although such removal must be explained to Congress, there are not
       formal limitations on such action. The Inspector General, therefore, must rely
       solely on political considerations rather than legal standards with respect to the
       security of his or her position.

NLRB OIG and NLRBU, FLRA Case No. AT-CA-80026 (February 10, 1999), at 19. The ALJ
went on to state that because a DFE Inspector General serves at the pleasure of the agency head,
and because of the agency’s role in establishing the Inspector General’s budget, a DFE Inspector
appears to have at least somewhat less independence than a Presidentially appointed Inspector
General. Id. at 20.

Legislative proposals are expected to be introduced in this Congress which will directly affect
Inspectors General, and in the coming months, as a DFE Inspector General I intend to become
more involved in working with Congress to address these independence issues as a part of these
legislative proposals.


                                  OTHER ACTIVITIES

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
____________________________________________________________________________________________

6                                                                 October 1, 1998 - March 31, 1999
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,
70 surveys were mailed out and 48 responses were received from institutions, a 68% response
rate. Overall, the average rating for the questions answered this period was (1=completely agree;
5=completely disagree) compared to 1.72 from the previous reporting period.

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 revised OIG’s time reporting system for FY 1998 to accumulate better
data to support the measures. The report for FY 1998 will be issued during the next reporting
period.

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.

Staff Participation in Agency Organizations

OIG staff have participated in several Agency workgroups and task forces. During this reporting
period the OIG was represented on the Leadership Team, EEO Advisory Committee, Annual
Report Task Force, Chartering and Corporate Issue Workgroup, Strategic Message Workgroup,
Employee Council, FCA’s Mentoring Program, Administrative Burden Reduction Workgroup,
Farm Credit Club and the Federal Women’s Program.




____________________________________________________________________________________________

7                                                                 October 1, 1998 - March 31, 1999
                                                                                    APPENDIX I



                           AUDIT/INSPECTION REPORTS
                               ISSUED BY FCA OIG



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

     Analysis of FCA’s
      IT Infrastructure               20                    $0                          $0


     Dallas Field Office
         Inspection                   1                     $0                          $0


           Total                      21                    $0                          $0




____________________________________________________________________________________________

8                                                                October 1, 1998 - March 31, 1999
                                                                                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                                   1            1    $ 31,892                 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




____________________________________________________________________________________________

9                                                              October 1, 1998 - March 31, 1999
                                                                                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




____________________________________________________________________________________________

10                                                              October 1, 1998 - March 31, 1999