oversight

March 2001

Published by the Farm Credit Administration, Office of Inspector General on 2001-03-01.

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

April 27, 2001


The Honorable Michael M. Reyna
Chairman of the Board and
 Chief Executive Officer
Farm Credit Administration
McLean, Virginia

Dear Mr. Reyna:

Enclosed is the semiannual report on the activities of the Farm Credit Administration’s (FCA or
Agency) Office of Inspector General (OIG) for the period from October 1, 2000 through March
31, 2001. We are filing this report in accordance with the Inspector General Act of 1978, as
amended (Act). It is the twenty-fourth report since creation of the office on January 22, 1989.
Section 5(b) of the Act requires that we send this report to the appropriate Congressional
committees and subcommittees within 30 days after the date of this transmittal, with
management’s report on the status of audit recommendations.

This is the first semiannual report I have submitted as Inspector General (IG). I am looking
forward to continuing our relationship and helping the Agency in making positive changes,
becoming a better place to work, and a more efficient organization.

Respectfully,



Stephen G. Smith
Inspector General


Enclosure
                                                          FCA Semiannual Report to Congress




                      REPORT HIGHLIGHTS


We issued two audit reports and one review during this period. Based
on recommendations and agreed upon actions made in these and
earlier reports, as well as other Office of Inspector General (OIG)
activity, the following actions were taken:

•   The Chairman appointed Stephen G. Smith as the new Inspector General
    replacing Eldon W. Stoehr who served as IG for 12 years before retiring.

•   Management has accelerated its timetable to implement a new financial
    management system because of deficiencies in FCA’s current system.

•   OIG and management partnered to present the results of a survey on
    inappropriate behavior to all Agency employees. OIG developed proposed
    solutions and guidance for the CEO to use in addressing issues.

•   OIG began administering a confidential survey to stakeholders and other
    interested parties on the Agency’s Regulatory Development Program.

•   As a way to enhance unification of the Agency’s performance measures
    efforts, over 40 FCA employees attended two days of Government
    Performance and Results Act of 1993 (GPRA) training.

•   Added security measures were installed in field offices for safeguarding
    videoconferencing equipment.

•   The Agency work/life program continues to improve through the
    Chairman’s implementation of year-round casual dress and an Agency
    contribution toward each employee’s flexible spending account. OIG’s
    Management Analyst received a PCIE/ECIE award for her contributions to
    getting work/life improvements for the Agency. She also received an
    Agency Peer Award for initiative shown in getting these and other family-
    friendly initiatives instituted at FCA.
                                                                                                    FCA Semiannual Report to Congress




                                               TABLE OF CONTENTS



                                      FCA Semiannual Report to Congress
                                                                                                                                            Page


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

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

Audit and Inspection Reports Issued................................................................................................2

Status of Unimplemented Recommendations and Agreed Upon Actions......................................3

Agency Financial Management System ..........................................................................................5

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

Criminal Referrals.............................................................................................................................6

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

Other Activities.................................................................................................................................6


                                                            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 ......................................3-5

Section 5(a)(4)      Matters Referred to Prosecutive Authorities .............................................. 6

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......................................................2-3

Section 5(a)(7       Summary of Each Particularly Significant Report ..................................2-3

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




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                                     BACKGROUND


The FCA 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 nonappropriated agency with a fiscal year (FY) 2001 budget of
$36,800,000 for administrative costs. The FY 2001 budget for the Office of Inspector General
(OIG) is $869,771.

FCA currently has 301 established positions, about half of which are examiners located at five
field offices. Also included in the Agency positions are five approved positions for the OIG.
Appendix II displays the current organizational structure of FCA and Appendix III displays the
OIG within that structure. Since the last reporting period, OIG lost an auditor and the Inspector
General, Eldon W. Stoehr, who retired on December 15, 2000. Stephen G. Smith was appointed
Inspector General on January 12, 2001. A vacancy announcement is pending for the auditor.

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 under the general supervision of the
Chairman of the FCA Board (Chairman).


                 AUDIT AND INSPECTION REPORTS ISSUED

We issued two audit reports during this reporting period, which are summarized below. We
conduct all audits in accordance with audit standards established by the Comptroller General of
the United States for audits of Federal organizations, programs, activities, and functions.
Inspections we conduct are in accordance with the President’s Council on Integrity and
Efficiency's Quality Standards for Inspections. Copies of all OIG reports are available on FCA’s
Web site (www.fca.gov/oig), by contacting the Inspector General’s (IG) office on 703/883-4030,
or by e-mail at burrj@fca.gov.


                                   OIG STAFF AUDIT

Performance Budgeting

The objective of this audit was to evaluate whether the FCA Board receives appropriate analysis
and insight about offices’ requested funds to enable it to make informed decisions. The scope of
the audit included benchmarking other agencies to identify their progress in implementing
performance budgeting; reviewing FCA’s current policies and procedures for planning and
budgeting; interviewing FCA staff involved in the budget process; and researching budgeting
concepts, policies and practices, including Federal guidance on GPRA.

Our review found that although the Agency currently creates many planning documents, a more
streamlined and cohesive planning process is needed. The Agency should consolidate individual
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office planning documents to enable the Board to have more comprehensive information linking
office resources and goals to the Agency’s Strategic Plan and performance measures. We also
found two areas, financial planning and human capital planning, that need to be addressed. OIG
and management came to agreement on 14 actions to improve FCA’s efficiency and effectiveness
in performance budgeting.


                        INDEPENDENT FINANCIAL AUDIT

OIG engaged the independent audit firm, Harper, Rains, Stokes & Knight, P.A. to conduct an
audit of the principal financial statements of FCA for fiscal year 2000. The auditors issued an
unqualified opinion. They concluded FCA’s principal financial statements present fairly, in all
material respects, the financial position of FCA as of September 30, 2000, in conformity with
generally accepted accounting principles. The auditors did not note any matters involving the
internal control structure and its operation that they considered to be material weaknesses.

The auditors’ report on compliance with laws and regulations noted the Agency’s financial
management system did not substantially comply with the Federal financial management systems
requirements. Specifically, the Agency could not rely on its financial management system to
produce financial statements for the fiscal year ended September 30, 2000. A management letter
was also issued.


                  STATUS OF UNIMPLEMENTED
            RECOMMENDATIONS and AGREED UPON ACTIONS


At the beginning of the period there were 18 unimplemented recommendations or agreed upon
actions. During the reporting period, management took final action on 15 of these. Four were
from an audit report and 11 were from five inspection reports. Just before the end of the period,
OIG issued an audit with 14 agreed upon actions. At the end of this reporting period, 17
recommendations or agreed upon actions remain open, 15 for audits and 2 for inspections.


Audits

The following table summarizes the final actions management took on open recommendations
and agreed upon actions.




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                           AUDIT RECOMMENDATIONS
                           and AGREED UPON ACTIONS

                                                                   Final
                                                  Open on                           Open on
                Audit Report                                     Management
                                                  10/1/2000                         3/31/2001
                                                                   Action
FCA’s Supply and Procurement Functions
       Issued March 29, 2000                          5                4                 1
Performance Budgeting
       Issued March 23, 2001                          0                0                14

Totals                                                5                4                15

Inspections

Management took final action to close all remaining recommendations and agreed upon
actions on four inspections. At the end of the reporting period, only one inspection has open
items. The following table lists final actions on recommendations and agreed upon actions
from the inspections.

                      INSPECTION RECOMMENDATIONS
                         and AGREED UPON ACTIONS

                                                                   Final
                                                  Open on                           Open on
              Inspection Report                                  Management
                                                  10/1/2000                         3/31/2001
                                                                   Action
Performance Measures
       Issued March 24, 2000                          2                2                 0
Telecommunication Costs and Services
       Issued March 28, 2000                          1                1                 0
Imprest Fund
       Issued May 4, 2000                             1                1                 0
Cash Management and Investment Practices
       Issued September 28, 2000                      8                6                 2
Denver Field Office
       Issued September 29, 2000                      1                1                 0

Totals                                                13               11                2

The two open agreed upon actions are over six months old.




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               AGENCY FINANCIAL MANAGEMENT SYSTEM


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

Management installed financial management software (FINASST) as of October 1, 1999, to
correct systemic weaknesses that existed in the predecessor system. FINASST was the Agency’s
system of record for FY 2000. FINASST did not substantially comply with Federal financial
management system requirements to produce financial statements for the fiscal year ended
September 30, 2000. The financial management system is a serious management challenge
facing the Agency.

During FY 2000, management recognized critical problems in its financial management systems.
A cross-servicing arrangement with the Department of Interior (DOI) was set up to implement
and use its financial management system before the beginning of FY 2002. Management now
expects the system of record for FY 2001 will be Federal Financial Systems (FFS) as managed by
the DOI’s National Business Center. FFS is a system widely used by Federal agencies and one
that substantially complies with the requirements described above. The OIG believes strong
project management skills and close oversight by executive management will be critical to the
successful implementation of FFS. OIG expects a remediation plan to be created and the Chief
Financial Officer has committed to completing it by July 1, 2001.


                                   INVESTIGATIONS


There were two open investigations at the beginning of this reporting period, and four new
investigations were opened. We closed four investigations during this period because they were
not substantiated. The closed investigations concerned violations of merit system principles,
abuse of leave, and an allegation concerning an employee’s false claim.

Most OIG Hotline calls dealt with Farm Credit System borrower complaints and were referred to
the FCA office responsible for researching such matters. One OIG Hotline e-mail resulted in the
opening of an investigation, but the allegation was not substantiated.




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                               CRIMINAL REFERRALS


OIG referred one matter to the Attorney General for prosecutorial consideration. The case
involved a false official statement. It was declined for prosecution and is being handled
administratively by the Agency.


                       LEGISLATION AND REGULATIONS


We reviewed several FCA regulations in both proposed and final form. We also reviewed
statutory and regulatory compliance issues as they arose in audits and investigations. We have
reviewed and commented on proposed legislation affecting the Inspectors General community
through the legislation committee of the President’s Council on Integrity and Efficiency
(PCIE) and the Executive Council on Integrity and Efficiency (ECIE).

During this period, OIG received a request from the Chairman of the House Committee on
Banking and Financial Services (Committee) to review the issues involved in FCA’s National
Charter initiative and to make recommendations to the FCA Board, with a report to Congress.
The Committee Chairman asked OIG to consider a General Accounting Office opinion that
the Congressional Review Act was applicable to the National Charter booklet, published by
the Agency in the Federal Register. Before issuing an OIG report on this matter, the
Committee Chairman withdrew his request for a report.


                                  OTHER ACTIVITIES

Survey on Harassment

In response to anonymous letters which suggested inappropriate behavior was occurring in the
Office of Examination, OIG developed a survey to find out if there was a problem and if so, the
extent of the problem. OIG hired a consultant to survey current and former employees, tabulate
and sort the responses and, most importantly, ensure confidentiality to respondents. The survey
results showed there were problems. OIG developed guidance to help employees in reporting
and dealing with inappropriate behavior. We also partnered with Agency management to deliver
the results of the survey to all FCA employees.

Survey of Farm Credit System (FCS) Institutions

OIG administers an ongoing Agency survey of the regulated institutions of the FCS. This survey
program is designed to provide the FCA Board and senior management with independent
feedback about how well FCA performs its examination and enforcement activities. This
feedback is based on confidential responses received from FCS institutions. We survey the
chairman of the board and the chief executive officer of each FCS institution following their
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receipt of FCA’s report of examination for their voluntary feedback on the quality and
consistency of the examination and enforcement processes. OIG reports the results of the survey
semiannually. During this period we mailed 54 surveys and received 29 responses. This is a
54% response rate, which is the lowest response rate we have had since the third quarter of FY
1997. Overall, the average rating for the questions answered during this reporting period was
very good (1.44) [1=completely agree; 5=completely disagree] and slightly better than the 1.51
average for FY 1999.

Regulatory Development Survey

As part of FCA’s ongoing efforts to measure performance, the OIG initiated another survey, this
one on the Agency’s Regulatory Development Program (RDP). The Agency is committed to a
regulatory philosophy that promotes a safe and sound, competitive Farm Credit System and
hopes to achieve this goal with minimum regulatory burden while involving the public in its
rulemaking activities. We developed the survey with the FCA office responsible for managing
the RDP and sent it to everyone who filed written comments with FCA on proposed final
regulations. The OIG sent out 247 surveys and received 138 confidential responses. We
provided a summary report to senior management on January 10, 2001. Using the same rating
system as the FCS survey above, the overall rating of RDP survey respondents was 2.29, with
most respondents (65%) indicating they either agreed or strongly agreed the Agency was
achieving its stated goals. OIG will continue to administer this survey annually.

Mentoring Program

We performed a review of the Agency’s Mentoring Program. We found the program was a
success for the participants and individual goals were generally accomplished. Based on
participant feedback, we made seven suggestions to management on how to improve the
program.

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. The FY 2000 OIG Performance
Report will be available on the OIG Web page soon.

Staff Participation in Activities of the Professional Community

OIG staff members are encouraged to take part in organizations that 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 as well as ad hoc activities
of the PCIE/ECIE.




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Staff Participation in Agency Organizations

Staff is active on several Agency workgroups and task forces. During this reporting period the
OIG was represented on the Equal Employment Opportunity (EEO) Advisory Committee (which
advises the EEO Director on the Agency’s Affirmative Employment Program), Administrative
Burden Reduction Workgroup, Federal Women’s Program, FCA Employees’ Council, and the
Mentoring Program.




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                                                                                  APPENDIX I



                          AUDIT/INSPECTION REPORTS
                              ISSUED BY FCA OIG




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

       Performance
        Budgeting                       14                    $0                      $0


    Agency Financial
   Statements FY 2000                   0                     $0                      $0


          Total                         14                    $0                      $0




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                                                                                  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
   (i) dollar value of disallowed costs       0            0            $0                  $0
   (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




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                                                                                 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




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