oversight

March 2004

Published by the Farm Credit Administration, Office of Inspector General on 2004-03-01.

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

Office of
Inspector General

                    Semiannual Report
                      to the Congress

                      October 1, 2003
                              to
                      March 31, 2004




                        Number 30
                         April 2004
Farm Credit Administration                                Office of Inspector General
                                                          1501 Farm Credit Drive
                                                          McLean, VA 22102-5090
                                                          (703) 883-4030




   April 29, 2004




   The Honorable Michael M. Reyna
   Chairman of the Board and
    Chief Executive Officer
   Farm Credit Administration
   McLean, Virginia 22102

   Dear Mr. Reyna:

   Enclosed is the semiannual report on the activities of the Farm Credit Administration’s Office of
   Inspector General for the period from October 1, 2003 through March 31, 2004. We are filing
   this report in accordance with the Inspector General Act of 1978, as amended (Act). This is the
   thirtieth report since creation of the office on January 22, 1989. Section 5(b) of the Act requires
   that you 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.


   Respectfully,




   Stephen G. Smith
   Inspector General



   Enclosure
                                                          FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                    OCTOBER 1, 2003 – MARCH 31, 2004



                                       CONTENTS

REPORTING REQUIREMENTS ________________________________________________________ii
EXECUTIVE SUMMARY ______________________________________________________________1
BACKGROUND_____________________________________________________________________2
MANAGEMENT CHALLENGES ________________________________________________________2
 HUMAN CAPITAL ____________________________________________________________________2
 AGENCY GOVERNANCE _______________________________________________________________3
 STRATEGIC PLANNING________________________________________________________________4
 FINANCIAL MANAGEMENT _____________________________________________________________4
 SECURITY AND DISASTER PREPAREDNESS _________________________________________________5
 LEVERAGING TECHNOLOGY ____________________________________________________________5
 FARM CREDIT SYSTEM RISK ___________________________________________________________6
AUDIT AND INSPECTION REPORTS ISSUED ____________________________________________6
 FARM CREDIT SYSTEM BUILDING ASSOCIATION BUSINESS PRACTICES ____________________________6
 INDEPENDENT FINANCIAL AUDIT_________________________________________________________6
STATUS OF UNIMPLEMENTED AGREED UPON ACTIONS _________________________________6
 AUDITS___________________________________________________________________________7
 INSPECTIONS ______________________________________________________________________7
 INVESTIGATIONS ____________________________________________________________________8
 LEGISLATION AND REGULATIONS ________________________________________________________8
 OTHER ACTIVITIES __________________________________________________________________8
   MANAGEMENT ADVISORIES __________________________________________________________8
   FCA OIG PEER REVIEW ____________________________________________________________9
   OIG OPEN HOUSE ________________________________________________________________9
   SURVEY OF FARM CREDIT SYSTEM INSTITUTIONS __________________________________________9
   OIG PERFORMANCE MEASURES ______________________________________________________9
   STAFF PARTICIPATION IN ACTIVITIES OF THE PROFESSIONAL COMMUNITY _________________________9
   STAFF PARTICIPATION IN AGENCY ORGANIZATIONS _________________________________________9
APPENDIX A ______________________________________________________________________10
 AUDIT / INSPECTION REPORTS ISSUED BY FCA OIG _________________________________________10
 INSPECTOR GENERAL ISSUED REPORTS WITH QUESTIONED COSTS ______________________________11
 INSPECTOR GENERAL ISSUED REPORTS WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE __12
APPENDIX B ______________________________________________________________________13
 FARM CREDIT ADMINISTRATION ORGANIZATION CHART_______________________________________13
APPENDIX C ______________________________________________________________________14
 FCA OFFICE OF INSPECTOR GENERAL ORGANIZATION CHART _________________________________14




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                                                                                                 FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                                                           OCTOBER 1, 2003 – MARCH 31, 2004




  REPORTING REQUIREMENTS

INSPECTOR GENERAL ACT CITATION AND REQUIREMENT                                                                               PAGE

Section 4(a)(2) Review of Legislation and Regulations ......................................................................... 8

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

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

Section 5(a)(3) Prior Recommendations Not Yet Implemented...........................................................7-8

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

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

Section 5(a)(6) List of OIG Audit/Inspection Reports............................................................................ 11

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

Section 5(a)(8) Statistical Table on Management Decisions................................................................ 12
     on Questioned Costs

Section 5(a)(9) Statistical Table on Management Decisions on........................................................... 13
     Recommendations that Funds be Put to Better Use

Section 5(a)(10) Summary of Each Audit Over Six Months Old for ..................................................... 7
     Which No Management Decision Has Been Made

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

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

Section 5(a)(13) Compliance of Agency Financial Management System ............................................ 6




                                                                         ii
                                                           FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                     OCTOBER 1, 2003 – MARCH 31, 2004




EXECUTIVE SUMMARY

     This semiannual report to the Congress summarizes the activities and accomplishments of
     the Farm Credit Administration (FCA or agency), Office of Inspector General (OIG) and
     covers the period October 1, 2003 through March 31, 2004. Our efforts were directed toward
     performing audits, inspections, and evaluations of FCA programs and operations, conducting
     investigations, and providing technical assistance and advice on FCA programs.

     The FCA Board has been at full strength for over a year. During the reporting period, it
     adopted a strategic plan and focused on significant regulatory matters. The Board faces an
     important transition period when it will need to focus attention on the challenges confronting
     the agency. A recommendation to develop a human capital plan is more than three years old.
     Six months ago, the OIG made three recommendations to update FCA Board Policy
     Statements but no management decision has been made.

     FCA managers have been particularly forthcoming in keeping OIG informed of operational
     concerns and reporting instances of potential abuse. OIG has explored the information and
     taken steps to educate, investigate, and conduct further exploration through audits and
     inspections. OIG takes very seriously the expectation and responsibility to ferret out fraud,
     waste, and abuse and be a leader in remedying such situations.
                                                              FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                        OCTOBER 1, 2003 – MARCH 31, 2004



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 (Farm Credit Act). FCA is a non-appropriated agency with a fiscal
        year (FY) 2004 budget of $38.4 million for administrative costs. The FY 2004 budget for the
        OIG was $865,844. FCA is a “designated Federal entity” within the meaning of the Inspector
        General Act of 1978, as amended.

        FCA currently has 293 employees, about half of which are examiners located at five field
        offices. The OIG maintains five positions. Appendix B displays the current organizational
        structure of FCA and Appendix C displays the OIG within that structure.


MANAGEMENT CHALLENGES

        Two years ago, the OIG added this part of the semiannual report to highlight major
        challenges confronting the agency as it works to fulfill its mission. These challenges have
        remained for several years. While some are outside of the agency’s control, most should be
        addressed through concerted action by management. Over the past two years, the OIG has
        not observed appreciable progress by FCA management in addressing the challenges.

Human Capital

        The OIG recommended FCA develop a human capital plan in March 2001. FCA
        management agreed to this recommendation, yet FCA still does not have a plan three years
        later. The problem, which continues today, has been the lack of a consistent strategic
        approach to marshalling, managing, and maintaining human capital to maximize FCA
        performance and assure its accountability. In 2001, the President identified human capital as
        a critically needed management reform in the Federal government. The General Accounting
        Office’s (GAO) High-Risk1 report also identified the human capital challenges that the
        government faces. The report notes Federal agencies face challenges in four key areas:

               Leadership: Top leadership in the agencies must provide the sustained, committed, and
               inspired attention needed to address human capital and related organization
               transformation issues.

               Strategic Human Capital Planning: Agencies’ human capital planning efforts need to be
               more fully and demonstrably integrated with mission and critical program goals.

               Acquiring, Developing, and Retaining Talent: Additional efforts are needed to improve
               recruiting, hiring, professional development, and retention strategies to ensure that
               agencies have needed talent.

               Results-Oriented Organizational Cultures: Agencies continue to lack organizational
               cultures that promote high performance and accountability, and that empower and
               include employees in setting and accomplishing programmatic goals.



        1
            GAO-03-95


                                                    2
                                                                        FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                                  OCTOBER 1, 2003 – MARCH 31, 2004

               In light of the changes in the competitive environment, advances in technology, and the
               tenure of its workforce; FCA needs to develop a comprehensive, integrated approach to
               human capital issues. Serious human capital shortfalls in planning and organizational culture
               pose a threat to FCA’s ability to economically, efficiently, and effectively perform its mission.

                                        The FY 2003 Performance and Accountability Report notes “Good
a plan without action is a daydream     human resources management is crucial to FCA’s mission and
action without a plan is a nightmare    goals.” The FCA notes it has expended considerable effort on
-- Japanese Proverb                     various tasks related to human capital such as increasing
                                        workforce diversity, hiring career interns, and expanding policies
                                        designed to develop, retain and reward employees. While these
                tasks are important components of a human capital plan, they have not been planned and
                coordinated as part of a cohesive strategy designed to produce measurable results
                addressing the human capital needs of the agency.

               FCA can improve its performance by the way that it treats and manages employees, and by
               building commitment and accountability through involving and empowering employees. FCA
               staff and its leaders must understand the rationale for making organizational and cultural
               changes. Everyone has a stake in helping to shape and implement initiatives as part of the
               agency’s efforts to meet current and future challenges. Effective changes can only be
               sustained through the cooperation of leaders and employees throughout the organization.

 Agency Governance

               The Farm Credit Act provides for a full time three-member Board. The Board members are
               appointed by the President and confirmed by the Senate. A small full-time Board presents a
               challenge in terms of defining the roles and responsibilities of the Board members relative to
               the governance of the agency. The Board must be able to engage in professional policy
               debate and set a sound course for the agency. During this reporting period, the OIG was
               called upon to explore several issues dealing with Government in the Sunshine Act and
               information flow to the Board. The Board and the agency are most effective when they can
               focus on the business of the agency instead of the processes. The concerns over process
               are symptoms of unclear or unmet expectations among the Board members. A collegial
               board founded on mutual trust and respect is essential to FCA’s ultimate effectiveness.

               During the current and prior reporting periods, OIG reports pointed out the need to update
               and revise the Board Policy Statements. The Board’s rules of operation are a foundation for
               trust and shared expectations among Board members. Keeping operational policies current
               will reflect the managing principles of a dynamic organization. Up-to-date policies prevent
               second guessing original intent and interpretation of ambiguity. Each Board member must
               accept the rules of operation and be comfortable with the degree of oversight and
               accountability within the FCA.

               Clarification of roles is particularly important as the Board enters this period of transition. The
               FCA Chairman’s term expires in May 2004 and the President will choose the Chairman’s
               successor. The Board must plan for and anticipate changes resulting from the succession of
               leadership. The Board’s, and in particular, the Chairman’s leadership will be judged by how
               effective and seamless succession is accomplished. This transition is an opportunity for FCA
               to establish a high standard in planning for and enabling a smooth transition.




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                                                                FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                          OCTOBER 1, 2003 – MARCH 31, 2004


Strategic Planning

         The FCA Board adopted a new Strategic Plan during this reporting period. The FCA Board
         worked for more than six months getting input from a cross section of stakeholders and taking
         a fresh look at the substance of FCA’s mission, goals, and objectives. The involvement of
         stakeholders and assessment of internal and external environments as part of strategic
         planning is a major milestone. In order to move to a results-oriented organization, FCA needs
         to ensure the strategic goals are well understood so that it aligns activities, core processes,
         and resources to support mission-related outcomes.

         The agency needs to continue to articulate its mission and core values, to pull employees
         together, and provide a clear focus in support of the agency’s objectives. In successful
         transformation efforts, developing, communicating, and constantly reinforcing the mission,
         goals, objectives, and core values give employees a sense of what the organization intends
         to accomplish, how they fit in the organization, and what they can do to help it succeed.

         FCA needs to consider organizational realignment to better achieve results and clarify
         accountability. Attention to organizational alignment is needed to pursue organizational
         approaches that recognize the reality of evolving technology, a changing workforce, and other
         environmental forces. For example, as competitive sourcing, electronic government (e-
         government), financial management, and other initiatives lead to changes—how FCA meets
         its mission may need to change, including how it is organized.

         The Board and agency staff will face the significant challenge of refining performance
         measures to enhance a results-oriented culture at FCA. The agency will need to achieve a
         balance among results, public expectations, and employee issues. FCA will need to continue
         to monitor its performance measures to ensure that they challenge and stretch the
         organization. Performance measures should serve as a tool to continue the push into a
         results-oriented organization that produces tangible outcomes. FCA will need to take its
         broad performance measures and transform them into a balanced scorecard through the
         organization and down to individuals. The performance management system should serve
         as the basis for setting expectations for employees’ roles in the transformation process. An
         effective performance management system fosters performance and accountability at the
         individual, organizational, and ultimately overall agency levels.

Financial Management

         Timely, accurate, and useful financial information is essential for making day-to-day
         decisions; managing the agency’s operations more efficiently, effectively, and economically;
         supporting results-oriented management approaches; and ensuring accountability on an
         ongoing basis. During FY 2001, FCA successfully implemented a financial management
         system using the services of the Department of Interior’s National Business Center. During
         September 2003, the agency decided to reprogram funds and purchase a new financial
         system. Management originally scheduled implementation of the new system during FY
         2004. However, implementation has been delayed a year.

         Management’s challenge is to bring yet another system on line at a reasonable cost to the
         FCA and concurrently leverage the system to deliver timely financial information critical for
         making well-informed management decisions. The challenge forces the agency to develop
         new measures of financial management success. Financial management success goes far
         beyond an unqualified financial statement audit opinion. Measures such as delivering
         financial information that managers can use for day-to-day operations, and developing reports
         that capture the full cost of programs and projects can help bring about improvements.

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                                                                FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                          OCTOBER 1, 2003 – MARCH 31, 2004

         Financial management represents a challenge that goes far beyond financial accounting to
         the very fiber of FCA’s business operations and management culture. FCA needs to ensure
         that underlying financial management processes, procedures, and information are in place for
         effective program management. FCA already has information that is readily available.
         However, management seems to be stuck in controlling the distribution of the information.
         This type of information control serves as a roadblock to improved management. FCA needs
         to take steps to get information into the hands of managers. FCA will also need to improve
         managers’ ability to use the information to measure, control, and manage costs, to manage
         for results, and to make timely and fully informed decisions about allocating limited resources.

Security and Disaster Preparedness

         A year ago, the OIG noted that the Continuity of Operations Plan needed to be updated and
         practiced. The OIG provided management with concrete suggestions to improve the level of
         preparedness in the event of a disaster. The suggestions could facilitate an expedited effort
         to prepare for an emergency. To date, management has not provided a credible plan for
         employees to follow in the event of a disaster. The agency distributed emergency kits to
         employees and conducted a drill that demonstrated significant confusion existed in
         responding to the mock emergency. However, there has not been a noticeable effort to
         identify and remedy weaknesses uncovered in the drill. The agency’s level of preparedness
         is a management challenge that leaves it vulnerable to significant disruption in operations in
         the event of an emergency.

         The OIG found a strong foundation for security practices in the technology area. The speed
         of change in the security environment will be a challenge for all government organizations.
         This is especially true and a challenge for smaller organizations like FCA where an increased
         emphasis on physical and information security competes with program areas for tight budget
         funding.

Leveraging Technology

         Information technology (IT) is a key element of management reform efforts that can help
         dramatically reshape government to improve performance and reduce costs. Advances in
         the use of IT continue to change the way that Federal agencies communicate, use and
         disseminate information, deliver services, and conduct business. However, for FCA to realize
         IT’s promise, significant challenges will need to be overcome. The agency has recognized
         that in order to meet the constraints of its budget, it must be able to maximize its return on
         investment in technology. FCA will need effective mechanisms to ensure that current and
         future staff has the skills to use technology to operate in an efficient and effective manner.

         IT must complement human capital initiatives to reformulate the work processes of FCA. In
         order for this to come about, FCA will need to invest in training and reward employees who
         are able to develop innovative approaches to accomplish agency goals using technology.

         E-government offers many opportunities to better serve the public, make FCA more efficient
         and effective, and reduce costs. FCA has begun to implement some e-government
         applications, including the use of the Internet to collect and disseminate information and
         forms. Although it has made progress, FCA has not fully reached its potential in this area.
         The FCA needs to: (1) focus on customers by soliciting input from the public and conducting
         user needs assessments; and (2) develop partnerships with other agencies to collaborate
         strategies.




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                                                                FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                          OCTOBER 1, 2003 – MARCH 31, 2004


Farm Credit System Risk

         The Farm Credit System (FCS) is a single industry lender and is vulnerable to economic
         swings. The FCA is challenged to balance the often competing demands of ensuring the
         FCS fulfills it public purpose, proactively examining risk in the regulated institutions both
         individually and systemically, and controlling the cost of the regulator. As the Farm Credit Act
         has aged, it has become challenging for FCA to address increasingly complex issues such as
         loan syndications and preferred stock. FCA and FCS will be challenged to adapt to the
         realities of modern financial markets as the Farm Credit Act continues to age.


 AUDIT AND INSPECTION REPORTS ISSUED

         We conduct all audits in accordance with the standards established by the Comptroller
         General of the United States for audits of Federal organizations, programs, activities, and
         functions. Inspections are in accordance with the President’s Council on Integrity and
         Efficiency’s Quality Standards for Inspections. Copies of most OIG reports are available on
         FCA OIG Web site (www.fca.gov/oig), or by contacting the OIG on (703) 883-4030,
         (703) 883 4359 for TTY or by e-mail at IG_information@fca.gov.

Farm Credit System Building Association Business Practices

         The OIG completed an audit of the Farm Credit System Building Association (FCSBA)
         Business Practices. The overall objective of this audit was to determine if the FCSBA is
         providing the FCA Board enough information about its operations to enable the Board to
         properly oversee FCSBA operations. We found that FCSBA could improve its reporting to
         the FCA Board through a more detailed and timely budget, and updating of the capital
         improvement plan and component reserve fund projects. The FCSBA needs to be more
         diligent by reporting to the Board quarterly on resolution of findings, recommendations and
         actions addressing audits, examinations and other studies. We found that FCSBA should
         update Standard Operating Procedures to reflect the Board’s expectations, and assess the
         FCSBA workforce and contractual needs. Some improvements have been made and others
         are planned.

Independent Financial Audit

         In November 2003, the OIG transmitted Harper, Rains & Knight’s, PA (HRK) report on the
         audit of FCA’s financial statements for the fiscal year ended September 30, 2003. HRK
         issued an unqualified opinion. HRK opined the financial statements present fairly, in all
         material respects, the financial position of FCA as of September 30, 2003 and 2002, in
         conformity with generally accepted accounting principles. HRK issued two other reports. The
         report on internal controls noted no matters that HRK considered to be material weaknesses.
         The HRK report on compliance with laws and regulations did not note any instances of
         noncompliance. In addition to the three reports, a management letter was issued.


 STATUS OF UNIMPLEMENTED AGREED UPON ACTIONS

         At the beginning of the period, there were 13 unimplemented agreed upon actions for audits
         and three unimplemented recommendations for inspections. During the reporting period,
         management took final action on four of the agreed upon actions. During this period, five



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                                                                   FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                             OCTOBER 1, 2003 – MARCH 31, 2004

             more agreed upon actions were issued. At the end of this reporting period, 14 agreed upon
             actions and three recommendations remain unimplemented.

Audits

             The following table summarizes the final actions management took on open audit items.

                                    AUDIT AGREED UPON ACTIONS
                                                                            Final
                                                    Open during
                                                                        Management             Open on
Audit Report                           Issued       this 6-month
                                                                       Actions during         04/01/2004
                                                       period
                                                                         this period
Performance Budgeting                  03/23/01            2                   0                   2
Office of Chief Financial Officer      01/24/02            2                   0                   2
Loan Account Reporting System          08/28/03            9                   4                   5
FCSBA Business Practices               03/09/04            5                   0                   5
                     Totals                                18                  4                  14

             The audit report of Performance Budgeting was issued 3 years ago. Two of the original 14
             agreed upon actions remain open. Remaining open are agreed upon actions to establish 5-
             year financial management and human capital plans. When implemented, these actions will
             further the agency’s financial accountability and improve strategic planning by providing a
             roadmap for future human capital and financial management needs.

             The OIG issued the audit report on the Office of Chief Financial Officer more than two years
             ago. The two remaining agreed upon actions address the role of the Chief Financial Officer
             and the staffing of the organization.

             The OIG issued an audit report on the quarterly collection of detailed borrower data (Loan
             Account Reporting Data) seven months ago. Since the report’s issuance, five action items
             remain open.

             The OIG issued an audit report in early March on the business practices of the FCS Building
             Association. All action items remain open.


Inspections

             The following table summarizes the final action management took on recommendations
             contained in an inspection report.




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                                                                 FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                           OCTOBER 1, 2003 – MARCH 31, 2004


                             INSPECTION RECOMMENDATIONS
                                                                          Final
                                                  Open during
                                                                      Management             Open on
Inspection Report                   Issued        this 6-month
                                                                     Actions during         04/01/2004
                                                     period
                                                                       this period
FCA Board Policies                  09/15/03              3                  0                   3
            Totals                                        3                  0                   3

           The OIG issued an inspection on FCA Board Policy Statements more than six months ago.
           Management has not made any decisions on the recommendations. The objective of this
           inspection was to determine if policies are consistent with sound business practices and
           provide appropriate governance for FCA. We found many policy statements need updating
           and refinement. It appears the Board’s role in overseeing the operations of FCA could be
           enhanced if it establishes a methodical approach to develop, review, and update its policies.
           These practices would foster better governance for FCA.

Investigations

           Most OIG Hotline calls and e-mails dealt with borrower complaints concerning FCS
           institutions and were referred to the FCA office responsible for reviewing such matters. All
           other Hotline calls were addressed or were referred to the appropriate FCA office or other
           Federal agency.

           One investigation was open at the beginning of this reporting period. This investigation was
           unsubstantiated. Three new investigations were opened this period and are currently in
           process.

Legislation and Regulations

           OIG staff reviewed several FCA regulations in both proposed and final form. Statutory and
           regulatory compliance issues were reviewed as they arose in the evaluative process. Also,
           we reviewed and commented on proposed legislation affecting the Inspector General
           community through the legislation committee of the President’s Council on Integrity and
           Efficiency and the Executive Council on Integrity and Efficiency (PCIE/ECIE).

           OIG reviewed comments and followed agency publications on syndication loans, preferred
           stock, and permanent capital.

           This office is involved in workgroups that develop guidelines for use in the investigation
           review process. Our office will participate in the PCIE/ECIE quality assurance review of
           investigations.

Other Activities

       Management Advisories

           During this reporting period, the OIG has continued the use of management advisories.
           These advisories provide management with feedback on issues that came to our attention
           during the process of performing other OIG work. In this 6-month period, we advised agency
           managers on issues including confidential treatment of agency business in closed Board
           sessions and Government in the Sunshine Act.


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                                                        FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                  OCTOBER 1, 2003 – MARCH 31, 2004

FCA OIG Peer Review

   The National Archives and Record Administration (NARA) conducted a peer review of the
   OIG. The objective of the peer review was to evaluate the system of quality controls for the
   audit function of the FCA for the period ended June 30, 2003. NARA tested compliance with
   the OIG’s system of quality controls which included a review of identified audits. NARA used
   the Guide for Conducting External Quality Control Reviews of the Audit Operation of Offices
   of Inspector General for determining the opinion. The peer review concluded that the OIG is
   operating in accordance with the quality standards established by the PCIE and provides
   reasonable assurance of material compliance with professional auditing standards in the
   conduct of its audits.

OIG Open House

   The OIG hosted an open house to celebrate the 25th Anniversary of the IG Act. Along with an
   ongoing visual presentation, The History of the IG at FCA was available to visitors.

Survey of Farm Credit System Institutions

   OIG administers an ongoing agency survey of the regulated institutions of the FCS. This
   survey is designed to provide the FCA Board and senior management with independent
   feedback about how well FCA performs its examination and enforcement activities. The
   feedback is based on confidential responses received from FCS institutions. We surveyed
   the Chairman of the Board and the Chief Executive Officer of each FCS institution, following
   their 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 annually. During this 6-month period, we sent 40 surveys and received 32 responses,
   equating to a 80 percent response rate. Overall, the average rating for the questions
   answered during this reporting period was slightly less favorable (1.60) [1=completely agree;
   5=completely disagree] than the prior semiannual reporting period (1.55).

OIG Performance Measures

   OIG’s performance measures were developed in 1995. Each year we review these
   measures and issue a report on our performance. It is available on the FCA OIG Web page
   at www.fca.gov/oig.

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 is actively involved in one or more professional organizations as well as ad hoc
   activities of the PCIE/ECIE.

Staff Participation in Agency Organizations

   Staff is active on several agency workgroups and task forces. During this reporting period,
   the OIG was represented in Blacks in Government, FCA Employees’ Council, Administrative
   Burden Reduction Workgroup, the Federal Women’s Program, the Budget Workgroup, and
   the Training Task Force.




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                                                   FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                             OCTOBER 1, 2003 – MARCH 31, 2004
                                                                                 APPENDIX A
          NDIX A


 APPENDIX A

AUDIT / INSPECTION REPORTS ISSUED BY FCA OIG


                                   Number of                            Recommendations
                                Recommendations/     Questioned         That Funds Be Put
          Title of Report         Agreed Upon          Costs              to Better Use
                                    Actions

     FCSBA Business Practices           5                   $0                     $0

     FCA Financial Statements           0                   $0                     $0

        FCA Board Policies              3                   $0                    $0

              Total                     8                   $0                     $0




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                                                                FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                          OCTOBER 1, 2003 – MARCH 31, 2004
                                                                                              APPENDIX A
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             0            0             $0                  $0
     of the reporting period

B.   Which were issued during the
                                                   0            0             $0                  $0
     reporting period

Subtotals (A+B)                                    0            0             $0                  $0

C.   For which a management decision was
                                                   0            0             $0                  $0
     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               0            0             $0                  $0
     reporting period

E.   For which no management decision
     was made within six months of                 0            0             $0                  $0
     issuance




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                                                            FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                      OCTOBER 1, 2003 – MARCH 31, 2004
                                                                                          APPENDIX A




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

                                                  Number of          Number of
                                                   Reports             Recs.            Dollar Value

A. For which no management decision has been
   made by the commencement of the reporting            0                0                   $0
   period

B. Which were issued during the reporting
                                                        0                0                   $0
   period

Subtotals (A + B)                                       0                0                   $0

C. For which a management decision was made
                                                        0                0                   $0
   during the reporting period

    (i) dollar value of recommendations that
                                                        0                0                   $0
        were agreed to by management

        --based on proposed management
                                                        0                0                   $0
          action

        -- based on proposed legislative action         0                0                   $0

    (ii) dollar value of recommendations that
                                                        0                0                   $0
         were not agreed to by management

D. For which no management decision has been
                                                        0                0                   $0
   made by the end of the reporting period

E. For which no management decision was
                                                        0                0                   $0
   made within six months of issuance




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                                                     FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                               OCTOBER 1, 2003 – MARCH 31, 2004
                                                                                   APPENDIX B


 APPENDIX B

Farm Credit Administration Organization Chart




                                                13
                                                             FCA SEMIANNUAL REPORT TO THE CONGRESS
                                                                       OCTOBER 1, 2003—MARCH 31, 2004
                                                                                         APPENDIX C


 APPENDIX C

FCA Office of Inspector General Organization Chart




                Farm Credit Administration
                Office of Inspector General



                                             Inspector General
                                               Stephen G. Smith


                    Investigator     Counsel to IG            Auditor       Management Analyst
                  Joan D. Ohlstrom   Elizabeth Dean       Veronica McCain   Mary Beth Barbagallo




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            R E P O R T
Fraud        Waste          Abuse           Mismanagement




                FARM CREDIT ADMINISTRATION
               OFFICE OF INSPECTOR GENERAL

        phone: Toll Free (800) 437-7322

                           (703) 883-4316

           Fax:    (703) 883-4059

            e-mail: fca-ig-hotline@starpower.net

            mail:   Farm Credit Administration
                    Office of Inspector General
                    1501 Farm Credit Drive
                    McLean, VA 22102-5090




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