oversight

Sept. 1999

Published by the Farm Credit Administration, Office of Inspector General on 1999-09-01.

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

Office of
Inspector General




                    Semiannual Report
                      to the Congress
                             April 1, 1999
                                 through
                       September 30, 1999
                                                                  FCA Semiannual Report to Congress




October 31, 1999


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

Dear Ms. Martin:

We are filing this semiannual report in accordance with the Inspector General Act of 1978, as
amended (Act). It is the twenty-first report on the activities of the Farm Credit Administration’s
(FCA or Agency) Office of Inspector General (OIG) since creation of the office on January 22,
1989. Section 5(b) of the Act requires that this report be sent 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.

Agency programs continue to improve through management’s acceptance and implementation
of OIG advice and recommendations. OIG will keep working with management to improve
operations and contribute to the Board’s vision that FCA has the best people, best practices and
best products.

Respectfully,



Eldon W. Stoehr
Inspector General
                                               FCA Semiannual Report to Congress




            REPORT HIGHLIGHTS


We issued one audit and one inspection report during this period.
Because of these and earlier reports, management took the following
actions:


• Improved and documented Agency preparation for the Year
  2000 rollover.
• Reviewed all Agency positions for proper classification of
  security clearances and addressed the backlog of background
        investigations.
• Began active oversight of FECA claims by FCA employees.
• Greatly increased the use of credit cards for making
  micropurchases and essentially all training costs are paid
  using this method.
• Improved policies and implemented written procedures to
  ensure Agency compliance with the Prompt Payment Act.
• Modified policies to better justify, safeguard and track funds
  spent on specialized training.
• Updated positions covered under the Agency’s Drug Free
  Workplace program and incorporated random sampling
  procedures for testing.
• Improved controls over the Agency’s supply room.
• Modified the exam manual and implemented procedures for
  examination of: Call Reports; Orders of Removal, Suspension,
  or Prohibition; and Specially Designated Nationals and Blocked
  Persons in Farm Credit System Institutions.
                                                                                                     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..................................................................................3

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

Agency Financial Management System ..........................................................................................4

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

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

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

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


                                                             APPENDICES:

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




                           REPORTING REQUIREMENTS


INSPECTOR GENERAL ACT CITATION AND REQUIREMENT                                                                    PAGE

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

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

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

Section 5(a)(3)     Prior Recommendations Not Yet Implemented .......................................3-4

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

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

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

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

Section 5(a)(10)     Summary of Each Audit Over Six Months Old for
                       Which No Management Decision Has Been Made ...........................3-4

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 .......................... 4




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1                                                                                April 1, 1999 - September 30, 1999
                                                                        FCA Semiannual Report to Congress


                                         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 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

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. We
issued one audit report during this reporting period, which is summarized below. Copies of these
reports are available by contacting the Inspector General’s (IG) office on 703/883-4030 or by e-
mail at BURRJ@FCA.GOV.

We have adopted a practice we identified during our benchmarking of the practices of Freddie
Mac that should contribute to earlier correction of issues identified during audits and inspections.
We will work with management during the audit or inspection and draft report dialogue so
management’s acceptance of specific corrective actions is incorporated into the final report.
Therefore, going forward, draft reports will propose “agreed upon actions” rather than the
traditional “recommendations.”

CONTRACTED AUDIT

Analysis of the FCA IT Infrastructure

The OIG contracted with the consulting firm of Planning Technologies Incorporated (PTI), to
perform an analysis of FCA’s information technology (IT) infrastructure focusing on the
following issues:

•   the ability of the current infrastructure to support future initiatives,
•   business process improvement,
•   current network infrastructure design,

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2                                                                     April 1, 1999 - September 30, 1999
                                                                FCA Semiannual Report to Congress




•   network monitoring tools being used to manage and proactively monitor the network,
•   staffing level and organization, and
•   network security policies and procedures.

Overall, the assessment found FCA’s network infrastructure is well designed and
documented. The networking technology is comparable to or better than that of other IT
organizations throughout industry and government. In addition, FCA bought top of the line
equipment from leading vendors that will provide FCA with a robust infrastructure for the
foreseeable future.

However, PTI noted several areas that should be improved. The report detailed 20
recommendations to improve operations in the Agency’s IT infrastructure. Of the 20
recommendations, management agreed with 15 and is committed to corrective actions, agrees in
principle with three other recommendations but has not committed to take corrective action, and
asserts that two others warrant further study.

INSPECTION

OIG continued to use inspection reports to provide a quick turnaround on issues important to
management. During this period, the OIG issued one inspection report.

Dallas Field Office Inspection

The scope of the field office inspection included various administrative and program areas to
assess compliance with external and internal guidance. We found that almost all the areas we
reviewed had no obvious weaknesses. However, we found opportunities for improvement in
three examination areas. Management has agreed with the recommendations and has already
implemented appropriate corrective actions.


                          STATUS OF UNIMPLEMENTED
                             RECOMMENDATIONS

During the reporting period, management implemented all but two recommendations in a timely
manner. At the end of this reporting period, 20 recommendations remain open, 19 for audits and
one for inspections. One open audit recommendation and the one open inspection
recommendation exceed the 12-month criteria for completion of final corrective action
established by section 5 of the Inspector General Act of 1978, as amended.

Audits




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                                                                  FCA Semiannual Report to Congress


Management took final action on the following open audit recommendations: three from the audit
report on FCA’s Specialization/Certification Programs issued on January 5, 1999, and two from
the audit report Analysis of the FCA IT Infrastructure issued on September 30, 1999.


The 19 open audit recommendations at the end of this reporting period are as follows: one from
the audit report on FCA’s IMPAC Program issued on August 11, 1998, and 18 from the audit
report on the Analysis of FCA’s Network Infrastructure which was not issued until the last day of
this reporting period.

Inspections

Management took final action on three recommendations from the report on the Inspection of the
Dallas Field Office issued on April 15, 1999, and two recommendations from the Inspection of
FCA’s Workmen’s Compensation Program issued on September 30, 1998. One remaining
recommendation from the Inspection of FCA’s Workmen’s Compensation Program is still open.


                                         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 Y2K with quarterly status
reports to the FCA Board. The contract audit of FCA’s network infrastructure complemented our
review of the Agency’s Y2K efforts.


               AGENCY FINANCIAL MANAGEMENT SYSTEM

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 United States government
standard general ledger. This Act also requires the OIG to report on the Agency's compliance.

Management installed new financial management software (FINASST) as of October 1, 1999, to
correct some systemic weaknesses that existed in the predecessor system. The replacement
configuration, data conversion and testing of this replacement software began in early FY 1998
and were substantially completed during the summer of 1999. Management engaged a consultant
to perform an independent validation and verification of the software in March 1999. The
independent auditors engaged by the Inspector General to review the Agency’s financial
statements are also evaluating the integrity, controls and opening balances for FY 2000.




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                                                                   FCA Semiannual Report to Congress




                              MANAGEMENT LETTERS

During this reporting period, we issued one management letter.

Personnel Security Program

We issued a management letter on FCA’s Personnel Security Program on May 10, 1999. It
contained six suggested actions related to improving the Agency’s procedures and controls about
deciding risk levels for employee positions and conducting the suitable background investigations
according to those risk levels. Management has reviewed all FCA positions and taken
appropriate action on each while also improving procedures and staff awareness stressing the
importance of personnel security.


                                    INVESTIGATIONS

There was one open investigation at the beginning of this reporting period. We opened three new
investigations during this period. We closed one of the four open investigations during this six-
month period.

The investigation closed during this period concerned two personal checks stolen from an
Agency employee and subsequently forged and cashed. The OIG worked with the financial
institution and a Federal law enforcement agency to find out the identity of the person responsible
for the criminal actions. We were unable to discover the person’s identity. However, through the
investigative efforts on this case, the OIG identified weaknesses in Agency programs and
procedures and reported them in management letters. Management has responded by tightening
controls.

Most OIG Hotline calls dealt with FCS borrower complaints and were referred to the FCA
division responsible for researching such matters. One call merited a preliminary review by OIG,
but there was no support for the allegations.


                         LEGISATION AND REGULATIONS

During this reporting period, we reviewed statutory and regulatory compliance issues as they
arose in audits and investigations. We also reviewed several FCA regulations in both
proposed and final form. We continued our review of legislation pending before Congress,
which would affect the FCA and Federal government employees. Through the legislation
committees of the PCIE and the ECIE, we have reviewed and commented on proposed
legislation.

With regard to legislation that has been introduced to further amend the Inspector General Act
of 1978, a group of Designated Federal Entity IGs worked cooperatively to prepare and
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                                                                   FCA Semiannual Report to Congress


submit comments on the proposed changes. We were disappointed with the Supreme Court
ruling that in effect affirmed a lower court decision premised on the assumption that for labor
union purposes, employees of the OIG are considered to be part of agency management rather
than independent within their agency. This premise appears to be in conflict with the original
intention of the IG Act and may need legislative attention.

We responded to a request from the Office of Management and Budget to inform them of the
OIG status under the Federal Activities Inventory Reform Act.


                                  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 about how well FCA performs
its examination and enforcement activities. OIG administers and reports the results of the survey
to assure the confidential treatment of individual responses from FCS institutions. We survey the
chairman of the board and the chief executive officer of each FCS institution following their
receipt of FCA’s report of examination to ask their voluntary feedback on the quality and
consistency of the examination and enforcement processes. We mailed out 76 surveys during this
reporting period and received 53 responses, a 70% response rate. Overall, the average rating for
the questions answered this period was 1.63 (1=completely agree; 5=completely disagree).

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 FY
1996 through 1998. We will issue the report for FY 1999 during the next reporting period.

Staff Participation in Activities of the Professional Community

OIG staff are encouraged to take part 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 as well as 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 took part in several Agency workgroups and task forces. During this reporting period
the OIG was represented on the Leadership Team, Compensation Workgroup, Benchmarking
Team, Equal Employment Opportunity Advisory Committee, Strategic Message Workgroup,
Employee Council, FCA’s Mentoring Program, Administrative Burden Reduction Workgroup,
Telecommuting Pilot Program, Federal Women’s Program and the Farm Credit Club.

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6                                                                 April 1, 1999 - September 30, 1999
                                                                 FCA Semiannual Report to Congress




                                                                                  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
    Network Infrastructure            20                    $0                        $0


     Dallas Field Office
         Inspection                   3                     $0                        $0


            Total                     23                    $0                        $0




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7                                                             April 1, 1999 - September 30, 1999
                                                               FCA Semiannual Report to Congress


                                                                                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                                   1            1    $ 31,892             $ 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                                 1            1    $ 31,892                 0




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8                                                             April 1, 1999 - September 30, 1999
                                                                FCA Semiannual Report to Congress


                                                                                 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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9                                                              April 1, 1999 - September 30, 1999