oversight

Sept. 2001

Published by the Farm Credit Administration, Office of Inspector General on 2001-09-01.

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

October 30, 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 April 1, 2001 through
September 30, 2001. We are filing this report in accordance with the Inspector General Act of
1978, as amended (Act). It is the twenty-fifth 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.

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
                                            CONTENTS

REPORTING REQUIREMENTS ______________________________________________________________ ii
BACKGROUND ____________________________________________________________________________ 1
MANAGEMENT CHALLENGES _____________________________________________________________ 1
 Organizational Leadership __________________________________________________________________ 1
 Farm Credit System Risk ___________________________________________________________________ 1
 Financial Management _____________________________________________________________________ 2
 Security __________________________________________________________________________________ 2
 Human Capital____________________________________________________________________________ 2
 Leveraging Technology _____________________________________________________________________ 2
AUDIT AND INSPECTION REPORTS ISSUED _________________________________________________ 2
 GISRA Review ____________________________________________________________________________ 3
 Affirmative Employment Plan Inspection ______________________________________________________ 3
 Administrative Inspections __________________________________________________________________ 3
STATUS OF UNIMPLEMENTED RECOMMENDATIONS and AGREED UPON ACTIONS___________ 3
 Audits ___________________________________________________________________________________ 3
 Inspections _______________________________________________________________________________ 4
 INVESTIGATIONS _______________________________________________________________________ 4
 LEGISLATION AND REGULATIONS _______________________________________________________ 5
 AGENCY FINANCIAL MANAGEMENT SYSTEM ____________________________________________ 5
 OTHER ACTIVITIES _____________________________________________________________________ 5
  Management Advisories____________________________________________________________________ 5
  Pentagon Assistance_______________________________________________________________________ 5
  Survey of Farm Credit System Institutions______________________________________________________ 6
  OIG Performance Measures_________________________________________________________________ 6
  Staff Participation in Activities of the Professional Community______________________________________ 6
  Staff Participation in Agency Organizations_____________________________________________________ 6


APPENDICES
 AUDIT / INSPECTION REPORTS ISSUED BY FCA OIG ______________________________________________ 7
 INSPECTOR GENERAL ISSUED REPORTS WITH QUESTIONED COSTS __________________________________ 8
 INSPECTOR GENERAL ISSUED REPORTS WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE ___ 9
 Farm Credit Administration Organization Chart_______________________________________________ 10
 FCA Office of Inspector General Organization Chart ___________________________________________ 11




                                                         i
  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 ........................................................none
     Problems, Abuses and Deficiencies

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 ...............................................................none
     and 6(b)(2) Was Unreasonably Refused or Not Provided

Section 5(a)(6) List of OIG Audit/Inspection Reports...........................................................................3-4

Section 5(a)(7) Summary of Each Particularly Significant Report.......................................................3-4

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

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

Section 5(a)(10) Summary of Each Audit Over Six Months Old for ..................................................none
     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 ........................................... 5




                                                                                     ii
                        REPORT HIGHLIGHTS




We issued three inspection 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, we achieved the following:

  Contracted for the first annual GISRA review. The FCA received high
  acclaim in having established security over information technology.

  Partnered with the OIG community and the FBI to investigate aspects
  of the terrorist crisis. Our investigator assisted in evidence recovery
  at the Pentagon.

  Helped the Agency make progress toward a streamlined planning
  process. Office budget and operating plans have been integrated,
  along with basic workforce planning so that each office has a
  consolidated operating and performance plan. These plans link
  resources to performance goals and the Agency’s strategic plan.

  Participated in a task force that resulted in FCA’s time recording
  system being updated to reduce redundancies in recording employee
  time and to better link the Agency’s strategic goals to Agency
  projects. This system will now be able to track the cost of human
  capital in obtaining Agency goals.

  Further implemented the use of management advisories to provide
  rapid feedback to managers on areas where weaknesses were
  previously identified by OIG.

  Became fully staffed by hiring an auditor and a management analyst.
                                      FCA SEMIANNUAL REPORT TO CONGRESS




 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 284 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 filled the vacant
         auditor position.

         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).



 MANAGEMENT CHALLENGES


         This section of the report outlines major challenges confronting the Farm Credit
         Administration as it works to fulfill its mission. These challenges fall into two general
         categories. First are the challenges related to the FCA’s core mission of ensuring a
         dependable supply of credit to agriculture through the institutions it has chartered. These
         challenges are often shaped and influenced by events that are outside the control of the
         Agency. Second, but no less important, are those challenges related to the Agency’s
         operations.

Organizational Leadership

         The Farm Credit Act provides for a full time three-member Board of Directors. The board
         members are appointed by the President and confirmed by the Senate. The rapidly
         changing complex financial and banking environment makes the Board’s task both
         challenging and important. The Board must be able to engage in healthy professional
         policy debate and set a sound course for the Agency. A full strength Board is an important
         element in setting clear priorities and deliberating fully on the issues. In the 15 years since
         the inception of the FCA Board, it has been at full strength for less than half of that time. It
         has been missing one Board member since January 2000 except for a brief 20-day
         period.

Farm Credit System Risk

         The Farm Credit System is a single industry lender and therefore is vulnerable to
         economic swings in the industry. The Farm Credit Administration is challenged to balance
         the often-competing demands of ensuring the System fulfills it public purpose, proactively



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                                        FCA SEMIANNUAL REPORT TO CONGRESS


           examining risk in the regulated institutions both individually and systemically, and
           controlling the cost of the regulator.

Financial Management

           FCA’s financial management system has undergone almost continuous change over the
           past five years. During this reporting period, the Agency implemented a new system by
           contracting for processing services with Department of Interior’s National Business Center.
           While the implementation appears to have occurred smoothly, management’s challenge
           will be to use the system to develop the financial information that is critical to well informed
           management decisions.

Security

           The events of September 11, 2001 serve as a stark reminder that security must remain a
           major challenge for the Agency. In the recent report on information security, this Office
           found a strong foundation for security practices. However, the speed of change in the
           security environment will be a challenge for all government organizations. This is
           especially true for smaller organizations like FCA where an increased emphasis on
           physical and information security will compete with program areas for tight budget funding.

Human Capital

           FCA needs to develop a comprehensive, integrated approach to human capital issues.
           The FCA has not adopted a human capital strategy. In light of the changes in the
           competitive environment, advances in technology, and the tenure of its workforce, FCA
           needs to closely evaluate business processes, their associated costs, and alternatives.

Leveraging Technology

           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 technical skills to use
           technology to operate in an efficient manner.



 AUDIT AND INSPECTION REPORTS ISSUED


           We issued a “Government Information Security Act Review” and three inspection 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
           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 IG_information@fca.gov.




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                                   FCA SEMIANNUAL REPORT TO CONGRESS


GISRA Review

             OIG engaged the independent audit firm, Clifton Gunderson LLP, to conduct a review
             of the information security in accordance with procedures essential for establishing
             compliance with the Government Information Security Reform Act (GISRA). The
             Federal Financial System, Consolidated Reporting System, Lotus Notes, Windows
             NT, Firewall System and the FCA Web site were reviewed as mission critical systems.
             The evaluators found no security issues concerning the Agency-wide security
             program.

Affirmative Employment Plan Inspection

             The OIG completed an inspection of the FCA’s Affirmative Employment Program
             Action Plan (AEP) to evaluate its current status. We found the AEP represents a
             positive step to promote Equal Employment Opportunity, Affirmative Action, and
             Diversity programs at FCA. The Agency has made some progress toward fulfilling the
             AEP. However, the progress was below the standards set in the AEP. Management
             agreed to actions, which will refine and clarify the AEP. These actions will make the
             AEP more effective in achieving its stated goals.

Administrative Inspections

         Administrative inspections were conducted for FCA’s Chief Examiner’s Office and the
         Office of Special Examination and Supervision. These inspections involved the review of
         various administrative areas to assess compliance with external and internal guidance.
         There were no weaknesses found that would require recommendations for management
         action.



 STATUS OF UNIMPLEMENTED RECOMMENDATIONS and AGREED
 UPON ACTIONS


         At the beginning of the period there were 17 unimplemented recommendations or agreed
         upon actions. During the reporting period, management took final action on six of these.
         Three were from audit reports and three were from inspection reports. At the end of this
         reporting period, 16 agreed upon actions remain open, 12 resulting from one audit and
         4 resulting from one inspection.


Audits

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




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                                        FCA SEMIANNUAL REPORT TO CONGRESS


                                           AUDIT RECOMMENDATIONS
                                           OR AGREED UPON ACTIONS

                                                                              Final
                                                          Open on                               Open on
                         Audit Report                                      Management
                                                          4/1/2001                              9/30/2001
                                                                             Action
FCA’s Supply and Procurement Functions
………Issued March 29, 2000                                      1                  1                   0
Performance Budgeting
………Issued March 23, 2001                                     14                  2                  12

            Totals                                           15                  3                  12


Inspections

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




                                              RECOMMENDATIONS
                                           OR AGREED UPON ACTIONS

                                                                              Final
                                                          Open on                               Open on
               Inspection Report                                           Management
                                                          4/1/2001                              9/30/2001
                                                                             Action
Cash Management and Investments Practices
..............Issued September 28, 2000                       2                   2                  0
Affirmative Employment Program
..............Issued May 23, 2001                             0                   1                  4
Chief Examiner’s Office
..............Issued August 14, 2001                          0                   0                  0
Special Examination and Supervision Division
..............Issued August 14, 2001                          0                   0                  0

            Totals                                            2                   3                  4


INVESTIGATIONS

            There were two open investigations at the beginning of this reporting period. One of those
            investigations was closed. The investigation that was closed resulted in actions being
            taken to correct managerial problems. Additionally, training and new Agency policies have
            been issued to address employee concerns. Currently there is one investigation open.




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                                   FCA SEMIANNUAL REPORT TO CONGRESS




        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 call
        resulted in a preliminary review, which was not substantiated. All other Hotline calls and
        emails were not investigative in nature.

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 reporting period, OIG commented on revisions to the General Accounting
        Office’s exposure draft concerning the Yellow Book standard on organizational
        independence.

AGENCY FINANCIAL MANAGEMENT SYSTEM

        The financial management system has been a serious management challenge facing the
        Agency. 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.

        During the reporting period, management implemented Federal Financial System (FFS)
        as managed by the Department of Interior (DOI) National Business Center. FFS was
        implemented as management’s remediation plan to correct systemic weaknesses that
        existed in the predecessor system. That system did not substantially comply with Federal
        financial management system requirements to produce financial statements for the fiscal
        year ended September 30, 2000. FFS is a system widely used by Federal agencies and
        one that substantially complies with the requirements described above.

OTHER ACTIVITIES

        Management Advisories

        During this reporting period, the OIG has further implemented the use of management
        advisories. These advisories provide management with instant feedback on weaknesses
        that come to our attention during the process of doing other OIG work. In this 6-month
        period, we issued five advisories to various office managers.

        Pentagon Assistance

        The OIG community requested assistance for the evidence recovery team at the
        Pentagon. Our office provided assistance by sending our Investigator.




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                           FCA SEMIANNUAL REPORT TO CONGRESS


Survey of Farm Credit System 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 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
51 surveys and received 30 responses. This is a 59 percent response rate. Overall, the
average rating for the questions answered during this reporting period was very good
(1.68) [1=completely agree; 5=completely disagree] which is slightly less favorable then
the last reporting period (1.44).

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 2001 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.

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 Time Recording System task force, Blacks in
Government, Administrative Burden Reduction Workgroup, and the Federal Women’s
Program.




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                                 FCA SEMIANNUAL REPORT TO CONGRESS


                                                                            APPENDIX I




AUDIT / INSPECTION REPORTS ISSUED BY FCA OIG




                                 NUMBER OF                                RECOMMENDATIONS
                              RECOMMENDATIONS/                           THAT FUNDS BE PUT TO
      TITLE OF REPORT        AGREED UPON ACTIONS      QUESTIONED COSTS       BETTER USE


   Affirmative Employment             5                      $0                  $0
    Program Action Plan


 Chief Examiner’s Office              0                      $0                  $0


   Special Examination and            0                      $0                  $0
     Supervision Division


            Total                     5                      $0                  $0




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                                            FCA SEMIANNUAL REPORT TO CONGRESS




                                                                                        APPENDIX Ia




INSPECTOR GENERAL ISSUED REPORTS WITH QUESTIONED COSTS



                                                           Number                    Dollar Value

                                                                          Questioned Costs    Unsupported
                                                    Reports       Recs.                          Costs
                                                      0            0            $0                $0
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)


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

                                                       0            0           $0                  $0
     (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




                                                              8
                                        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                    0                 0                $0
   period


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
                                                                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 made
                                                                0                  0               $0
   within six months of issuance




                                                          9
                                                                             APPENDIX III
                                                     FCA SEMIANNUAL REPORT TO CONGRESS



Farm Credit Administration Organization Chart




                                                10
                                                                             APPENDIX III
                                                     FCA SEMIANNUAL REPORT TO CONGRESS




FCA Office of Inspector General Organization Chart




                                           11