oversight

Semiannual Report September 30, 2010

Published by the Farm Credit Administration, Office of Inspector General on 2010-09-30.

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

Office of
Inspector General
                    Semiannual Report to the Congress

                             April 1 through
                           September 30, 2010



                                 Number 43

                              October 27, 2010
Farm Credit Administration                               Office of Inspector General
                                                         1501 Farm Credit Drive
                                                         McLean, VA 22102-5090
                                                         (703) 883-4030




October 27, 2010


The Honorable Leland A. Strom, Chairman and Chief Executive Officer
The Honorable Kenneth A. Spearman, Board Member
The Honorable Jill Long Thompson, Board Member
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Chairman Strom, Board Member Spearman, and Board Member Long Thompson:

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 April 1 through September 30, 2010. This
is the forty-third report since the establishment of the OIG on January 22, 1989.

I am submitting this report in accordance with the Inspector General Act of 1978, as amended (IG
Act). Section 5(b) of the IG Act requires that the FCA Board send this report to the appropriate
Congressional committees and subcommittees within 30 days after the date of this transmittal,
accompanied by management’s report on the status of audit, inspection, and/or evaluation action
items.

On July 26, 2010, the OIG issued a final report on an inspection of the Agency’s Adherence to the
Government in the Sunshine Act. This inspection report contained one agreed-upon action. On
August 30, 2010, we issued a final report on the audit of the Agency’s and the Office of Secondary
Market Oversight’s Regulation and Policy Development Processes. No action items resulted from
this audit. On September 16, 2010, the OIG issued a final report on the inspection of the Agency’s
Borrower Complaint Processing. Ten agreed-upon actions resulted from this inspection. At the end
of this reporting period, there were eleven open agreed-upon actions. Please refer to page 6-7 for
further information.

The OIG contracted with the Bureau of the Public Debt for Brown & Company CPAs, PLLC, to
perform the audit of FCA’s financial statements for fiscal year 2010. This audit was ongoing at the
end of this reporting period. Please refer to page 7 for further information.
                                                                                                2

Also initiated and ongoing during this period is the OIG’s annual evaluation of the Agency’s
compliance with the Federal Information Security Management Act. This annual evaluation is
conducted by the OIG’s Senior Information Technology Auditor. Please refer to page 7 for further
information.

If you have any questions, please call me at 4241 or 4030. I look forward to continuing a positive
relationship between the OIG and the FCA Board which I view as a partnership, striving to
strengthen FCA operations.

Respectfully,



Carl A. Clinefelter
Inspector General

Enclosure
                                                 OIG SEMIANNUAL REPORT TO THE CONGRESS
                                                              APRIL 1 – SEPTEMBER 30, 2010



                      TABLE OF CONTENTS
EXECUTIVE SUMMARY…………………………………………………………….………………. 1

BACKGROUND……………………………………………………………………………………… 2
  FARM CREDIT ADMINISTRATION…………………………………………………………………. 2
  FARM CREDIT SYSTEM…………………………………………………………………………… 2

MANAGEMENT AND PERFORMANCE CHALLENGES………………………………………... 3
  FARM CREDIT SYSTEM……………………………………………………………………………………. 3
    SAFETY AND SOUNDNESS…………………………………………………………………………… 3
    MISSION……………………..…………………………………………………………………………… 3
  FARM CREDIT ADMINISTRATION…………………………………………………………………. 4
    AGRICULTURAL ECONOMIC DOWNTURN………………………………….…………………….4
    AGENCY GOVERNANCE………………………………………………………………………………. 4
    STRATEGIC PLANNING……..…………………………………………………………………. 5
    HUMAN CAPITAL……………..…………………………………………………………………. 5
    LEVERAGING TECHNOLOGY…….…………………………………………………………… 5

AUDIT, INSPECTION, AND EVALUATION REPORTS ISSUED…..…………………………… 6
  INSPECTION OF FCA’S ADHERENCE TO THE GOVERNMENT IN THE SUNSHINE ACT ……….6
  AUDIT OF FCA’S AND OSMO’S REGULATION AND POLICY DEVELOPMENT PROCESSES ….. 6
  INSPECTION OF FCS BORROWER COMPLAINT PROCESSING ………………………………... 7

AUDITS, INSPECTIONS, AND EVALUATIONS IN PROGRESS….………..………………...…7
  INDEPENDENT FINANCIAL AUDIT OF FCA FOR FY 2010…………………………………...........7
  FEDERAL INFORMATION SECURITY MANAGEMENT ACT
    EVALUATION FOR FY 2010……………………………………………………………………..7

STATUS OF UNIMPLEMENTED RECOMMENDATIONS………………………………………. 8

INVESTIGATIONS…………………………………………………………………………………….8

LEGISLATION AND REGULATIONS………………………………………………………………9

OTHER ACTIVITIES………………………………………………………………………………....11
  QUARTERLY SURVEY OF FARM CREDIT SYSTEM INSTITUTIONS……………………………. 11
  STAFF PARTICIPATION IN ACTIVITIES OF THE PROFESSIONAL COMMUNITY………………. 11
  STAFF PARTICIPATION IN AGENCY ORGANIZATIONS………………………………………… 12
  STAFF DEVELOPMENT…………………………………………………………………………… 12

ANNEX……………………………………………………………………………………………...... 12

APPENDICES
  APPENDIX A – INDEX OF REPORTING REQUIREMENTS………………………………………. 13
  APPENDIX B – AUDIT, INSPECTION, AND EVALUATION REPORTS ISSUED………………….. 14
  APPENDIX C – REPORTS WITH QUESTIONED COSTS………………………………………… 15
                                              OIG SEMIANNUAL REPORT TO THE CONGRESS
                                                           APRIL 1 – SEPTEMBER 30, 2010


APPENDIX D – REPORTS WITH RECOMMENDATIONS THAT FUNDS
              BE PUT TO BETTER USE……………………………………………………… 16
APPENDIX E – PEER REVIEWS CONDUCTED OF THIS OFFICE……………………………… 17
APPENDIX F – PEER REVIEWS CONDUCTED BY THIS OFFICE……………………………… 18
APPENDIX G – FCA ORGANIZATIONAL CHART………………………..………………….…… 19
APPENDIX H – OFFICE OF INSPECTOR GENERAL ORGANIZATIONAL CHART..…………..... 20
APPENDIX I – GLOSSARY OF TERMS.………..………………………………………….……. 21
                                                       OIG SEMIANNUAL REPORT TO THE CONGRESS
                                                                    APRIL 1 – SEPTEMBER 30, 2010



EXECUTIVE SUMMARY

      This Semiannual Report to the Congress summarizes the activities and
      accomplishments of the Farm Credit Administration’s (FCA or Agency) Office of
      Inspector General (OIG) for the period April 1 through September 30, 2010. The
      OIG’s efforts were directed toward implementing the OIG’s fiscal year (FY) 2010
      strategic and operational plan and budget; performing audits, inspections, and
      evaluations of FCA programs and operations; conducting investigations, as
      necessary; independently and confidentially surveying Farm Credit System (FCS or
      System) institutions regarding the effectiveness of the Agency’s examination function
      and examiners; and providing objective, independent reporting and counsel to the
      Agency Chairman on FCA programs and operations.

      During this reporting period, the OIG issued one audit report and two inspection
      reports. On July 26, a final inspection report on the Agency’s Adherence to the
      Government in the Sunshine Act was issued. On August 30, a final audit report on
      the Agency’s and the Office of Secondary Market Oversight’s (OSMO) Regulation
      and Policy Development Processes was issued. On September 16, a final
      inspection report on the Agency’s Borrower Complaint Processing was issued. As a
      result of these reports, there were 11 open agreed-upon actions at the end of this
      reporting period. See page 6-7 for further information.

      The independent financial statement audit of FCA for FY 2010 was initiated. The
      OIG contracted with the Bureau of the Public Debt (BPD) for Brown and Company
      CPAs, PLLC (Brown & Co.) to perform the audit of FCA’s financial statements for FY
      2010. This audit was ongoing at the end of this reporting period.

      Also initiated and ongoing during this period is the OIG’s annual evaluation of the
      Agency’s compliance with the Federal Information Security Management Act
      (FISMA). This annual evaluation is conducted by the OIG’s Senior Information
      Technology (IT) Auditor.

      Additionally, the OIG issued two quarterly reports to the Chief Examiner and FCA
      Chairman on results of OIG surveys of System institutions regarding the examination
      function and the examiners. These reports were for the quarters ended March 31
      and June 30, 2010.




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        During the period, the OIG updated and issued its Strategic and Operating
        Performance Plan and Budgets for FYs 2011-2012 (SOPP). The SOPP is on the
        OIG’s website at
        http://www.fca.gov/Download/InspectorGeneral/Strategic&PerformancePlans/S&OP
        P11-12.pdf. Included in the SOPP is the OIG’s Audit Plan covering FYs 2011-2012
        and beyond.

        The OIG maintains five positions: the Inspector General (IG), a General Counsel, a
        Senior Auditor, a Senior IT Auditor, and an Administrative Assistant. Appendix G
        and Appendix H reflect the organizational structure of FCA and the OIG,
        respectively.


BACKGROUND

Farm Credit Administration

        The FCA is an independent Federal agency of the United States government
        responsible for the regulation and examination of FCS institutions chartered under
        the Farm Credit Act of 1971, as amended (Farm Credit Act). FCA is also a
        “designated Federal entity” within the meaning of the Inspector General Act of 1978,
        as amended (IG Act).

        As a non-appropriated agency, FCA funds its expenses primarily through
        assessments to the institutions it regulates. The Agency’s FY 2010 budget was
        $54,832,588. Assessments by FCA to FCS institutions for FY 2010 were
        $49,100,000, with other sources of funding totaling $5,732,588. The OIG’s FY 2010
        budget was $1,088,219.

        At the end of this reporting period, FCA had 288 employees, about half of which are
        examiners located in five field offices. At the end of the prior semiannual reporting
        period, the Agency had 274 employees. The increase is primarily due to the Office
        of Examination (OE) hiring entry-level examiner trainees.

Farm Credit System

        The FCS is a Government-sponsored enterprise comprised of 5 Farm Credit banks
        and 87 lending associations in all 50 states and Puerto Rico that primarily make
        loans to agriculture. The System raises funds by selling securities in the national
        and international money markets through its special purpose entity, the Federal
        Farm Credit Banks Funding Corporation. These securities are not guaranteed by
        the U.S. Government.




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     The Federal Agricultural Mortgage Corporation (Farmer Mac), also a part of the
     FCS, is chartered by the Federal government to provide a secondary market for
     agricultural mortgage loans. Farmer Mac is publicly traded and issues its own debt
     securities.

     Additionally, there are four active service corporations organized under the Farm
     Credit Act that provide services to FCS entities and eligible borrowers.


MANAGEMENT AND PERFORMANCE CHALLENGES

     As part of the Agency’s annual Performance and Accountability Report, the IG is
     required by law to provide a summary statement on the most serious management
     and performance challenges facing the Agency. These challenges fall into two
     general categories. First are the challenges related to the FCA’s mandate of
     ensuring a safe, sound, and dependable FCS as a source of credit and related
     services to agriculture. Some of these challenges may be influenced by events that
     are outside the control of the Agency. Second, but no less important, are the
     challenges related to Agency operations.

                                     Farm Credit System
     Safety and Soundness
     The System is a lender to a single industry, agriculture, and is therefore vulnerable to
     the economic volatility and risks in that industry. While the FCS remains generally
     safe and sound, adversity in several major commodity groups has caused
     deterioration in a number of FCS institutions. The Agency’s challenge is to continue
     to ensure the System’s ability to withstand such vulnerabilities and remain safe and
     sound in the long-term.


     Mission
     The environment facing agriculture, rural America, and the institutions of the FCS is
     ever-changing, presenting new opportunities and altering historical perspectives on
     System operations. FCA’s challenge is to continue to maintain an independent and
     objective, yet flexible and responsive, regulatory environment for the System, geared
     to continually ensuring the FCS fulfills its public policy purpose.




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                            Farm Credit Administration
Agricultural Economic Downturn
There are many factors in agriculture today that have caused deterioration in a
number of FCS institutions and may cause continued stress for FCS institutions. For
example,
     •   the System has experienced rapid growth for several years, which has had
         the effect of eroding the System’s capital to assets ratio;
     •   large shared assets among many System institutions are experiencing
         serious difficulty;
     •   several major commodity groups are experiencing extreme stress;
     •   asset quality at many associations and several Farm Credit banks has
         deteriorated; and
     •   land values, which may not be sustainable, are high.

Thus, a challenge for the Agency is to ensure its ongoing ability to timely assess
economic and operational conditions affecting the welfare of System institutions, and
to take preemptive or remedial actions to ensure the ongoing safety and soundness
of the System. The first line of preparedness for the Agency in accomplishing this is
an effective examination and risk assessment program. Aligned with this is the
challenge for the Agency to effectively and timely utilize its enforcement authorities.
When significant deterioration in a System institution(s) is first evident, the Agency
should expeditiously consider implementing appropriate rehabilitative enforcement
measures.

Agency Governance
In early FY 2010, the FCA Board received two new members, filling out the FCA
Board’s statutory three-person complement. One new member came on the FCA
Board in October 2009 and the other in March 2010. This reemphasizes the need
for the Chairman and Agency staff to ensure an environment in which new members
may quickly learn their duties and responsibilities, and the mission and functioning of
the Agency and the System. The Board member arriving in October 2009 received
a newly implemented orientation program. The challenge for the Agency is to
formalize and institutionalize an effective orientation and ongoing training program
for FCA Board members. This should enable FCA Board members to readily
become knowledgeable about Agency and System operations and issues, and be
able to properly focus Agency resources through, for example, the strategic planning
mechanism.




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Strategic Planning
Since the adoption in May 2008 of the strategic plan for FYs 2008-2013, the FCA
Board has a new Chairman and two new FCA Board Members. This change in
Board leadership and the two new FCA Board Members provide an opportunity and
a challenge to ensure the vision of the newly constituted FCA Board is timely
incorporated into the next strategic plan.

In 2005, the FCA Board established a Strategic Planning Committee (SPC)
composed of Agency staff to facilitate FCA Board input into the plan and the
planning process. The SPC should ensure the updating and issuance by the FCA
Board of the next 6-year strategic plan covering FYs 2011-2016.


Human Capital
In 2006, a 5-year strategic human capital plan was completed spanning FYs 2007-
2011. The Agency has adopted a strategy of annually updating the plan, resulting in
a moving 5-year plan. The plan is comprehensive and, because of the ongoing
updating, reflective of current human capital issues facing the Agency. For example,
in addressing the attrition of seasoned staff, the Agency has been actively recruiting
and hiring at both the entry and midcareer-levels, particularly as it pertains to
ensuring the ongoing capability of examination staff. FCA’s challenge is to continue
to emphasize, implement, and update the human capital plan to ensure FCA has the
staff it needs to effectively regulate a constantly evolving FCS, as managing human
capital is an ever-present and evolving necessity. This is particularly important as it
applies to the training and commissioning program for newly hired entry and
midcareer-level examination staff.


Leveraging Technology
The Agency’s ability to leverage investments in new technologies is a key
element in management’s efforts to continually improve Agency performance by
increasing the efficiency and effectiveness of operations. The Agency has an
active information resource management planning process that identifies,
reviews, and prioritizes new IT initiatives that will improve Agency operations.
Over the past couple of years, the Agency made significant investments in new
technologies and began implementing several tools that improve
communication, collaboration, and efficiency of operations. FCA’s challenge is
to take full advantage of the new capabilities the IT infrastructure provides. The
successful implementation of new technologies will provide FCA staff with the IT




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       tools and skills that will enable the Agency to:
          •   improve the quality and availability of data without creating an undue
              burden on the FCS;
          •   streamline business processes and enhance communication and
              collaboration to improve the effectiveness of how FCA interacts with the
              FCS, the public, and business partners;
          •   build business intelligence that will provide decision makers with timely
              management information;
          •   develop an electronic recordkeeping and knowledge management
              capability that effectively manages electronic data, documents, and
              reports; and protect FCA information systems and data from increasing
              external and internal threats.


AUDIT, INSPECTION, AND EVALUATION REPORTS ISSUED

       The OIG conducts all audits in accordance with Government Auditing Standards
       issued by the Comptroller General of the United States for audits of Federal
       organizations, programs, activities, and functions. Inspections and evaluations are
       conducted in accordance with the Council of the Inspectors General on Integrity and
       Efficiency (CIGIE) Quality Standards for Inspections. Copies of most OIG reports
       are available on the FCA OIG web site www.fca.gov/home/inspector.html, or by
       contacting the OIG at (703) 883-4030, or by TTY at (703) 883-4359, or by e-mail at
       ig_information@fca.gov.


Adherence to the Government in the Sunshine Act (Sunshine Act)

       The OIG issued the final inspection report on July 26, 2010. The inspection’s
       objectives were to determine whether FCA adheres to the Sunshine Act and
       whether improvement is warranted. While the inspection found the Agency
       adheres to the Sunshine Act, there was one agreed-upon action that resulted.


Regulation and Policy Development Processes

       The OIG issued the final audit report on August 30, 2010. The audit’s objective was
       to assess whether the Agency’s and OSMO’s regulation and policy development
       process is operating efficiently and complies with applicable Federal
       requirements. It was determined that the Agency and OSMO are in compliance.
       There were no action items as a result of this audit.




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Borrower Complaint Processing

         The OIG issued the final inspection report on September 16, 2010. The inspection’s
         objective was to review FCA’s process for reviewing, tracking, and responding to
         FCS borrowers’ complaints and identify whether improvements are needed.
         While the borrower complaint handling process was determined to be
         functioning satisfactorily, ten agreed-upon actions resulted from the inspection.
         These agreed-upon actions were administrative in nature and designed to help
         strengthen an already satisfactorily functioning process.


AUDITS, INSPECTIONS, AND EVALUATIONS IN PROGRESS


Independent Financial Audit of FCA for FY 2010

         The Accountability of Tax Dollars Act of 2002 extended to FCA and certain other
         agencies a requirement to submit to Congress and the Office of Management and
         Budget (OMB) an audited financial statement each fiscal year.

         In continuing to assist the Agency in meeting these requirements, the OIG
         contracted with the BPD for Brown & Co. to perform the audit of FCA’s financial
         statements for FY 2010. The audit remained ongoing at the end of this reporting
         cycle.

Federal Information Security Management Act Evaluation for FY 2010

        The evaluation of the Agency’s compliance with FISMA for FY 2010 is being
        performed by the OIG’s Senior IT Auditor, using guidelines established by
        FISMA, OMB, and the National Institute of Standards and Technology. This
        evaluation also was ongoing at September 30, 2010.




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STATUS OF UNIMPLEMENTED RECOMMENDATIONS

       At the beginning of the reporting period, there were no open action items resulting
       from OIG audits, inspections, or evaluation reports. Eleven action items were
       opened during the reporting period.



             Audit, Inspection, and Evaluation Agreed-Upon Actions and
                                  Recommendations

                                                                        Final
                                                 Open During
                                                                    Management          Open on
                  Report              Issued     this 6-Month
                                                                   Actions During      10/01/2010
                                                    Period
                                                                     this Period
        Adherence to the
          Government in the         7/26/2010         1                    0                 1
          Sunshine Act
        Regulation and Policy
          Development               8/30/2010         0                    0                 0
          Processes
        Borrower Complaint
                                    9/16/2010         10                   0                10
          Processing

                           Total                      11                   0                11




INVESTIG ATIONS

       No hotline calls were received alleging impropriety that would fall within the purview
       of the OIG.

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

       No investigations were opened during the reporting period.




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LEGISLATION AND REGULATIONS

      In furtherance of the OIG’s mandate to review existing and proposed legislation and
      regulations, the IG or Counsel to the IG attend joint briefings of the FCA Board on
      regulations at the proposed and final stages. The following were reviewed by
      Counsel to the IG:

      Legislation

         1) Public Law 111-203, July 21, 2010, Dodd-Frank Wall Street Reform and
            Consumer Protection Act

         2) Public Law 111-204, Improper Payment Elimination and Recovery Act of
            2010, July 24, 2010: reduce and recover improper payments. IG is
            responsible for determining Agency compliance with seven requirements.

         3) S. 629: The Part-Time Reemployment of Annuitants Act

         4) S. 1132: The Law Enforcement Officers Safety Act Improvements Act of
            2010

         5) S. 3831: Creating IG for Bureau of Financial Protection

         6) S. 3325: The Federal Contracting Oversight and Reform Act

         7) S. 139 or S. 1490: The Data Breach and Personal Privacy and Security
            Acts of 2009

         8) S. 372 or H.R. 1507: The Whistleblower Protection Enhancement Act of
            2009

         9) H.R. 3848 and H.R. 5815: Inspector General Improvement Act of 2009

        10) H.R. 885: Improved Financial and Commodity Markets Oversight and
            Accountability Act

        11) S. 3217: The Restoring American Financial Stability Act

        12) H.R. 4173: The Wall Street Reform and Consumer Protection Act of 2009

        13) H.R. 5985: Javits-Wagner-O’Day Act

        14) H.R. 5548, S. 3480: The Protecting Cyberspace as a National Asset Act




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  15) H.R. 4900, S. 921: The Federal Information Security Act

  16) H.R. 4858: The Public Information Act of 2010

  17) H.R. 4983: The Transparency of Government Act

  18) H.R. 2142: The Government Efficiency, Effectiveness, and Performance
      Improvement Act

  19) H.R. 553: The Reducing Over-Classification Act

  20) H.R. 5726, S. 3323: The Federal Contracting Oversight and Reform Act

  21) U.S. Office of Government Ethics proposal to modernize Ethics in
      Government Act of 1978, 5 U.S.C. App

Final Rules

  22) S.A.F.E. Act

  23) Direct Final Technical Changes 12 C.F.R. Part 604, 607, 612, 614, 615, 618
      and 627

  24) Unified Agenda

Proposed Rules

  25) Loan Policies and Operations – Loan Purchases from FDIC

  26) Lending and Leasing Limits and Risk Management

Advanced Notice of Proposed Rulemaking

  27) Capital Adequacy; Basel Accord Tier 1 and Tier 2 Capital Components

  28) Farmer Mac Non Program Investments and Liquidity

Bookletters (BL)

  29) Farm Credit System Bank Merger Applications (BL- 063)

  30) Evaluating Strategies and Risks for Loan Pricing and Structure (BL- 062)

Briefings

  31) Mission Related Investment Update




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          32) Young, Beginning, Small Farmers -Mission Performance 2009 Results

        Notice and Request for Comments

          33) Joint and Several Liability Reallocation Agreement


OTHER ACTIVITIES

Quarterly Survey of Farm Credit System Institutions

        The OIG administers an ongoing survey of FCS institutions regarding the quality and
        consistency of the Agency’s examination function and examiners. The OIG issues a
        quarterly report and a summary report on the surveys’ results at the end of each FY
        to the Chief Examiner and the FCA Board.

        During this 6-month period, we sent surveys to the Audit Committee Chairmen and
        Chief Executive Officers of 32 FCS institutions. Quarterly reports for the 3-month
        periods ended March 31 and June 30, 2010 were issued by the OIG to the Chief
        Examiner and the Chairman.

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 Inspectors General community, as well as their individual
        professional development. Most staff members are actively involved in one or more
        professional organizations, as well as ad hoc activities of the CIGIE.

        The IG serves as the Vice Chairperson of CIGIE, helps chair the monthly meetings
        of all Inspectors General comprising CIGIE, meets monthly with the Inspectors
        General from the other Federal financial regulatory agencies, and participates as a
        member of the CIGIE’s Inspection and Evaluation (I&E) Committee.

        The OIG General Counsel meets monthly with counsels to the other Inspectors
        General. Counsel also attends Directors of Investigations meetings. Counsel also
        led, on behalf of CIGIE and the Council of Counsels to Inspectors General, the
        development of a course for new Offices of Inspector General attorneys.

        The OIG Senior Auditor and Senior IT Auditor attend Federal Audit Executive
        Committee meetings and conferences. The Senior Auditor participates as a
        member of the I&E Committee’s Roundtable. The Senior IT Auditor also attends
        local ISACA (formerly known as Information Security and Control Association)
        meetings and Federal information security and audit meetings. The Senior IT
        Auditor is a member of CIGIE’s administrative operations task force charged with



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        developing a business, staffing, and financial plan as well as identifying and
        implementing the infrastructure needed to establish CIGIE operations.

        In addition to all administrative duties, the OIG Administrative Assistant handles the
        registration and ongoing interface with the Institute of Internal Auditors for the
        auditors in 20 Offices of Inspector General at designated Federal entities.

Staff Participation in Agency Organizations

        OIG employees are active on Agency workgroups and task forces, as appropriate.

Staff Development

        OIG employees continually seek ways to improve skills and become knowledgeable
        in the initiatives of the community of Inspectors General. Audit and legal staff must
        meet continuing education requirements. Individual development plans are used to
        identify long and short-term career goals along with specific training and
        developmental needs. These plans are geared to enhance individual skills in the
        performance of official duties and meet the criteria needed to achieve OIG
        performance goals and objectives.


ANNEX

        This annex is provided in accordance with the National Defense Authorization Act for
        FY 2008.

        This referenced statute requires all Inspectors General appointed under the IG Act to
        include an annex to their semiannual reports as follows:

           1) listing all contract audit reports issued during the reporting period containing
              significant audit findings;

           2) briefly describing the significant audit findings in the report; and

           3) specifying the amounts of costs identified in the report as unsupported,
              questioned, or disallowed.

        Significant audit findings are defined as unsupported, questioned, or disallowed
        costs in excess of $10,000,000, or other findings that the Inspector General
        determines to be significant. It defines contracts as a contract, an order placed
        under a task or delivery order contract, or a subcontract.

        No contract audit reports meeting these criteria were issued on behalf of the OIG
        during this reporting period.



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                                                                                      APPENDIX A




                              INDEX OF REPORTING REQUIREMENTS                                   Page

Section 4(a)(2)    Review of Legislation and Regulations                                        9 – 11

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

Section 5(a)(2)    Recommendations for Corrective Action                                         none

Section 5(a)(3)    Prior Recommendations Not Yet Implemented                                     none

Section 5(a)(4)    Matters Referred to Prosecutive Authorities                                   none
                   Summary of Instances Where Information Was Unreasonably
Section 5(a)(5)                                                                                  none
                      Refused or Not Provided
Section 5(a)(6)    List of OIG Audit/Inspection Reports Issued During the Period                 6-7

Section 5(a)(7)    Summary of Significant Reports Issued During the Period                       6-7

Section 5(a)(8)    Statistical Table on Management Decisions with Questioned Costs                15
                   Statistical Table on Management Decisions on Recommendations that
Section 5(a)(9)                                                                                   14
                       Funds be put to Better Use
                   Summary of Each Audit Over Six Months Old for Which No
Section 5(a)(10)                                                                                 none
                       Management Decision Has Been Made
Section 5(a)(11)   Significant Revised Management Decisions                                      none
                   Significant Management Decisions with Which the Inspector General
Section 5(a)(12)                                                                                 none
                      Disagreed
Section 5(a)(13)   Compliance of Agency Financial Management System                                7




                    FY 2008 NATIONAL DEFENSE AUTHORIZATION ACT CITATION
                                                                                                Page
                                      AND REQUIREMENT

Section 845        Review of Legislation and Regulations                                        9 - 11




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                                                                    APRIL 1 – SEPTEMBER 30, 2010




                                                                            APPENDIX B




                  Audit, Inspection, and Evaluation Reports Issued

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

Adherence to the Government in
                                           1                $0                    $0
   the Sunshine Act
Regulation and Policy
                                           0                $0                    $0
   Development Processes
Borrower Complaint Processing              10               $0                    $0

                            Total          11               $0                    $0




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                                                                                  APRIL 1 – SEPTEMBER 30, 2010




                                                                                          APPENDIX C




                               Reports with Questioned Costs

                                                        Number                         Dollar Value

                                                           Recom-            Questioned       Unsupported
                                                Reports
                                                          mendations           Costs             Costs




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




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                                                                            APRIL 1 – SEPTEMBER 30, 2010




                                                                                    APPENDIX D




      Reports with Recommendations that Funds be Put to Better Use
                                                                     Number of
                                                        Number of     Recom-
                                                         Reports     mendations          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 action              0               0                  $0

        --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




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                                                             OIG SEMIANNUAL REPORT TO THE CONGRESS
                                                                          APRIL 1 – SEPTEMBER 30, 2010

                                                                                  APPENDIX E


               PEER REVIEWS CONDUCTED OF THIS OFFICE

In accordance with Section 989C of the Dodd-Frank Wall Street Reform and Consumer
Protection Act signed by the President on July 21, 2010, which amended the IG Act, the
following information is provided:

IG Act’s Section 5(a)(14)(A) – No external peer review of this office’s audit function was
       conducted during this reporting cycle.

       A peer review of our audit function by the Commodity Futures Trading Commission was
       scheduled for this reporting period but was delayed. It was conducted in October 2010,
       but peer review results were not available for inclusion in this report.

       IG Act’s Section 5(a)(14)(B) – The most recent external peer review of this office’s audit
       function was for the year ended September 30, 2006, and was issued April 30, 2007. It
       determined that “…the system of quality control for the audit function of the FCA OIG
       in effect for the year ended September 30, 2006, has been designed to meet the
       requirements of the quality control standards established by the Comptroller
       General of the United States for a Federal government audit organization and was
       complied with during the year ended to provide the OIG with reasonable assurance
       of conforming with applicable auditing standards, policies, and procedures.” As
       required by the IG Act’s Section 5(a)(15), this office reports that all six
       recommendations in the April 30, 2007, audit peer review report have been fully
       implemented. The following is a link to this peer review report:
       http://www.fca.gov/Download/InspectorGeneral/Peer/2006PeerReviewOIGAuditFunctio
       n.pdf


       The most recent external peer review of this office’s investigation function was for
       the year ended September 30, 2007. It was performed by the Securities and
       Exchange Commission’s Office of Inspector General and issued December 26,
       2007. It determined that “…the system of internal safeguards and management
       procedures for the investigation function of the FCA OIG for the year ended
       September 30, 2007, are in full compliance with the quality standards established
       by the PCIE/ECIE. These safeguards and procedures provide reasonable
       assurance of conforming with professional standards in the conduct of its
       investigations.” There were no recommendations that resulted from this peer
       review. The following is a link to this peer review report:
       http://www.fca.gov/Download/InspectorGeneral/Peer/2007PeerReviewOIGInvestigative
       Function.pdfInsert




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                                                                          APRIL 1 – SEPTEMBER 30, 2010




                                                                                   APPENDIX F


               PEER REVIEWS CONDUCTED BY THIS OFFICE



In accordance with Section 989C of the Dodd-Frank Wall Street Reform and Consumer
Protection Act signed by the President on July 21, 2010, which amended the IG Act, the
following information is provided:

IG Act’s Section 5(a)(16) – This office did not conduct any peer review of another Office of
       Inspector General during this reporting period.

       The most recent audit peer review conducted by this office was of the Equal
       Employment Opportunity Commission’s Office of Inspector General (EEOCOIG). Our
       report was for the year ended March 30, 2008, and was issued September 4, 2008. Our
       report concluded that “…the system of quality control for the audit function of the OIG in
       effect for year ended March 30, 2008, has been designed in accordance with the quality
       standards established by the Comptroller General of the United States for a Federal
       Government audit organization and was complied with for the year ended to provide the
       OIG with reasonable assurance of conforming with applicable auditing standards,
       policies, and procedures.” While not impacting our opinion, our report contained seven
       recommendations designed to strengthen the EEOCOIG’s audit function. The
       EEOCOIG agreed with all recommendations. We have been apprised by the EEOCOIG
       that all have been implemented.

       The most recent investigative peer review conducted by this office was of the
       Government Printing Office’s Office of Inspector General (GPOOIG). Our report was for
       the year ended February 7, 2005, and was issued June 1, 2005. Our report concluded
       that “…the system of internal safeguards and management procedures for the
       investigative function of GPO’s Office of Inspector General is in full compliance with the
       quality standards established by the PCIE/ECIE.” While not impacting our opinion, our
       report contained five suggestions with which the GPOOIG agreed. We have been
       advised by the GPOOIG that all have been implemented.




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                                                                                                  OIG SEMIANNUAL REPORT TO THE CONGRESS
                                                                                                               APRIL 1 – SEPTEMBER 30, 2010




                                                                                                                               APPENDIX G




                                                    FCA Organizational Chart



                                                      Farm Credit Administration Board
                                                                                                                     Office of
                                                           Leland A. Strom, Chairman                            Inspector General1
                                                         Kenneth A. Spearman, Member
                                                          Jill Long Thompson, Member                            Carl A. Clinefelter



                                                                                                               Office of
                                                                                                           Congressional and
                                                                                                             Public Affairs

                        Secretary to the                                                                   Michael A. Stokke
                                                              Office of the Chairman
                            Board                                    and CEO
                        Roland E. Smith                          Leland A. Strom                       Office of Secondary
                                                                                                        Market Oversight2

                                                                                                           Daniel Fennewald
                                                                                                                Acting




                                                                 Office of the Chief
                                                                 Operating Officer

                                                                William J. Hoffman




     Office of Management                        Office of                                Office of                               Office of
            Services                            Examination                            Regulatory Policy                       General Counsel3

        Stephen G. Smith                     S. Robert Coleman                         Andrew D. Jacob                         Charles R. Rawls




1The     Dodd-Frank Wall Street and Consumer Protection Act, Public Law 111-203, amended the Inspector General Act, 5 U.S.C. App 3,
    changing the meaning of “head of the designated Federal entity.” The effect is that the Inspector General now reports to the full Board. Prior
    to the amendment, the FCA Chairman was the “head of the designated Federal entity” under the IG Act and the IG reported to the
    Chairman.
2
    Reports to the Board for policy and to the CEO for administration.
3
    Maintains a confidential advisory relationship with each of the Board members.




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                                                             OIG SEMIANNUAL REPORT TO THE CONGRESS
                                                                          APRIL 1 – SEPTEMBER 30, 2010



                                                                                  APPENDIX H




              Office of Inspector General Organizational Chart




                                  Inspector General
                                  Carl A. Clinefelter


                      Administrative
                        Assistant
                      Debra M. Miller



         Counsel to the IG          Senior Auditor                     Senior IT Auditor
         Elizabeth M. Dean       Veronica G. McCain                     Tammy F. Rapp




                                                                                 September 4, 2008
                              Carl A. Clinefelter, Inspector General             Date
Carl C




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                                                  OIG SEMIANNUAL REPORT TO THE CONGRESS
                                                               APRIL 1 – SEPTEMBER 30, 2010



                                                                        APPENDIX I



                      Glossar y of Terms



Agency            – Farm Credit Administration
BL                – Bookletter
BPD               – Bureau of the Public Debt
Brown & Company   – Brown & Company CPAs, PLLC
CIGIE             – Council of the Inspectors General on Integrity and Efficiency
DFE               – Designated Federal Entity
E.O.              – Executive Order
Farm Credit Act   – Farm Credit Act of 1971, as amended
Farmer Mac        – Federal Agricultural Mortgage Corporation
FCA               – Farm Credit Administration
FCS               – Farm Credit System
FISMA             – Federal Information Security Management Act
FY                – Fiscal Year
H.R.              – House Resolution
IG                – Inspector General
IG Act            – Inspector General Act of 1978, as amended
I&E               – Inspection and Evaluation
ISACA             – Information Security and Control Association
IT                – Information Technology
OE                – Office of Examination
OIG               – Office of Inspector General
OMB               – Office of Management and Budget
PAR               – Performance and Accountability Report
SOPP              – Strategic and Operating Performance Plan and Budgets for
                    FY 2011-2012
SPC               – Strategic Planning Committee
System            – Farm Credit System




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                                    OIG SEMIANNUAL REPORT TO THE CONGRESS
                                                 APRIL 1 – SEPTEMBER 30, 2010




        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@rcn.com

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


                           22