oversight

Third Quarter FY 2013 FCS Survey

Published by the Farm Credit Administration, Office of Inspector General on 2013-09-23.

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

                        Third Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________



                     Third Quarter Fiscal Year (FY) 2013 Summary Report 

                                   (April 1 – June 30, 2013) 


   Office of Inspector General’s (OIG) Survey of Farm Credit System (FCS) Institutions 

                      Regarding the Agency’s Examination Function 


Introduction

During the period April 1 – June 30, 2013, the Office of Examination (OE) identified 12 FCS
institutions that were in a position to provide meaningful survey responses.

The OIG sent surveys to those 12 institutions on July 30, 2013. Of the 12 institutions surveyed,
8 submitted completed surveys. If the outstanding responses are received, they will be
included in the next quarterly report. One response to the survey issued for the second quarter
of FY 2013 was received subsequent to the second quarter report being issued and is included
in this report. Therefore, this report includes a total of 9 responses.

The OIG will continue to provide an email report to you based on each FY quarter-end, i.e.,
December 31, March 31, June 30, and September 30, so that you may timely take whatever
action you deem necessary to address the responses. The fourth quarter report as of
September 30 will continue to include FY summary data.

The survey asks respondents to rate the eight survey statements from "1" (Completely Agree)
to "5" (Completely Disagree). The rating options are as follows:

        Completely Agree                1        

        Agree                           2        

        Neither Agree nor Disagree      3

        Disagree                        4                       

        Completely Disagree             5


There is also an available response of “6” (Does Not Apply) for each survey statement. These
responses are not included in averages.

Narrative responses are provided verbatim, except that any identifying information has been
removed and any grammatical or punctuation errors may have been corrected. Any narrative
in “brackets” is explanatory information provided by the OIG based on conversations with
institution management.

Survey Results – Third Quarter FY 2013

Average numerical responses to survey statements 1 - 8 were 1.4 to 1.9.

                    Average Numerical Responses to Survey Statements 1 – 8
               rd
              3 Qtr                       2nd Qtr                        1st Qtr
            1.4 – 1.9                          1.3 – 2.4                         1.5 to 2.6



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                        Third Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________


The average response for all survey statements was 1.7.

                             Average Response for all Survey Statements
             3rd Qtr                        2nd Qtr                                1st Qtr
               1.7                               1.7                                1.9



In this quarter, there were more positive than negative narrative comments to survey
statements 1 - 8. (Negative comments of any degree are color coded in maroon.)

Survey item 9 asks for feedback on the most beneficial aspect of the examination process.
Consistent with prior quarters’ responses to this survey item, many very positive comments
were provided about the examiners and the examination process.

Survey item 10 asks for feedback on the least beneficial aspect of the examination process.
While most were negative, as would be expected, several comments provide a perspective that
should prove constructive.

Survey item 11 asks for any additional comments from the Board as a whole. It elicited a
number of thoughtful responses from full Boards, which was the objective of the question.


Responses to Survey Statements 1–8

                                       Examination Process

Survey Statement 1: 	           The scope of examination activities was focused on areas of risk
                                to the institution and appropriate for the size, complexity, and risk
                                profile of the institution.

    Average Response:           1.9 (second quarter was 1.7, first quarter was 2.0)

    Comments:
            	 While areas examined are important, some of the main examination areas
               such as Standards of Conduct, Business Plan, and Diversity and Inclusion
               seem like areas of lower risk. Credit quality in the institution is excellent so
               this may have resulted in focus in these other areas. Amount of stress
               testing being demanded may be excessive in relation to the size, complexity
               and risk profile of the institution.

Survey Statement 2: 	           Examiners appropriately applied laws, regulations, and other
                                regulatory criteria to examination findings and conclusions.

    Average Response:           1.8 (second quarter was 1.6, first quarter was 1.9)

    Comments:
            	 One required action required a literal dollar amount versus a percentage
               from which a dollar amount could be calculated. Seems we met the intent of
               the law by stating a required percentage.

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                        Third Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________



Survey Statement 3: 	           The recommendations, required actions, and any supervisory
                                agreement with FCA assisted the board and management in
                                addressing the risks of the institution.

    Average Response:           1.8 (second and first quarters was 2.0)

    Comments:
            	 Recommendation from the review will help the institution to comply with FCA
               regulation.
            	 Majority were helpful. However, some recommendations regarding loan
               penetration studies seem to have questionable usefulness.

Survey Statement 4: 	           The examiners were professional and efficiently conducted
                                examination activities.

    Average Response:           1.4 (second quarter was 1.3, first quarter was 1.5)

    Comments:
            	 All but one of the examiners were professional and very good to work with.
               Unfortunately, one of the examiners was not professional, including raising
               his voice and pounding his fist on the desk. Also did not seem capable of
               understanding the loan file documentation. Quite often went off on tirades
               without knowing what he was talking about. [Follow-up underway]

                                          Communications

Survey Statement 5: 	           Communications between the Office of Examination staff and the
                                institution were clear, accurate, and timely.

    Average Response:           1.4 (second quarter was 1.5, first quarter was 1.9)

    Comments:
            	 No comments submitted.



Survey Statement 6: 	           Examination communications included the appropriate amount
                                and type of information to help the board and audit committee
                                fulfill their oversight responsibilities.

    Average Response:           1.6 (second quarter was 1.6, first quarter was 1.7)

    Comments:
            	 The Report of Examination was extremely well written. Our compliments on
               the very difficult task of condensing a lengthy and multi-faceted exam into a
               clear, concise, and meaningful document for the board.
            	 Exam communications were adequate, but sending three examiners to
               present to the board what was already communicated in the report was not

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                        Third Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________


                     necessary or cost effective, when a phone presentation would have been
                     adequate. We acknowledge the on-site visit was possibly for training
                     purposes.


Survey Statement 7: 	           Examiners fairly considered the views and responses of the
                                board and management in formulating conclusions and
                                recommendations.

     Average Response:          1.6 (second quarter was 1.6, first quarter was 1.8)

     Comments:
            	 The examiners’ interaction with staff, receptiveness to dialogue, exercise of
               sound judgment, and the focus on the issues of materiality.
            	 Most examiners were good to request feedback and took our responses into
               consideration.


Survey Statement 8:	            FCS-wide guidance from the Office of Examination was proactive
                                and helpful.

     Average Response:          1.9 (second quarter was 2.4, first quarter was 2.6)

     Comments:
            	 Some of the guidance issued in the form of Informational Memos and
               contained in the examination guidance could benefit from a more robust
               debate, which is normally the case in the regulation rule making process.
            	 Always open to suggestions on how we can improve.

                             General Questions 9, 10, and 11

Survey Item 9:          What aspect of the examination process did you find most beneficial?

                	 I have always had an exit conference with the examiners and their questions
                   and suggestions to be greatly beneficial.
                 Good communications between the EIC, management, and board.
                 Open communication with our board chairman and CEO particularly as issues
                   or questions arose.
                	 [same answer given for No. 7] The examiners’ interaction with staff,
                   receptiveness to dialogue, exercise of sound judgment, and the focus on the
                   issues of materiality.
                 Outside validation of internal review process.
                 Communication between the examiners and the Board and management was
                   beneficial.
                 Exam pointed out several places where our policies, procedures, and other
                   documents were out of sync with updated regulations.




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                        Third Quarter FY 2013 OIG Summary Report on the Survey of FCS Institutions
                                        Regarding the Examination Function
_________________________________________________________________________________________________________


Survey Item 10:	        What aspect of the examination process did you find least beneficial?

                    We found no aspect of the examination to be anything other than beneficial. 

                    Training program examination is time consuming. 

                    Make good loans is the most important thing an institution can do. While the 

                     exam did review loan files, it seems the exam was focused on less important
                     areas than credit administration.


Survey Item 11:	        Please provide any comments from the Board as a whole regarding the
                        examination process not provided in the preceding responses.

                	 Standards of Conduct are still subject to examination team interpretation.
                   While we support the intent of the regulation on this matter, more guidance is
                   needed from the agency. Directors should not be expected to know certain
                   business relationships other than those they have direct involvement in.
                	 I and the Board believe in the team approach. On this team we may be in
                   charge but we cannot do our job without input and feedback from our FCA
                   examiners, PWC auditors, ICR reviewers, SOX and Internal Control Auditors.
                   All these people tell us if we are doing our job and where we may need to focus
                   efforts.
                	 Good communications exist between the Board Chair and the EIC.
                	 The Board is a staunch supporter of the FCA examination process, and deeply
                   values its independent and objective findings and conclusions. This is a critical
                   component in our governance process over the affairs of the institution.
                	 The Board was pleased with the overall examination process.




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