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SURVEY REPORT OFFICE OF INSPECTOR GENERAL (Farm Credit Administration)

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OFFICE OF
SURVEY REPORT
INSPECTOR GENERAL
Second Quarter Fiscal Year 2018
(January 1, 2018 - March 31,
2018)
Issued June 21, 2018
Survey of
Farm Credit System Institutions
Regarding the Agency’s
Examination Function
FARM CREDIT ADMINISTRATION
The FCS institutions asked to
respond to the survey are those
institutions that:
1. Received a Report of
Examination during the FY
quarter; or
2. Had significant examination
activity and interface with
OE during the same period.
The survey asks respondents
to rate eight survey
statements as:
Completely Agree 1
Agree 2
Neither Agree
nor Disagree 3
Disagree 4
Completely Disagree 5
Does Not Apply 6
Each fiscal year (FY) quarter the Office of Examination (OE)
identifies several Farm Credit System (FCS) institutions that were
in a position to provide meaningful survey responses for that
period. The OE identified 12 FCS institutions to survey for the
period January 1 – March 31, 2018. The Office of Inspector
General (OIG) sent surveys to those institutions in May 2018.
Ten of the twelve institutions completed the survey (an 83%
response rate). The OIG did not receive any responses from
prior quarters for this report.
For the second quarter of FY 2018, average numerical ratings
ranged from 1.9 to 2.2 (with “1” reflecting a positive rating and
“5” reflecting a negative rating). The total average numerical
rating for all survey statements was 2.0. For comparison, we
provide data from the prior three quarters below.
FY Quarter
Average
Numerical
Rating Range
Total Average
Numerical Rating
2
st
Quarter FY
2018
1.9 – 2.2
2.0
1
st
Quarter FY
2018
1.5 – 2.6
1.9
4
th
Quarter FY
2017
1.6 – 2.4
2.1
3
rd
Quarter FY
2017
1.4 – 2.2
1.8
Consistent with prior quarters’ responses, we received more
positive than negative comments about the examiners and the
examination process.
TABLE OF CONTENTS
ACRONYMS __________________________________________________________1
BACKGROUND AND METHODOLOGY ____________________________________1
SURVEY RESULTS ____________________________________________________2
EXAMINATION PROCESS _______________________________________________________________ 2
Statement #1 _________________________________________________________________________ 2
Statement #2 _________________________________________________________________________ 3
Statement #3 _________________________________________________________________________ 3
Statement #4 _________________________________________________________________________ 4
COMMUNICATIONS ____________________________________________________________________ 4
Statement #5 _________________________________________________________________________ 4
Statement #6 _________________________________________________________________________ 5
Statement #7 _________________________________________________________________________ 6
Statement #8 _________________________________________________________________________ 6
GENERAL QUESTIONS __________________________________________________________________ 7
Statement #9 _________________________________________________________________________ 7
Statement #10 ________________________________________________________________________ 7
Statement #11 ________________________________________________________________________ 7
Request for OIG Contact______________________________________________________________ 8
ACRONYMS
FCA Farm Credit Administration
FCS Farm Credit System
FY Fiscal Year
OE Office of Examination
OIG Office of Inspector General
BACKGROUND AND METHODOLOGY
1
Each fiscal year (FY) quarter the Office of Examination (OE) identifies several Farm Credit
System (FCS) institutions that were in a position to provide meaningful survey responses
for that period. The criteria for including an FCS institution in the survey are:
1. The institution received a Report of Examination during the FY quarter; or
2. There was significant examination activity and interface with an institution during
the same period.
The Office of Inspector General (OIG) provides a survey report for FY quarters ending
December 31, March 31, June 30, and September 30. The fourth quarter report includes
FY summary data.
When outstanding responses from prior quarters are received, they are included in the
next quarterly report.
The survey asks respondents to rate eight survey statements from “1” (Completely
Agree) to “5” (Completely Disagree), or “6” if the statement does not apply. The rating
choices are:
Completely Agree 1
Agree 2
Neither Agree nor Disagree 3
Disagree 4
Completely Disagree 5
Does Not Apply* 6
*We do not include ratings of “6” in rating averages because a “6” will skew the
numerical average negatively even though the statement is not applicable to the
institution.
We provide the current FY quarter’s average numerical rating for survey statements 1-8
and, for comparison, the prior two FYs’ data.
Survey statements 1-4 pertain to the examination process and statements 5-8 pertain to
communications during the examination. Statements 9-11 are general questions about
the overall process. Respondents may submit comments for each of the 11 survey
statements.
Narrative responses are provided verbatim, except any identifying information has been
removed and grammatical, punctuation, and spelling errors are usually corrected. Any
bracketed text is for the purpose of removing information that identifies an institution
or an examiner or providing clarification to a response. Perceived negative comments of
any degree are color coded in red.
At the end of the survey we ask whether the respondent would like the OIG to contact
the institution confidentially to discuss the submitted responses. This quarter, no
respondents requested the OIG to contact them.
SURVEY RESULTS
2
EXAMINATION PROCESS
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 Numerical Ratings by FY Quarter
FY
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
FY
FY 2018
1.8
1.9
FY 2017
1.8
1.6
1.8
2.1
FY 2016
1.6
1.8
1.9
1.7
Comments:
• On task and in line with Agency guidance and risk focus areas.
• Scope focused on areas applicable to the institution.
• Part of the exam seemed focused on "Hot Buttons" that propose very little risk to
the institution.
• It is important that the examination process continue to recognize the differences
across the spectrum of institutions.
• Note that there is a change in "best practices" being eliminated and all criticized
and suggested items were lumped together. This review highlighted more
noncritical and cursory items.
Statement #2
Examiners appropriately applied laws, regulations, and other regulatory criteria to
examination findings and conclusions.
Average Numerical Ratings by FY Quarter
FY
FY 2018
First
Quarter
1.8
Second
Quarter
2.0
Third
Quarter
Fourth
Quarter
FY 2017
1.8
1.7
1.8
2.1
FY 2016
1.9
1.8
2.1
1.8
Comments:
• Justification for 2 exam areas (LGD determination & cost of restructure vs. cost of
foreclosure) was lacking and not well founded.
• FCA examiners are thoughtful in considering how the regulations apply to our
institution.
• Generally agree, but significant discussion was required before overly strong
language was replaced with language consistent with the examination guidance.
• Some communication came after auditor's opinion was formed and documented
to supervisors.
Statement #3
The recommendations, required actions, and any supervisory agreement with FCA
assisted the board and management in addressing the risks of the institution.
3
Average Numerical Ratings by FY Quarter
FY
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
FY
FY 2018
2.6
2.1
FY 2017
1.8
1.8
2.2
2.4
FY 2016
2.1
2.2
2.1
2.0
Comments:
• We had no required actions this year, however, recommendations were helpful.
• Not always clear on how to address recommendations and requirements and
then come back later and made comments it was addressed was adequate.
• Some of the risk areas as identified by FCA are not applicable to our institution
due to our size and portfolio composition. A more balanced approach to risk
would be appropriate.
• Some duplication in policy procedures occurred from recommended actions.
Statement #4
The examiners were professional and efficiently conducted examination activities.
Average Numerical Ratings by FY Quarter
FY
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
FY
FY 2018
1.5
2.1
FY 2017
1.8
1.5
1.4
1.6
FY 2016
1.5
1.5
1.8
1.3
Comments:
• Top notch exam team!
• While onsite staff were professional, one of the presenters at the Board meeting
was confrontational on a variety of topics not included in the written examination
report.
• The examiners were professional in their interaction with the Board and
management. We had a number of examiner trainees that impacted efficiency.
• Examiners expressed that previous team had been "light" in reviewing.
COMMUNICATIONS
Statement #5
Communications between the Office of Examination staff and the institution were
clear, accurate, and timely.
4
Average Numerical Ratings by FY Quarter
FY
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
FY
FY 2018
1.8
2.1
FY 2017
1.6
1.5
1.7
2.0
FY 2016
1.8
1.7
1.8
1.6
Comments:
• Well done!
• Examiners were helpful in answering our follow up questions on requests if not
clear.
• Shortly after the onsite visit both the Examiner In Charge and Senior Portfolio
Manager left FCA. This turnover resulted in periods of several weeks without
communication and in the examination report being delayed. The report was
completed by staff who had not been onsite during the examination and who did
not have prior experience with the institution. The new individuals appeared to
have somewhat different views than the onsite examination staff.
• Communications were appropriate and timely.
• Several pieces could have been cleared during field work, rather than at report
draft stage.
Statement #6
Examination communications included the appropriate amount and type of
information to help the board and audit committee fulfill their oversight
responsibilities.
Average Numerical Ratings by FY Quarter
FY
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
FY
FY 2018
1.8
1.9
FY 2017
1.8
1.6
1.7
2.1
FY 2016
1.7
1.7
1.6
1.6
Comments:
• The exam team was focused on creating understanding. Well done.
• The written report was helpful. The confrontational nature of one of the presenters
on a variety of topics not included in the written report was not helpful.
• All relevant information was communicated to the Board.
• To be determined - based on future exams.
5
Statement #7
Examiners fairly considered the views and responses of the board and
management in formulating conclusions and recommendations.
Average Numerical Ratings by FY Quarter
FY
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
FY
FY 2018
1.9
2.2
FY 2017
1.6
1.8
2.1
2.1
FY 2016
1.9
1.8
1.9
1.8
Comments:
• Always very open throughout the exam process. Pre-exam meeting with Board
Chair and Audit Committee Chair was much appreciated.
• Examiners were open to our input.
• The written report reflected consideration.
• Supervisor handled this very well.
• The FCA exam scope and areas of risk are applied without regard for the Board's
level of comfort or management's sound knowledge of our borrowers and our
institution.
• Generally, fairly considered. Once in the draft, not much change was made, even
when verbal agreement was reached that contradicted the report.
Statement #8
FCS-wide guidance from the Office of Examination was proactive and helpful.
Average Numerical Ratings by FY Quarter
FY
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
FY
FY 2018
1.9
2.0
FY 2017
2.0
2.0
1.9
2.3
FY 2016
1.7
2.2
2.2
1.8
Comments:
• We appreciate the timeliness and clarity of the information distributed.
• Portions were helpful. However, lots of verbiage to sift through to find beneficial
tidbits.
6
GENERAL QUESTIONS
Statement #9
What aspect of the examination process did you find most beneficial?
• Pre-exam meetings and the Report of Examination closeout were very
helpful. Great System-wide perspective was provided at the closeout. Good
reinforcement and validation. Also, helpful to hear that the Agency is supportive
of sticking with customers that have long-term success opportunities during this
period of low commodity prices. . . encouraged the institution to be comfortable
changing FIRS level if necessary to serve the market/LSA.
• The dialogue and exchange with examiners is most beneficial.
• The process enhances the institution's understanding of the various regulations.
• Final Closing meeting.
• Executive session with the board was very beneficial.
• Interaction with examiners in conference call and board setting.
• Discussions with the EIC were more productive than past experience.
• The parts directly applicable to regulations and statutes.
Statement #10
What aspect of the examination process did you find least beneficial?
• Timing of the examination is the most difficult part of the process.
• The condescending nature of one of the FCA staff members toward the Board
and management.
• Testing of the whistle blower program.
• None.
• We continue to be criticized for our top 10 attribution hold percentage and the
level of loans we hold in our portfolio despite reducing our risk exposure in this
area.
• Extensive verbiage and closed mind when younger auditors reported up to more
seasoned managers.
• The process took a lot of time to complete.
Statement #11
Please provide any comments from the Board as a whole regarding the
examination process not provided in the preceding responses.
• Board and management feel FCA costs are high in relation to overall size of our
organization.
7
• Would be nice to have more differentiation in Exam findings between
institutions. We always strive to rise to a higher level than "satisfactory" or
"adequate".
• The Board appreciated the flexibility from FCA in allowing the exit exam to be
held via conference call versus in person. This created efficiency and cost savings
for both FCA and Farm Credit Foundations.
• Board critique delivered in an unprofessional manner which overshadowed
legitimate concerns of the audit.
• Overall it was a pretty good experience.
• We appreciated having a new examination team out to our institution. The new
EIC and Senior Portfolio Manager seemed to listen to the Board's responses.
• Lack of tenure for many of the auditors/reviewers, including "examiner in charge."
• No comment.
Request for OIG Contact
Would you like the Office of Inspector General to contact you confidentially to
discuss your survey responses and/or the examination?
This quarter, no institution indicated they would like a call from the OIG.
8
FARM CREDIT ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
REPORT
Fraud | Waste | Abuse | Mismanagement
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
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