GOVERNMENT-WIDE INITIATIVES

Strategic Management of Human Capital

# Owner: Boyd K. Rutherford, Assistant Secretary for Administration

#  (202) 720-3291, Boyd.Rutherford@usda.gov

Overall Status Score: **[GREEN]{.underline}**

## GREEN Standards for Success

Agency:

-   Implemented a comprehensive Human Capital Plan that is fully
    integrated with the agency's overall strategic plan and annual
    performance goals, analyzes the results relative to the plan, and
    uses them in decision making to drive continuous improvement
    (Achieved 4^th^ Quarter, FY 2005);

-   Analyzed existing organizational structures from service and cost
    perspectives and is implementing a plan to effectively deploy,
    restructure, delayer and use competitive sourcing, E-Gov solutions,
    as necessary; and has process(es) in place to address future changes
    in business needs (Achieved 3^rd^ Quarter, FY 2006);

-   Succession strategies, including structured leadership development
    programs, result in a leadership talent pool and agency meets its
    targets for closing leadership competency gaps (2^nd^ Quarter, FY
    2007);

-   Demonstrate that it has performance appraisal and awards systems for
    all SES and managers, and more than 60% of the workforce, that
    effectively: link to agency mission, goals, and outcomes; hold
    employees accountable for results appropriate for their level of
    responsibility; differentiate between various levels of performance
    (i.e., multiple performance levels with at least one summary rating
    above Fully Successful); and provide consequences based on
    performance. In addition, at a beta site, there is evidence that
    clear expectations are communicated to employees; rating and awards
    data demonstrate that managers effectively planned, monitored,
    developed and appraised employee performance; and the site is ready
    to link pay to the performance appraisal systems. The agency has
    significantly increased the size of the beta site and is working to
    include all agency employees under such systems (3^rd^ Quarter, FY
    2007);

-   Reduced under representation, particularly in mission-critical
    occupations and leadership ranks; established processes to sustain
    diversity (Achieved 4^th^ Quarter, FY 2005);

-   Meets targets for closing competency gaps in mission critical
    occupations (i.e., agency-specific, information technology, and
    leadership), and integrates appropriate competitive sourcing and
    E-Gov solutions into gap closure strategy (1^st^ Quarter, 2007);
    Meets targets for closing gaps in human resources management (3^rd^
    Quarter, FY 2007);

-   Meets 45-day time to hire standard (1^st^ Quarter, 2007), meets
    45-day standard) to notify applicants of hiring decisions for 50% of
    hires, meets targets for hiring process improvements based on CHCO
    Council criteria (3rd Quarter, 2007);

-   Sets and meets aggressive SES hiring timelines progressing toward a
    30-day average (1st Quarter, 2007); **and**

-   Periodically conducts accountability reviews with OPM participation,
    taking corrective and improvement action based on findings and
    results, and providing annual report to agency leadership and OPM
    for review and approval (4^th^ Quarter, FY 2007).

**KEY MILESTONES for the Department of Agriculture**

#### FY 2006 -- Fourth Quarter

**Career Pattern Action Items**

-   Use the Career Patterns (CP) Guide, complete Steps 1 and 2 of the
    Analytic Tool, and provide evidence to the HCO that the CP Guide
    template is being filled out. (No other type of report needs to be
    submitted).

######## **Succession Strategies**

-   Submit bench strength and leadership competency targets for PTB IV.

-   Finalize the USDA Succession Plan based on feedback from OPM.

**Skills Gaps and Improving Hiring**

-   Work with agencies to develop aggressive targets for closing
    competency gaps for mission critical occupations; IT project
    management, IT security, and IT architecture occupations; Human
    Resources Management; and Leadership.

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-   Update the following for PTB IV: HRM Competency Gap Analysis Report
    and Improvement Plan based on OPM feedback; Gap Analysis Report for
    department specific MCOs and leadership positions and MCO Resource
    and Competency Profile Charts; and IT Hiring Plan and Gap Plan
    Templates covering FY 2007 and status update for Q4 FY 2006 (due
    September 1, 2006).

-   Set and report aggressive targets for SES Hiring Timelines.

-   Complete Quarterly Hiring Timeline Chart (Apr-June data) using the
    new template.

-   Submit a report outlining targets and strategies for improving USDA
    hiring processes (using baseline survey data from the CHCO Council
    Management/Applicant Satisfaction Survey results).

###### Performance Appraisal Plan

-   Identify expanded beta site.

-   Complete rating cycle for the beta site.

**Accountability**

-   Implement USDA accountability policy, finalize USDA's accountability
    system and plan, secure approval from OPM, and implement system
    through completion of at least two delegated examining audits.

-   **Organization Improvement Plan**

-   For the U.S. Forest Service:

    -   Complete Forest Service organizational structure review.

    -   Complete an independent review and evaluation of cost reduction
        initiatives for Information Technology Infrastructure.

    -   Implement the USDA Human Resources Information System.

    -   Achieve a 15 percent reduction in "as-is" staffing from 808 FTE
        baseline established in FY 2005.

    -   Establish a competitive sourcing strategy by issuing the Forest
        Service's annual "Green Plan." Initiate identified feasibility
        studies and implement the studies' recommendations.

-   For the Farm Service Agency:

    -   Begin implementing seven field office organizational structure
        alignment business plans.

    -   Complete a MIDAS business case.

-   For Rural Development:

    -   Twenty-five percent of identified RD forms meet Departmental
        guidelines for access through electronic media.

    -   Develop a methodology to assess the cost of delivering and
        servicing RD programs.

    -   Conduct Management Control Reviews on 20 percent of all
        assessable RD units.

-   For Marketing and Regulatory Programs:

    -   Complete 80 percent of the Fruits and Vegetables Processed
        Products Branch restructuring.

    -   Ensure 100 percent of program and support units are on the APHIS
        Multi Agency Coordination Group to coordinate agency-wide
        communications, resources, and functions in support of the APHIS
        Avian Influenza Incident Coordination Group.

    -   Complete organizational development team review of GIPSA.

    -   Evaluate and implement streamlined streamlined business
        processes for investigations and regulatory enforcement.
        Establish new internal performance measures.

    -   Initiate GIPSA grain export customer service pilot programs in
        California, Wisconsin, Illinois, Indiana, Ohio, and New York.

    -   Consolidate ARS and APHIS research, diagnostics, and biologics
        product evaluation operations in Ames, Iowa, into the National
        Center for Animal Health.

#### 

#### FY 2007 -- First Quarter

**Career Pattern Action Items**

-   Continue to use the Career Patterns (CP) Guide and do Steps 1 and 2
    of the Analytic Tool.  Continue to submit evidence to the HCO that
    the CP Guide template is being filled out.  (No other type of report
    needs to be submitted). For the period December to June, USDA needs
    to be completing Step 3 of the Analytic Tool and show the HCO that
    they are making progress in enhancing existing or building new work
    environments.  This progress leads to meeting the operational goal
    that all CHCO agencies are using Career Patterns to hire.

###### Succession Strategies

-   Work with agencies to create a managerial development program.

**Performance Appraisal Plan**

-   Complete a PAAT for the beta site.

-   Complete a PAAT for the expanded beta site. Develop an action plan
    for improving performance management at the expanded beta site.

-   Ensure that agencies take corrective action based on OPM's feedback
    regarding the Performance Assessment Accountability Tools (PAATs).

**Skills Gaps and Improving Hiring**

-   Submit IT Hiring Plan and Gap Plan Status Update (due December 1,
    2006)

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-   Submit Quarterly Hiring Timeline Chart (Use July-Sep data)

-   Meet targets for closing competency gaps in mission critical
    occupations (i.e., agency-specific, information technology, and
    leadership), and integrates appropriate competitive sourcing and
    E-Gov solutions into gap closure strategy.

-   Sets and meets aggressive SES hiring timelines progressing toward a
    30-day average.

-   Meets the 45 day time to hire standard.

**Accountability**

-   Complete annual accountability report and submit to OPM.

-   Continue Accountability audits and reviews.

**Comprehensive Human Capital Plan**

-   USDA will review and update the Strategic Human Capital Plan to
    incorporate goals in the newly updated USDA Strategic Plan and
    submit to OPM.

**Organization Improvement Plan**

-   For the Farm Service Agency:

    -   Complete a nationwide organizational structure efficiency review
        of FSA state offices.

### FY 2007 -- Second Quarter

**Career Pattern Action Items**

-   For the period through June 2007, USDA needs to be completing Step 3
    of the Analytic Tool, show the HCO that they are making progress in
    enhancing existing or building new work environments.  This progress
    leads to meeting the operational goal that all CHCO agencies use
    Career Patterns to hire.

**Performance Appraisal Plan**

-   Make and report improvements to performance management at expanded
    beta site as outlined in the action plan.

**Skills Gaps and Improving Hiring**

-   Submit Status Report on improving hiring process based on CHCO
    Council Management and Applicant Satisfaction Surveys (due January
    2007)

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-   Submit Quarterly Hiring Timeline Chart (Using Oct-Dec data)

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-   Submit updated Gap Analysis and Improvement Plan for IT occupation
    based on Governmentwide IT competency assessment results

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-   USDA meets its targets for closing leadership competency gaps.

-   Hold an agency-wide Human Capital forum and share human capital best
    practices.

**Accountability**

-   Continue Accountability audits and reviews.

####### Organization Improvement Plan

-   For the Farm Service Agency:

    -   Develop milestones and a timeline for information technology
        modernization.

-   For Rural Development:

    -   Review existing field offices that were initially waived under
        previous organizational structure reviews to ensure that the
        justification for the waiver continues to be valid.

-   For the Natural Resources Conservation Service:

    -   Complete and begin implementing an organizational structure
        efficiency review of the national headquarters office.

### FY 2007 -- Third Quarter

**Career Pattern Action Items**

-   For the period through June 2007, agencies need to be completing
    Step 3 of the Analytic Tool and report that they are making progress
    in enhancing existing or building new work environments.  This
    progress leads to meeting the operational goal that all CHCO
    agencies use Career Patterns to hire.

**Succession Strategies**

-   Agency must submit bench strength and leadership competency results
    for PTB IV.

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-   Agency must submit succession plans for approval.

**Performance Appraisal Plan**

-   Make and report improvements to performance management at expanded
    beta site as outlined in the action plan

-   Increase the size of the beta site to at least 50% of USDA.

**Skills Gaps and Improving Hiring**

-   Submit Quarterly Hiring Timeline Chart (Use Jan-Mar data). Meets 45
    day standard to notify applicants of hiring decisions for 70% of
    hires and meets targets for hiring process improvements based on
    CHCO Council criteria.

-   Submit Measure Results Report for closing competency gaps in MCOs
    (i.e., agency specific, leadership, HRM, and IT) and accompanying
    charts

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-   Submit Results Report for improving hiring process based on CHCO
    Council Management and Applicant Satisfaction Surveys.

**Accountability**

-   Continue Accountability System Plan activities.

**Organization Improvement Plan**

-   For the Natural Resources Conservation Service:

    -   Complete and begin implementing a nationwide organizational
        structure efficiency review of the 52 NRCS state offices and
        field offices.

##### FY 07 -- Fourth Quarter

-   Complete appraisal cycle for expanded beta site and report.

-   Continue Accountability System Plan activities.

##### On-going

-   Conduct quarterly meetings with mission area human capital officers
    to improve communications and results.

-   Track agency progress on succession management.

-   Track agency progress on improving the hiring process/timeline.

-   Agencies report on progress on closing competency gaps.

-   Agencies report on progress on performance management activities.

-   Report on progress of accountability reviews.

-   Inform agencies of the workforce Career Pattern requirements used to
    close competency gaps.

-   Reduce under representation, particularly in mission critical
    occupations and leadership ranks; establish processes to sustain
    diversity.

-   Hold Human Capital Forums.

## KEY RESULTS -- We Would Be Proud to Achieve

-   100% of agencies set and meet targets to close competency gaps for
    Mission Critical Occupations.

-   50% of agencies set and meet targets for closing IT project
    management, IT security, and IT architecture competency gaps.

-   All USDA agencies have succession plans in place and meet
    milestones.

-   All USDA agencies improve their performance management practices as
    measured by the PAAT to an OPM passing score.

-   All USDA agencies set and meet targets for closing competency gaps
    in the Human Resource Management Specialist occupation.

-   All USDA agencies meet the 45-day hiring decision goal for 70% of
    non-SES hires.

-   All USDA agencies improve hiring practices as measured by the CHCO
    Council criteria.

-   All USDA agencies categorize their mission critical positions by the
    new Career Patterns to close competency gaps.

-   USDA has implemented an OPM approved human capital accountability
    system.

**Competitive Sourcing**

Owner: Charles R. Christopherson, Chief Financial Officer

> (202)-720-5539,
> [[chuck.christopherson@usda.gov]{.underline}](../chuck.christopherson@usda.gov)

Co-Owner: Jon Holladay, Associate Chief Financial Officer

> (202)-720-8345, <jon.holladay@usda.gov>

Overall Status Score: **[GREEN]{.underline}**

**GREEN Standards for Success**

Agency:

-   Has an OMB approved "green" competition plan to compete commercial
    activities available for competition (FY 2007 Q2);

-   Publicly announces standard competitions in accordance with the
    schedule outlined in the agency "green" competition plan;

-   Since January 2001, has completed at least 10 competitions (no
    minimum number of positions required per competition) or has
    completed a sufficient number of large competitions to demonstrate
    meaningful use of competitive sourcing;

-   In the past four fiscal quarters, completed 90% of all standard
    competitions in a 12-month timeframe or timeframe otherwise approved
    in accordance with the Circular;

-   In the past four fiscal quarters, completed 95% of all streamlined
    competitions in a 90-day timeframe or timeframe otherwise approved
    in accordance with the Circular*;*

-   In the past year, canceled fewer than 10% of publicly announced
    standard and streamlined competitions;

-   Has OMB reviewed written justifications for all categories of
    commercial activities determined to be unsuitable for competition
    (FY 2007 Q2);

-   Structures competitions in a manner to encourage participation by
    both private and public sectors as typically demonstrated by receipt
    of multiple offers and/or by documented market research, as
    appropriate;

-   Regularly reviews work performed once competitive sourcing studies
    are implemented to determine if performance standards in contract or
    agreement with agency provider are met and takes corrective action
    when provided services are deficient;

-   Submits quarterly reports to OMB's competitive sourcing tracking
    system regarding status of pending competitions and results
    achieved; **AND**

-   Has positive anticipated net savings and/or significant performance
    improvement from competitions completed either in last fiscal year
    for which data has been officially reported to Congress by OMB or in
    the past three quarters.

## Standards for Success to MAINTAIN GREEN

-   Has expressly coordinated "green" competition plan annual updates
    with agency's Chief Human Capital Office; **AND**

-   Through sampling, independently validates that savings to be
    achieved for the prior fiscal year were realized.

**YELLOW Standard for Success**

Agency:

-   Has an OMB approved "yellow" competition plan to compete commercial
    activities available for competition;

-   Has completed one standard competition or has publicly announced
    standard competitions that exceed the number of positions identified
    for competition in the agency's "yellow" competition plan;

-   In the past two quarters, has completed 75% of streamlined
    competitions in a 90-day timeframe or timeframe otherwise approved
    in accordance with the Circular;

-   In the past two quarters, has canceled fewer than 20% of publicly
    announced standard and streamlined competitions;

-   Has positive anticipated net savings and/or performance improvements
    from competitions completed either in the last fiscal year for which
    data has been officially reported to Congress by OMB or in the past
    two fiscal quarters; or has taken corrective actions to address
    identified weaknesses; **AND**

-   Submits quarterly reports to OMB's competitive sourcing tracking
    system regarding status of pending competitions and results
    achieved.

**KEY MILESTONES for the Department of Agriculture**

-   Work with OMB to approve the USDA Green Plan.

-   Implement USDA Green Plan after OMB approves the Green Plan.

**KEY RESULTS - We Would Be Proud to Achieve**

-   Approval and implementation of the USDA Green Plan.

# **Improved Financial Performance** 

Owner: Charles R. Christopherson, Chief Financial Officer

\(202\) 720-5539, chuck.christopherson@usda.gov

Overall Status Score: **[RED]{.underline}**

**GREEN Standards for Success**

Agency:

-   Meets all Yellow Standards for Success;

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-   Currently produces accurate and timely financial information that is
    used by management to inform decision-making and drive results in
    key areas of operations; and

-   Is implementing a plan to continuously expand the scope of its
    routine data use to inform management decision-making in additional
    areas of operations (FY 2006 Q4).[\
    ]{.underline}

> Comments: USDA is implementing a corporate financial data integration
> plan to expand the use of financial data into key operational areas.
> Key components of the plan include corporate financial initiatives as
> well as initiatives in the mission/operational arenas.

**YELLOW Standards for Success**

Agency:

-   Receives an unqualified audit opinion on its annual financial
    statements;

-   Meets financial statement reporting deadlines;

\_ Reports in its audited annual financial statements that its systems
are in compliance with the Federal Financial Management Improvement Act\
(FY 2009 Q1);

> Comments: USDA's FY 2005 Consolidated Financial Statement audit
> reported that CCC is non-compliant with FFMIA and actions necessary to
> bring CCC into compliance with FFMIA will be completed by the end of
> calendar year 2009. Milestones have been added to this document to
> come into substantial compliance before 2009.

-   Has no chronic or significant Anti-Deficiency Act Violations;

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-   Has no repeat material auditor-reported internal control weaknesses
    (FY 2007 Q1);

> Comments: In the Consolidated Financial Statement audit for FY 2005,
> USDA reported two repeat material deficiencies. We have made
> substantial progress in IT Security, but A-123 confirms additional
> improvement is required in the Forest Service and potentially other
> agencies

-   Has no material non-compliance with laws or regulations; AND

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-   Has no repeat material weaknesses or non-conformances reported under
    Section 2 and Section 4 of the Federal Managers' Financial Integrity
    Act that impact the agency's internal control over financial
    reporting or financial systems\
    (FY 2007 Q1).

> Comments: USDA had two repeat material deficiencies at the end of FY
> 2005. IT Security as mentioned above will not close.

**KEY MILESTONES for the Department of Agriculture**

[FY 2006 -- Fourth Quarter]{.underline}

-   Financial Reporting and Sustained Unqualified Audit Opinion:

    -   Submit 3rd quarter unaudited FY 2006 financial statements to OMB
        on time.

-   Eliminate and Prevent USDA Material Deficiencies

    -   Prepare a draft A-123 Assurance Statement.

    -   Submit a draft remediation plan to OMB for Material Weaknesses.

    -   Submit a draft remediation plan to OMB for Reportable
        Conditions.

    -   Develop a plan to bring CCC into substantial compliance for
        funds control before June 30, 2007.

    -   Assess and report on USDA's compliance with FMFIA and FFMIA.

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-   USDA Financial Data Integration Improvement Plan:

    -   Obtain OMB approval on the Draft Financial Data Integration
        Improvement Plan (Green Plan) submitted March 10 2006.

    -   Continue Financial Management Modernization Initiative
        acquisition (work resumed after temporary suspension)

    -   Work with the eGovernment Travel vendor to begin the
        implementation tasks

    -   Load data and continue to prepare for implementation of the
        Presidents Management Agenda Internal Scorecard Module for the
        Management Initiatives Tracking System. This system will provide
        web enablement of the USDA Corporate Financial and Performance
        Reporting

    -   Complete Enterprise Architecture Training and Implementation
        (6/30/06)

    -   Re-baseline CPAIS Financial Data Integration Improvement Plan
        milestones to correspond with implementation milestones

    -   Continue implementation of component business area/agency
        Financial Data Integration Improvement Plans and report progress
        against established milestones. Participating agencies include
        the Corporate Business Area, Rural Development (RD) Farm and
        Foreign Agriculture Services, and Forest Service.

    -   Expand Financial Data Integration Improvement Plan to additional
        USDA business areas and agencies including: Risk Management,
        Food Safety, Marketing and Regulatory Programs, Natural
        Resources Conservation Service and Research Education and
        Economics

######### FY 2007 -- First Quarter

-   USDA Financial Data Integration Improvement Plan (FDIIP):

    -   Business areas achieve planned progress and report results of
        efforts to meet their individual FDIIP milestones (includes
        Corporate, Rural Development, Farm and Foreign Agriculture
        Services and Forest Service Business Areas)

    -   For the expanded Financial Data Integration Improvement Plan,
        new Business Areas and Agencies have identified high priority
        Financial Performance Improvement measures and established
        baselines and targets.

-   Financial Reporting and Sustained Unqualified Audit Opinion:

    -   OIG issues final audited FY 2006 consolidated financial
        statements report.

    -   Submit final audited FY 2006 consolidated financial statements,
        standalone financial statements, and copies of the management
        representation letter to OMB by November 15.

    -   Release Performance and Accountability Report to the President,
        OMB Director and Congress.

    -   Submit Closing Package to Treasury by November 15 to support the
        government-wide financial statements.

    -   Develop FY 2007 detailed timeline for financial statement
        preparation and audit.

-   Eliminate and Prevent USDA Material Deficiencies:

    -   Submit final A-123 Assurance Statement and Remediation Plans to
        OMB with the PAR.

    -   Develop corrective action plans for any deficiencies identified
        for reporting in the FY 2006 Performance and Accountability
        Report;

    -   Monitor compliance with remediation plan for critical path
        activities related to the Assessment of Internal Control over
        Financial Reporting for compliance with OMB Circular A-123; and

    -   Obtain quarterly status reports on progress toward correcting
        any material deficiencies.

    -   Vendor demonstrations for Phase I of CCC's Modernize and
        Innovate the Delivery of Agricultural Systems (MIDAS)

######### FY 2007 -- Second Quarter

-   Financial Reporting and Sustained Unqualified Audit Opinion:

    -   Submit 1st quarter unaudited FY 2007 financial statements to OMB
        on time.

-   Eliminate USDA Material Deficiencies:

    -   Monitor compliance with remediation plan for critical path
        activities related to the assessment of internal control over
        financial reporting for compliance with OMB Circular A-123; and

    -   Obtain quarterly status reports on progress toward correcting
        any material deficiencies.

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-   USDA Financial Data Integration Improvement Plan:

    -   Business areas achieve planned progress and report results of
        efforts to meet their individual FDIIP milestones.

    -   New Business Areas and Agencies have implemented high priority
        Financial Performance Improvement measures.

[FY 2007 -- Third Quarter]{.underline}

-   Financial Reporting and Sustained Unqualified Audit Opinion:

    -   Submit 2nd quarter unaudited FY 2007 financial statements to
        OMB.

-   Eliminate USDA Material Deficiencies:

    -   Monitor compliance with remediation plan for critical path
        activities related to the assessment of internal control over
        financial reporting for compliance with OMB Circular A-123;

    -   Obtain quarterly status reports on progress toward correcting
        any material deficiencies.

    -   Prepare a Request for Proposal for Phase I of CCC's Modernize
        and Innovate the Delivery of Agricultural Systems (MIDAS)

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-   USDA Financial Data Integration Improvement Plan:

    -   Business areas achieve planned progress and report results of
        efforts to meet their individual FDIIP milestones.

    -   New Business Areas and Agencies have begun reporting results of
        Financial Performance Improvement measurements and are analyzing
        results to identify potential adjustments to improve financial
        performance.

    -   Continue acquisition evaluation process for FMMI.

[On-going]{.underline}

-   Continue to work with USDA agencies to improve financial management
    systems and processes.

-   Continue to expand the scope of routine data use to measure and
    improve financial performance.

-   Hold biweekly meetings with Departmental financial statement
    preparers.

-   Hold monthly CFO Council meetings with agency CFOs to discuss
    financial management policy, information systems and quality
    assurance issues and initiatives.

-   Provide agencies with financial indicator data to provide focus for
    financial reporting quality control activities. Provide agencies
    access to web based Corporate Financial and Performance Reporting
    data.

-   Guide agency Senior Assessment Team members and their
    representatives in complying with OMB Circular A-123.

**KEY RESULTS - We Would Be Proud to Achieve**

-   Retain unqualified opinion on FY2006 USDA Financial Statements

-   Issue a Statement of Unqualified Assurance on USDA's Controls over
    Financial Reporting.

-   OMB Approval of Financial Data Integration Improvement Plan

-   Green status on PMA Scorecard

-   Achieve green status for Electronic Funds Transfer (EFT).

-   Reduce travel charge card delinquency rates for Individually Billed
    Accounts to 1.98% and Centrally Billed Accounts to 0% achieving
    green status on CFO Council travel metrics.

-   Achieve green status on CFO Council metric for suspense clearing
    with less than 10% delinquency rate. []{.mark}

-   Introduce LEAN Six Sigma to the USDA Financial Management Community
    in order to continuously improve business processes.

-   Finalize the business case and timeline for CCC's Modernize and
    Innovate the Delivery of Agricultural Systems (MIDAS).

# **Expanded E-Government**

Owner: Dave Combs, Chief Information Officer 202-720-8833,
<dave.combs@usda.gov>

Overall Status Score: [GREEN]{.underline}

**GREEN Standards for Success**

Agency:

-   Has an Enterprise Architecture with a score of 4 in both the
    "Completion" section and 3 in both the "Use" and "Results" sections
    (FY 2007Q3);

-   Has acceptable business cases for all major systems investments and
    no business cases on the "management watch list" (FY 2007Q3);

-   Has demonstrated appropriate planning, execution, and management of
    major IT investments, using EVM or operational analysis, and has
    portfolio performance within 10% of cost, schedule, and performance
    goals (FY 2007Q1);

-   Inspector General or Agency Head verifies the effectiveness of the
    Department-wide IT security remediation process and rates the agency
    certification and accreditation process as "Satisfactory" or better
    (FY 2006Q3);

-   Has 90% of all IT systems properly secured (certified and
    accredited) (FY 2007Q3); **AND**

-   Adheres to the agency-accepted and OMB-approved implementation plan
    for all of the appropriate E-Gov/Lines of Business/SmartBuy
    initiatives rather and has transitioned and/or shut down investments
    duplicating these initiatives in accordance with the OMB-approved
    implementation plan (FY 2007Q3).

**Standard for Success to MAINTAIN GREEN**

Agency:

-   Has ALL IT systems certified and accredited (FY 2007Q3);

-   Has IT systems installed and maintained in accordance with security
    configurations (FY 2007Q3);

-   Has demonstrated for 90% of applicable systems a Privacy Impact
    Assessment has been conducted and publicly posted (FY 2007Q3);
    **AND**

-   Has demonstrated for 90% of systems with personally identifiable
    information a systems of records has been developed and published
    (FY 2007Q3).

**YELLOW Standards for Success**

Agency:

-   Has an Enterprise Architecture with a score of 4 in the "Completion"
    section and 3 in either the "Use" or "Results" sections *(date)*;

-   Has acceptable business cases for more than 50% of its major IT
    investments *(date)*;

-   Submits security reports to OMB that document consistent security
    improvement and either *(Quarterly)*:

    -   80% of all IT systems are properly secured; OR

    -   Inspector General of Agency Head verifies the effectiveness of
        the Department-wide IT Security Plan of Action and Milestone
        Remediation Process;

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-   Has demonstrated appropriate planning, execution, and management of
    major IT investments, using EVM or operational analysis, and has IT
    portfolio performance operating within 30% of cost, schedule, and
    performance goals *(date)*; **AND**

-   Has an up-to-date agency-accepted and OMB-approved implementation
    plan for all of the appropriate E-Gov/Lines of Business/SmartBuy
    initiatives rather than creating redundant or agency unique IT
    projects *(date)*.

**KEY MILESTONES for the Department of Agriculture**

[FY 2006 -- Fourth Quarter]{.underline}

# **Capital Planning and Investment Control**

# Submit USDA's Information Technology (IT) investment portfolio with acceptable business cases for all major investments (validated by Exhibit 300 evaluations) by the designated due date. 

# Work with agencies to improve business cases including "management watch list" projects for ongoing FY 2007 investments (validated by Exhibit 300 scores).

-   Develop sufficiently detailed EVM baselines to be included in the
    Exhibit 300's to allow progress to be demonstrated to OMB in future
    quarters.

-   Provide an explanation on how USDA is implementing EVM for systems
    where contracts do not require EVM.

-   Provide status report of contracts requiring EVM language be
    inserted upon renewal.

# **Enterprise Architecture**

-   Define the strategic direction for a USDA-wide EA repository.

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-   **Cyber Security**

    -   Complete and pilot SES Level "Executive IT Security" Training
        Seminar

-   **E-Government**

    -   Provide quarterly progress report on E-Gov/LOB/SmartBUY
        implementation plan.

[FY 2007 -- First Quarter]{.underline}

# **Capital Planning and Investment Control**

-   Review business case evaluations provided with passback; work with
    agencies to develop remediation plans for weaknesses (validated by
    remediation plans).

-   Rescore revised Exhibit 300s and provide revised documents to OMB
    (dependent on date of passback and extent of weaknesses identified;
    validated by resubmission and Exhibit 300 evaluations).

-   Provide data to OMB supporting use of EVM/Operational Analysis at
    USDA, including updated CPI/SPI data (validated by submission of
    monthly data to OMB).

-   Graduate one class for "IT Investment/Project Management" training.

-   Provide status report of contracts requiring EVM language be
    inserted upon renewal.

# **Enterprise Architecture**

# Submit EA self-assessment using OMB's EA Assessment Tool.

-   **Cyber Security**

# Provide quarterly progress on the ASSERT Implementation. ASSERT is EPA's Automated Security Self-Evaluation and Remediation Tracking system which assists managers in gathering system data, managing remediation activities for weaknesses, and creating reports in support of the USDA's Federal Information Security Management Act (FISMA.) 

# Provide quarterly progress on the Incident Handling database implementation plans.

-   **E-Government**

    -   Submit annual eGovernment Act Report to OMB (validated by
        submission of the report to OMB).

    -   Provide quarterly progress report on E-Gov/LOB/SmartBUY
        implementation plans.

[FY 2007 -- Second Quarter]{.underline}

# **Capital Planning and Investment Control**

# Work with agencies to address known business case weaknesses -- e.g., completion of certification and accreditation -- and resolve outstanding issues identified by OMB during passback; reevaluate revised Exhibit 300s and provide revised documents to OMB (validated by Exhibit 300 evaluations and resubmission of documents to OMB).

# Publish Capital Planning and Investment Control (CPIC) call memorandum for fiscal year 2009 and prepare updated guidance in support of business case implementation (validated by memorandum sent to agencies).

# Provide data to OMB supporting use of EVM/Operational Analysis at USDA, including updated CPI/SPI data (validated by submission of monthly data to OMB).

-   Provide status report of contracts requiring EVM language be
    inserted upon renewal.

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-   **Cyber Security**

# Provide quarterly progress on the ASSERT Implementation.

# Provide quarterly progress on the Incident Handling database implementation plans.

# Provide progress report on security policy updates.

# 

-   **E-Government**

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-   Provide E-Government Act report to OMB within defined timeframe.

-   Ensure all MOUs and funding transfers to the E-Gov and LoB
    initiatives are complete.

-   Provide quarterly progress report on E-Gov/LOB/SmartBUY
    implementation plans.

[FY 2007 -- Third Quarter]{.underline}

# **Capital Planning and Investment Control**

-   Publish revised Capital Planning and Investment Control Guide for
    Budget Year (BY) 2009.

-   Provide data to OMB supporting use of EVM/Operational Analysis at
    USDA, including updated CPI/SPI data (validated by submission of
    monthly data to OMB).

-   Provide status report of contracts requiring EVM language be
    inserted upon renewal.

# **Cyber Security**

# Submit quarterly FISMA Report to OMB summarizing progress on achieving POA&Ms (validated by submission of report to OMB).

-   Ensure Privacy Impact Assessments (PIA) are completed for 100% of
    the systems that require a PIA.

-   Ensure systems of records are established for 100% of the systems
    that require one.

-   75% of POA&Ms scheduled for completion will be resolved.

-   Complete eight Security Program Reviews.

-   75% of eligible USDA employees complete the annual computer security
    awareness training.

### **E-Government**

-   Provide quarterly progress report on E-Gov/LOB/SmartBUY
    implementation plans.

**KEY RESULTS - We Would Be Proud to Achieve**

-   Achieve a 4 or higher in evaluations of the "Completion," "Use," and
    "Results" sections for Enterprise Architecture.

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-   At least 80% of USDA agencies are managing their projects to 10% of
    cost, schedule and performance.

-   At least 90% of IT systems are certified and accredited as secure.

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-   Privacy Impact Assessments are complete for 100% of all systems that
    require one.

# 100% of systems with personally identifiable information a systems of records has been developed and published for those systems that require one.

-   Support the above key results through the following on-going
    activities:

1\. Capital Planning and Investment Control

-   Monitor performance against cost/schedule/performance baselines on a
    monthly basis (validated against the baselines provided in the FY07
    business cases with data provided by agencies).

-   Evaluate processes in place to support EVM and Operational Analysis
    at USDA (validated by work done by review team staffed by OCIO and
    agencies). This is a continuous improvement process. USDA will
    self-evaluate progress; monitor OMB and GAO guidance and make
    changes to processes as needed. The CIO reviews Agency EVM reporting
    on a weekly basis.

-   Provide monthly data to OMB supporting use of EVM/Operational
    Analysis at USDA, including updated CPI/SPI data, sample contract
    language on EVM, and EVM reports (for CPI/SPI - validated by
    submission of data monthly to OMB).

2\. Enterprise Architecture

-   Based on OMB's comments on USDA's reassessment of its EA status,
    USDA will continue to review progress against OMB EA self-assessment
    tool and its subsequent comments to USDA. USDA will meet
    periodically with the FEA PMO to ensure that our EA efforts remain
    consistent with federal direction.

-   Map FY 2007 major investments and systems to SRM & TRM (validated by
    data resident in tool and Exhibit 300s).

-   Continue to link all IT investments as documented in the OMB
    Exhibits 53 and 300 with their respective Department and agency
    strategic goals, objectives, and strategies, as well as align them
    to the FEA Reference Models and Lines of Business, and internal
    budget information.

-   Continue working on the "To-be" elements of the EA and the long-erm
    governance model for the Department's EA.

-   Continue to load remainder of USDA target Enterprise Architecture
    into EA Repository (validated by data resident in tool).

-   Provide a complete EA, including a Transition Strategy and the
    contents of the EA repository. Continue to use EA data to evaluate
    current and future agency IT investments and acquisitions. Continue
    to deliver an on-going training program to all agencies for the EA
    Repository.

-   Continue participating on a Federal-wide work group to develop
    products supporting the FEA DRM leading to development of a Federal
    data meta-model, data registry and categorization techniques, data
    sharing to support IT system interoperability and integration, and
    governance procedures to manage access and security of data assets.

3\. Cyber Security

-   Continue to strengthen our Certification and Accreditation Process
    and aligning FISMA systems to our Enterprise Architecture
    Repository.

-   Continue to strengthen our Incident Handling process. Delivery
    timely and quality incident information to the Department of
    Homeland Security US-CERT team. Be rated quarterly as effective and
    mature by US-CERT in incident handling.

4\. E-Government

-   Continue monthly monitoring of agency progress in meeting project
    milestones and implement corrective measures where necessary to keep
    projects on track (validated by progress documented in the quarterly
    eGovernment report to OMB).

-   Monitor progress and issues associated with the support and
    implementation of the Presidential E-Government initiatives and
    Lines of Businesses for all agencies.

-   Ensure all MOUs and funding transfers to the E-Government and LoB
    initiatives are complete within 45 days of receipt when the MOU
    meets all of the following criteria:

    -   The product or services provided are defined and meets the
        requirements of USDA agencies and/or customers.

    -   The initiative documents acceptable EVM cost, schedule, and
        performance scores.

    -   The initiative is compliant with USDA's Enterprise Architecture.

# 

# **Budget and Performance Integration** 

Owner: W. Scott Steele, Director, Office of Budget and Program Analysis

(202-720-3323); <wss@obpa.usda.gov>

Overall Status: **[GREEN]{.underline}**

**GREEN Standards for Success**

-   Senior agency managers meet at least quarterly to examine reports
    that integrate financial and performance information that covers all
    major responsibilities of the Department. Agency has a "green" plan
    in place to improve program performance and efficiency each year.
    (1^st^ Quarter 2007)

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-   Strategic plans contain a limited number of outcome-oriented goals
    and objectives. Annual budget and performance documents incorporate
    measures identified in the PART and focus on the information used in
    the senior management report described in the first criterion.

-   Reports the full cost of achieving performance goals accurately in
    budget and performance documents and can accurately estimate the
    marginal cost of changing performance goals.

-   Has at least one efficiency measure for all PARTed programs.

-   Uses PART evaluations to direct program improvements and hold
    managers accountable for those improvements, and PART findings and
    performance information are used consistently to justify funding
    requests, management actions, and legislative proposals; and

-   Less than 10% of agency programs receive a Results Not Demonstrated
    rating for two years in a row.

## Standard for Success to MAINTAIN GREEN

**\_\_** Improves program performance and efficiency each year according
to "green plan," AND

**\_\_**\_ Uses marginal cost analysis to inform resource allocations,
as appropriate.

**KEY MILESTONES for the Department of Agriculture**

[On-Going]{.underline}

-   Work with agencies to address performance and efficiency measurement
    challenges.

-   Track budget and performance information quarterly.

-   Implement PART recommendations and report on a quarterly basis.

[FY 2006 -- Fourth Quarter]{.underline}

-   Finalize all FY 2008 PARTs and reassessments, including appeals.

-   Utilize performance information and PART findings to inform
    Departmental budget decisions. This includes using marginal costing
    principles to identify impacts of various resource allocations.

-   Work with agencies to identify and resolve technical issues related
    to collection of performance and efficiency measure information to
    be updated in PARTweb.

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-   Provide Annual Efficiency Measure report to OMB, including an
    explanation of how efficiency measures included in PARTed programs
    relate to cost savings and how USDA is using efficiency measures to
    control or reduce costs.

-   Provide OMB with documentation of how PART findings and
    recommendations have impacted USDA's budget development and
    justification, including what kind of decisions are being made and
    how mid-course corrections are being implemented to meet performance
    goals.

-   Within USDA identify and share best practices on improvement plan
    implementation and performance measurement.

[FY 2007 -- First Quarter]{.underline}

-   Create a "green" plan to improve program performance and efficiency
    each year utilizing the Quarterly Budget and Performance Report
    process. Provide guidance to agencies on the FY 2007 Green
    Plan/Quarterly Budget and Performance Report including setting
    performance and efficiency targets. Progress in implementation of
    performance targets and PART recommendations will be tracked
    quarterly.

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-   Update performance and efficiency actual information and targets for
    all programs in PARTweb.

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-   Provide 2008 budget documents to OMB that present the USDA budget in
    a "performance budget" format and include information on the results
    and recommendations of PART reviews as well as a discussion of
    efficiency improvements.

[FY 2007 -- Second Quarter]{.underline}

-   Highlight the results of PART reviews, program results and other
    performance information such as key performance and efficiency
    measures that support the USDA Strategic Objectives as part of the
    FY 2008 Budget Summary and Annual Performance Plan. This document is
    released to the public and published on the USDA website.

-   Reference PART findings where appropriate in Congressional
    justification materials, including witness statements, questions for
    the record and other materials.

-   Work with OMB to complete reassessment of PARTs that are rated
    "Results Not Demonstrated" (RND) with a goal of upgrading programs
    so that less than 10 percent of the Department's programs (measured
    through funding levels) remain RND.

-   Identify programs to be evaluated in FY 2009 PART process.

[FY 2007 -- Third Quarter]{.underline}

-   Update performance and efficiency actual information and targets for
    all programs in PARTweb. Calculate savings from improvements in
    efficiency.

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-   Complete the FY 2009 PART process in cooperation with OMB.

-   Issue guidance for FY 2009 BPI process.

**KEY RESULTS - We Would Be Proud to Achieve**

USDA has set the goal of maintaining a "green" score for status in
Budget and Performance Integration by July 1, 2007. This year USDA will
continue to demonstrate that we are using the taxpayer's money wisely by
accomplishing the following key results:

-   Achieving planned improvements in performance and efficiency. Agency
    budgets will clearly define targets for improvements in performance
    and efficiency and action plans to achieve targets. The Deputy
    Secretary, subcabinet and other senior managers will continue to
    receive and discuss the Quarterly Budget and Performance Tracking
    Report to monitor progress in achieving planned performance and
    efficiency gains and take action where needed to ensure targets are
    met.

-   Measuring and reporting savings through achievement of efficiency
    targets.

-   One hundred percent of PARTed USDA programs have at least one
    efficiency measure that indicates programmatic strides in
    cost-effectiveness.

-   Continuing to improve programs so there are fewer rated RND.

**Federal Real Property Asset Management**[^1]

Owner: Boyd K. Rutherford, Assistant Secretary for Administration

\(202\) 720-3291, <Boyd.Rutherford@usda.gov>

Overall Status Score: **[Yellow]{.underline}**

**GREEN Standards for Success**

Agency:

-   Meets all Yellow Standards for Success *(Q1 FY 2006)*;

-   Established an OMB-approved three-year rolling timeline with date
    certain deadlines by which agency will address opportunities and
    determine its priorities as identified in the asset management plan
    *(Q3 FY 2006)*;

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-   Demonstrated steps taken toward implementation of asset management
    plan as stated in yellow standards (including meeting established
    deadlines in three-year timeline, meeting prioritized management
    improvement actions, maintaining appropriate amount of holdings, and
    estimating and optimizing cost levels) *(date)*;

-   Accurate and current asset inventory information and asset
    maximization performance measures are used routinely in management
    decision-making (such as reducing the amount of unneeded and
    underused properties) *(date)*; **AND**

-   The management of agency property assets is consistent with the
    agency's overall strategic plan, the agency asset management plan,
    and the performance measures established by the Federal Real
    Property Council as stated in the Federal Real Property Asset
    Management Executive Order *(date)*.

**YELLOW Standards for Success**

Agency:

-   Has a Senior Real Property Officer (SRPO) who actively serves on the
    Federal Real Property Council (FRPC) *(Q2 FY 2004)*;

-   Established asset management performance measures, consistent with
    the published requirements of the Federal Real Property Council
    *(Q1FY 2006)*;

-   Completed and maintained a comprehensive inventory and profile of
    agency real property, consistent with the published requirements of
    the Federal Real Property Council *(Q1 FY 2006)*;

-   Provided timely and accurate information for inclusion into the
    government-wide real property inventory database *(Q1 FY 2006)*;
    **AND**

-   Developed an OMB-approved comprehensive asset management plan that
    *(Q2 FY 2006)*

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-   Complies with guidance established by the Federal Real Property
    Council (FRPC)

-   Includes policies and methodologies for maintaining property
    holdings in an amount and type according to agency budget and
    mission

-   Seeks to optimize level of real property operating, maintenance, and
    security costs.

**KEY MILESTONES for the Department of Agriculture**

[FY 2006 -- Fourth Quarter]{.underline}

-   Monitor data population efforts through internal PMA Scorecard.

-   Evaluate, test and implement system changes to CPAIS to incorporate
    all modifications to capture FRPC inventory requirements for FY 2006
    report.

-   Work with the agencies to ensure completion of closing all reporting
    gaps for constructed asset level reporting for the FRPP (with the
    exception of the data element for restrictions).

-   Begin drafting USDA guidance for applying the disposition algorithm
    to the inventory.

-   Continue implementation of the Department's Asset Management Plan.

[FY 2007 -- First Quarter]{.underline}

-   Provide GSA timely and accurate inventory and performance measure
    data for inclusion in the government-wide database (FY 2006 Federal
    Real Property Profile).

-   Finalize USDA guidance for applying the disposition algorithm to the
    inventory.

-   Begin work on establishing disposition targets.

-   Begin compiling a list of agency real property assets that exited
    the USDA portfolio in FY 2006.

-   Begin to evaluate USDA actions toward meeting the real property
    inventory rightsizing goals.

-   Formalize executive review committees into asset management review
    boards.

-   Continue implementation of the Department's Asset Management Plan.

[FY 2007 -- Second Quarter]{.underline}

-   Develop disposition targets, which include the identification of
    specific assets subject to disposition.

-   Provide a report to OMB of the USDA real property assets that exited
    the inventory in FY 2006.

-   Develop and publish a USDA-specific tiered CPIC process for major,
    non-major and minor projects.

-   Complete the update of the USDA AMP.

-   Continue implementation of the Department's Asset Management Plan.

[FY 2007 -- Third Quarter]{.underline}

-   Finalize USDA annual disposition targets.

-   Finalize the Three-Year Rolling Timeline.

-   Continue implementation of the Department's Asset Management Plan.

[Ongoing]{.underline}

-   Assist agencies with efforts to integrate performance measures into
    day-to-day real property asset management decisions.

-   Work with the agencies to ensure updating of the agency Building
    Block Plans.

-   Coordinate work on AMP Initiatives to ensure continued progress in
    improving management of real property assets.

-   Conduct monthly Real Property Council and Real Property Working
    Group meetings.

-   Attend quarterly FRPC meetings.

**KEY RESULTS - We Would Be Proud to Achieve**

-   Categorize all agency property in the 5 categories outlined under
    the disposition algorithm.

-   Participate in the President's Budget proposal to establish a real
    property disposal pilot program.

**Eliminating Improper Payments**

Owner: Charles R. Christopherson, Jr., Chief Financial Officer

\(202\) 720-<5539> <chuck.christopherson@usda.com>

Overall Status Score: **[YELLOW]{.underline}**

**GREEN Standards for Success**

Agency:

-   Has met all Yellow Standards for Success;

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-   Demonstrates that improper payments are being reduced consistent
    with reduction targets; **AND**

-   Has established improper payments recovery targets, where
    appropriate, and is actively meeting such targets.

**YELLOW Standards for Success**

Agency:

-   Has a risk assessment in place that identifies all programs that are
    at significant risk of improper payments;

-   Has an OMB-approved plan for measuring improper payments on an
    annual basis and meets milestones established in the plan that
    include the following for each risk susceptible program

    -   yields a valid annual improper payment amount consistent with
        OMB guidance on error measurement either for \-- (a) the program
        as a whole; or (b) one or more significant components of the
        program;

    -   tracks sampled payments through each phase of the payment
        lifecycle (i.e., internal agency processing, payment to any
        intermediary, and payment to the ultimate recipient); and

    -   identifies the causes of error so that corrective action plans
        can be tailored appropriately;

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-   Agency has an OMB-approved corrective action plan that includes
    aggressive, yet feasible, reduction targets; **AND**

-   Agency complies with improper payments reporting requirements.

**KEY MILESTONES for the Department of Agriculture**

[FY 2006 -- Fourth Quarter]{.underline}

-   Agencies provide final draft of measurement plans to OCFO by August
    30, 2006.

-   Agencies provide OCFO testing plan for risk assessment tests of
    transactions by August 30, 2006.

-   OCFO delivers plans to measure improper payments to OMB by September
    15, 2006.

-   OCFO provides OMB draft IPIA portion of the Performance and
    Accountability Report by September 15, 2006.

[FY 2007 -- First Quarter]{.underline}

-   USDA publishes the Performance and Accountability Report by November
    15, 2006.

[FY 2007 -- Second Quarter]{.underline}

-   Agencies provide final completed risk assessments to OCFO by January
    2, 2007.

-   OCFO delivers completed risk assessments to OMB by February 28,
    2007.

[FY 2007 -- Third Quarter]{.underline}

-   Agencies deliver final draft of corrective action plans (except Food
    Stamps) to OCFO by May 25, 2007.

-   OCFO delivers corrective action plans & statistical sample results
    (except Food Stamps) to OMB by June 8, 2007.

-   Food Stamp Program reports new error rate by June 30, 2007.

**KEY RESULTS - We Would Be Proud to Achieve**

-   USDA will continue to meet established timelines for developing
    baseline and component error measurements Special Supplemental
    Program for Women, Infants and Children program.

-   The Food Nutrition Service will present and implement its new plan
    to report a component error rate for the Child and Adult Care Food
    Program in the FY07 Performance and Accountability Report.

-   The School Lunch and Breakfast Program will report a component error
    rate in the FY06 Performance and Accountability Report.

**Faith-based and Community Initiative**

Owner: Therese M. Lyons; Director, Office of Faith-Based and Community
Initiatives;

\(202\) 720-2552; <therese.lyons@usda.gov>

Overall Status Score: **[GREEN]{.underline}**

**GREEN Standards for Success**

Agency:

-   Has implemented a comprehensive outreach and technical assistance
    strategy for enhancing opportunities of faith-based and community
    organizations (FBCO) to compete for federal funding, including
    working with state and local officials to expand access to Federal
    funding awarded through them. This strategy employs all 10 best
    practices;

-   Regularly monitors compliance with the equal treatment regulations
    at the State and local levels, promptly addresses violations once
    they are detected, and has a process in place to ensure that
    compliance information is use to inform future funding. Compliance
    monitoring activities employ all 10 best practices;

-   Collects accurate and timely data on participation of FBCO and other

applicants, including government entities, in selected Federal
non-formula and formula grant programs and has taken steps to include
additional formula grant programs and make them a routine part of
program administration. Programs are working to make this information
accessible to the public;

-   Implements pilot programs to strengthen the partnership between FBCO
    and the Federal government to deliver services and inform
    implementation of the Initiative, and expands the use of pilots to
    test new strategies when appropriate;

-   Undertakes outcome-based evaluations of its pilot programs where
    FBCO participate, provides quarterly progress reports and interim
    results to White House Office of Faith-Based and Community
    Initiatives (WHOFBCI) throughout the life of the program, and builds
    an evaluation component into new pilots. Incorporated FBCO component
    into broader program evaluations when appropriate; **AND**

-   Identifies candidate grant programs for expansion of individual
    choice, and develops and has begun to implement plan for conversion
    *(FY 2007, Quarter 3)*.

**YELLOW Standards for Success**

-   Has developed a comprehensive outreach and technical assistance
    strategy for enhancing opportunities of faith-based and community
    organizations (FBCO) to compete for federal funding, including
    working with state and local officials to expand access to Federal
    funding awarded through them, and has begun to implement the plan.
    This strategy employs 6 of 10 best practices *(date)*;

-   Has taken steps to ensure barrier free access for FBCO to the
    Federal competitive grants process. These steps include 6 of 10 best
    practices *(date)*;

-   Has established procedures to collect data on participation of FBCO
    in selected non-formula Federal programs and at least one formula
    grant program *(date)*;

-   Has implemented pilot programs to strengthen the partnership between
    FBCO and the Federal government to deliver services *(date)*;
    **AND**

-   Has undertaken outcome-based evaluations of its first set of pilot
    programs and has provided progress reports to WHOFBCI *(date)*.

**KEY MILESTONES for the Department of Agriculture**

[FY 2006 -- Fourth Quarter]{.underline}

-   All relevant agencies (CSREES, FAS, FNS, FSA, RD) will make their
    first and second submissions of FY 2006 data to USDA FBCI.

-   RD will submit a revised strategic outreach and technical assistance
    plan which builds upon the previous year\'s plan but also
    incorporates this past year\'s new activities, successes, and
    lessons learned.

-   RD will work with USDA FBCI, WHOFBCI, and OMB to obtain approval of
    its survey instrument (developed in FY 2006 Q3) to nonprofit
    organizations to help determine how well the Equal Treatment Rule
    and related regulations are being understood and complied with in
    the field. Implementation of the survey will be conducted in future
    quarters after final approval.

-   RD with USDA FBCI, DOJ FBCI, and WHOFBCI will continue to work on
    reducing barriers to free access in its Business and Industry
    programs.

-   FNS will work with USDA FBCI, WHOFBCI, and OMB to obtain approval of
    its survey instrument for the FY 2005 data collection on the
    selected state formula grant programs in accordance with FY 2006
    data collection instructions.

-   FNS will further analyze the regulations governing the TEFAP program
    and determine the best method (legislative vs. administrative) by
    which to mandate that State agencies administering TEFAP establish
    procedures that ensure that competitive selection be used on a
    periodic basis to select those eligible recipient agencies with
    which the State agency will have a direct agreement. Implementation
    of the selected method will be consistent with established
    procedures and timeframes for the method selected. 

-   FNS and USDA FBCI will draft an action plan for outreach and
    technical assistance, in consultation with WHOFBCI, to enhance
    opportunities of FBCOs to compete for Federal funds at the State and
    local levels. This action plan will build upon existing efforts and
    will include coordination of outreach activities with state and
    local agencies administering FNS programs to 1) identify and
    eliminate barriers to access, and 2) increase participation among
    faith-based and community organizations.  Implementation of the plan
    will begin in the following quarter. 

-   FAS will submit a revised strategic outreach and technical
    assistance plan which builds upon the previous year\'s plan but also
    incorporates this past year\'s new activities, successes, and
    lessons learned.

-   FAS will develop ideas for potential pilot programs to discuss with
    USDA FBCI and WHOFBCI with the objective of selecting just one or
    two for implementation.

-   CSREES, in collaboration with other appropriate USDA offices, will
    develop language for the Farm Bill that would expand program
    eligibility for the Rural Youth Development Grants. The proposed
    language will be reviewed by USDA leadership and OMB for possible
    inclusion in the Farm Bill in accordance with standard procedures.

[FY 2007 -- First Quarter]{.underline}

-   All relevant agencies (CSREES, FAS, FNS, FSA, RD) will make their
    third submission of FY 2006 data to USDA FBCI.

-   RD identified barriers to competition in three of its programs as
    part of the Secretary\'s response to WHOFBCI\'s March 21, 2006
    letter. RD will further analyze the barriers in each of these
    programs and propose alternatives to eliminate the barriers. The
    corrective action for each of these programs will be selected in
    consultation with USDA FBCI and WHOFBCI this quarter. Implementation
    of the corrective actions will be conducted in subsequent quarters.

-   FNS will submit the collected FY 2005 data on the selected state
    formula grant programs in accordance with the schedule already
    provided.

-   FNS will continue to work with USDA FBCI, WHOFBCI, and OMB to
    finalize the proposed data collection rule that was published in
    March 2006.  It is anticipated that the rule could be finalized by
    January 2007.

-   FAS will audit the outreach and technical assistance materials
    available on its website and develop and post any new materials that
    would be necessary to further assist FBCOs.

-   FAS will finalize the proposed pilot program(s) with USDA FBCI and
    WHOFBCI, with the creation of the evaluation report template as part
    of the process.

-   CSREES will assess the nature and extent of previous participation
    by faith-based and community organizations that have partnered with
    Land-Grant Institutions in the \"Children, Youth and Families at
    Risk (CYFAR) program: New Communities Projects.\" This assessment
    will include identifying potential approaches for expanding the
    participation of faith-based and community groups. CSREES will
    provide the assessment to USDA FBCI and finalize an action plan (in
    consultation with USDA FBCI) this quarter, with the implementation
    of approaches to begin in FY 2007 Q2.

[FY 2007 -- Second Quarter]{.underline}

-   RD will develop ideas for potential pilot programs to discuss with
    USDA FBCI and WHOFBCI with the objective of selecting one for
    implementation. The selection of a pilot program and the development
    of the evaluation report template will be conducted this quarter
    with implementation in following quarters.

-   USDA FBCI will conduct a second annual review of USDA programs to
    identify any candidate grant programs for expansion of individual
    choice. Should any program be identified, a plan will be developed
    for conversion with implementation to begin the following quarter.

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-   FNS will audit the outreach and technical assistance materials
    available on its website and develop and post any materials that
    might be necessary to further assist FBCOs.

-   FNS will review existing mechanisms to determine whether they
    include sufficient monitoring to ensure compliance with the equal
    treatment regulations.

-   FAS will begin implementation of its pilot project, with the
    evaluation to begin in accordance with the timeline of the
    agreed-upon project.

[FY 2007 -- Third Quarter]{.underline}

-   RD will begin implementation of its pilot project, with the
    evaluation to begin in accordance with the timeline of the
    agreed-upon project.

-   RD will provide a brief report on the results of the housing voucher
    program launched in March 2006, including lessons learned with this
    first-time program, any plans to continue this program, and any
    opportunities to expand individual choice to other RD programs.

[Ongoing]{.underline}

-   All relevant agencies and staff office will continue to conduct
    outreach and technical assistance activities \-- both in person and
    via websites \-- to engage more FBCOs in USDA programs and to assist
    them in carrying out their work more effectively.

-   All relevant agencies and staff office will continue to provide
    funding data and other information to WHOFBCI as requested.

-   All relevant agencies will continue to submit \"Stories of Lives
    Transformed\" to USDA FBCI.

-   All relevant agencies will continue program and evaluation
    activities for all approved pilot projects.

**KEY RESULTS - We Would Be Proud to Achieve**

-   USDA FBCI will have maintained \"green\" status and progress on the
    Standards of Success indicating a continuing high level of
    achievement in implementing one of the top priorities of the
    President.

-   FY2006 data collection on select competitive non-formula grant
    programs will have been conducted. This will represent the third
    year of data on USDA programs that are of particular interest to
    FBCO\'s and will help USDA FBCI, WHOFBCI, and OMB to measure
    progress of the President\'s Initiative.

-   FY 2005 data collection on four formula grant programs administered
    at the state level will have been conducted. On three of the four
    programs, data will be collected for the first time thereby
    establishing baselines to measure future progress. This data
    collection at the state level will allow USDA FBCI, WHOFBCI, and OMB
    to further study how thoroughly the Equal Treatment Rule (and
    related regulations) is being communicated to State and local
    officials and/or the officials are implementing the Rule.

-   USDA will have a conducted a wide variety of activities with the
    objective of further identifying and eliminating barriers to access
    at the federal, state, and local levels to allow for increased
    participation by faith-based and community organizations.

**Improved Credit Program Management**

Owner: Charles R. Christopherson, Jr., Chief Financial Officer

\(202\) 720-<5539> <chuck.christopherson@usda.com>

Overall Status Score: **[RED]{.underline}**

**GREEN Standards for Success**

Agency:

-   Has met all Yellow Standards for Success;

\_ PART scores of at least 80 on program design for at least 75 percent
of its major credit programs, including providing evidence of sufficient
public policy outcomes cost effectively;

> The Department of Agriculture (USDA) is working with the Office of
> Management and Budget (OMB) in the PART process. More will be added to
> this section once USDA is closer to meeting the yellow standards for
> success.

\_ Goals related to reaching target borrowers and reducing deviation
from risk standards

> More will be added to this section once USDA is closer to meeting the
> yellow standards for success. Goals will be established after standard
> #6 is completed.

\_ Goals to reduce the total cost of servicing and liquidating loans and
improve the rate of debt recovery; and

> More will be added to this section once USDA is closer to meeting the
> yellow standards for success.

\_ Customer satisfaction ratings that meet or exceed industry standards.

> More will be added to this section once USDA is closer to meeting the
> yellow standards for success.

**YELLOW Standards for Success**

Agency

-   Defines its target borrower segments clearly, regularly assesses
    whether its borrowers meet that definition and whether such
    borrowers comprise an acceptable risk that can be managed
    effectively:

```{=html}
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-   serves target borrowers (FY 2006 Q1) and

    -   establishes and monitors risk standards (FY 2011 Q1).

USDA has six major loan areas that need to meet this standard.

+---------+-------------+-----------------------+-------+--------------+
| Agency  | Program     | Comments              | Qu    | Milestones   |
|         |             |                       | arter |              |
+=========+=============+=======================+=======+==============+
| Farm    | Farm Loan   | The full plan         | FY11  | -   Develop  |
| Service | Programs    | submitted by the      | Q1    |     contract |
| Agency  |             | agency is in Specific |       |     sp       |
| (FSA)   |             | Plans, pages 3-4.     |       | ecifications |
|         |             |                       |       |     and      |
|         |             | FSA will identify     |       |     issue    |
|         |             | what potential risk   |       |              |
|         |             | characteristics       |       |    contract, |
|         |             | correlate with direct |       |              |
|         |             | loan portfolio        |       |    December, |
|         |             | performance and       |       |     2007     |
|         |             | determine how changes |       |              |
|         |             | in those risk         |       | -            |
|         |             | characteristics may   |       |   Contractor |
|         |             | impact future         |       |              |
|         |             | portfolio             |       |    completes |
|         |             | performance.          |       |     study    |
|         |             |                       |       |     and      |
|         |             | To assist in the      |       |     makes    |
|         |             | identification and    |       |     rec      |
|         |             | correlation of        |       | ommendation, |
|         |             | characteristics and   |       |     October, |
|         |             | loan portfolio        |       |     2009     |
|         |             | performance, FSA will |       |              |
|         |             | contract with an      |       | -   Risk     |
|         |             | outside party who     |       |              |
|         |             | possesses the         |       |    standards |
|         |             | necessary expertise   |       |     are      |
|         |             | to analyze the        |       |     selected |
|         |             | available data.       |       |     based    |
|         |             | Contracting for this  |       |     upon     |
|         |             | study and analysis    |       |              |
|         |             | will be subject to    |       |   contractor |
|         |             | availability of       |       |     rec      |
|         |             | funding.              |       | ommendation, |
|         |             |                       |       |              |
|         |             | At the completion of  |       |    December, |
|         |             | their analysis, FSA   |       |     2009     |
|         |             | would receive         |       |              |
|         |             | recommendations of    |       | -   Develop  |
|         |             | risk standards from   |       |              |
|         |             | the contractor, along |       | differential |
|         |             | with the necessary    |       |     loan     |
|         |             | documentation to      |       |     making   |
|         |             | support that          |       |     and loan |
|         |             | recommendation. The   |       |              |
|         |             | contractor will also  |       |    servicing |
|         |             | verify the accuracy   |       |              |
|         |             | of any recommended    |       |    processes |
|         |             | new standards by      |       |     and      |
|         |             | backtesting existing  |       |              |
|         |             | portfolio             |       |   procedures |
|         |             | performance.          |       |     if       |
|         |             |                       |       |              |
|         |             | FSA will review the   |       |  appropriate |
|         |             | recommendations and   |       |     for      |
|         |             | adjust loan making    |       |              |
|         |             | and loan servicing    |       |    different |
|         |             | processes and         |       |     risk     |
|         |             | procedures as         |       |     char     |
|         |             | appropriate, based    |       | acteristics, |
|         |             | upon identified risk  |       |     October, |
|         |             | differentiations.     |       |     2010     |
+---------+-------------+-----------------------+-------+--------------+
| Rural   | Section 502 | RD believes they have | FY06  | Not          |
| Deve    | Single      | met this standard. A  | Q3    | Applicable   |
| lopment | Family      | full copy of their    |       |              |
| (RD)    | Housing     | plan is available in  |       |              |
|         |             | Specific Plans, pages |       |              |
|         |             | 7-10.                 |       |              |
|         |             |                       |       |              |
|         |             | The 502 Direct Loan   |       |              |
|         |             | Program clearly       |       |              |
|         |             | defines it targeted   |       |              |
|         |             | audience and has      |       |              |
|         |             | established           |       |              |
|         |             | guidelines that are   |       |              |
|         |             | easily monitored. The |       |              |
|         |             | current loan          |       |              |
|         |             | practices as outlined |       |              |
|         |             | above are monitored   |       |              |
|         |             | by both the State and |       |              |
|         |             | National Offices. The |       |              |
|         |             | State Office conducts |       |              |
|         |             | State Internal        |       |              |
|         |             | Reviews (SIR) and     |       |              |
|         |             | Post-Closing Reviews  |       |              |
|         |             | and the National      |       |              |
|         |             | Office conducts       |       |              |
|         |             | Management Control    |       |              |
|         |             | Reviews (MCR). The    |       |              |
|         |             | purpose of the SIR    |       |              |
|         |             | and Post-Closing      |       |              |
|         |             | reviews is to         |       |              |
|         |             | determine if loan     |       |              |
|         |             | funds are used        |       |              |
|         |             | appropriately and to  |       |              |
|         |             | determine training    |       |              |
|         |             | needs within a State. |       |              |
|         |             | The purpose of the    |       |              |
|         |             | MCR is to determine   |       |              |
|         |             | national trends and   |       |              |
|         |             | to determine if the   |       |              |
|         |             | 502 Direct Housing    |       |              |
|         |             | Loan Program is       |       |              |
|         |             | administered in       |       |              |
|         |             | accordance with       |       |              |
|         |             | agency regulations.   |       |              |
|         |             | The current practice  |       |              |
|         |             | of processing and     |       |              |
|         |             | closing loans with    |       |              |
|         |             | the DLOS system has   |       |              |
|         |             | many controls in      |       |              |
|         |             | place that make it    |       |              |
|         |             | difficult for Rural   |       |              |
|         |             | Development employees |       |              |
|         |             | to abuse taxpayer's   |       |              |
|         |             | funds that are used   |       |              |
|         |             | to carry out the      |       |              |
|         |             | mission of the        |       |              |
|         |             | housing programs.     |       |              |
|         |             |                       |       |              |
|         |             | This program received |       |              |
|         |             | a PART rating of      |       |              |
|         |             | Moderately Effective. |       |              |
|         |             | It is the only direct |       |              |
|         |             | Federal lending       |       |              |
|         |             | mortgage program that |       |              |
|         |             | is means tested and   |       |              |
|         |             | offers subsidized     |       |              |
|         |             | loans. The program    |       |              |
|         |             | specifically targets  |       |              |
|         |             | low and very          |       |              |
|         |             | low-income rural      |       |              |
|         |             | residents for         |       |              |
|         |             | homeownership.        |       |              |
|         |             | Additionally, because |       |              |
|         |             | the borrower has to   |       |              |
|         |             | prove that he/she     |       |              |
|         |             | cannot get credit     |       |              |
|         |             | elsewhere it is       |       |              |
|         |             | unlikely that a       |       |              |
|         |             | private or state      |       |              |
|         |             | program would be able |       |              |
|         |             | to provide assistance |       |              |
|         |             | similar to this       |       |              |
|         |             | program.              |       |              |
|         |             |                       |       |              |
|         |             | In response to        |       |              |
|         |             | comments on the PART, |       |              |
|         |             | program targets for   |       |              |
|         |             | long-term goals and   |       |              |
|         |             | annual measures were  |       |              |
|         |             | revised to be more    |       |              |
|         |             | ambitious.            |       |              |
|         |             |                       |       |              |
|         |             | This program          |       |              |
|         |             | routinely meets or    |       |              |
|         |             | exceeds its goals.    |       |              |
|         |             | The PART assessment   |       |              |
|         |             | found that the        |       |              |
|         |             | program\'s            |       |              |
|         |             | delinquency/default   |       |              |
|         |             | rates are favorable   |       |              |
|         |             | when compared to the  |       |              |
|         |             | national rate, given  |       |              |
|         |             | this program\'s       |       |              |
|         |             | riskier pool of       |       |              |
|         |             | borrowers.            |       |              |
+---------+-------------+-----------------------+-------+--------------+
| RD      | Multi       | RD believes they have | FY06  | Not          |
|         | Family      | met this standard. A  | Q3    | Applicable   |
|         | Housing     | full copy of their    |       |              |
|         |             | plan is available in  |       |              |
|         |             | Specific Plans, pages |       |              |
|         |             | 14-15.                |       |              |
|         |             |                       |       |              |
|         |             | Currently             |       |              |
|         |             | Multi-family housing  |       |              |
|         |             | (MFH) scrutinizes and |       |              |
|         |             | analyzes the annual   |       |              |
|         |             | property budgets for  |       |              |
|         |             | consistency, accuracy |       |              |
|         |             | and viability. The    |       |              |
|         |             | program staff and the |       |              |
|         |             | borrower/management   |       |              |
|         |             | company work together |       |              |
|         |             | to reach a budget     |       |              |
|         |             | that the property can |       |              |
|         |             | operate under and the |       |              |
|         |             | MFH staff is          |       |              |
|         |             | comfortable with.     |       |              |
|         |             | When an operationally |       |              |
|         |             | issue arises          |       |              |
|         |             | regarding a budget    |       |              |
|         |             | item, both the        |       |              |
|         |             | borrower/management   |       |              |
|         |             | company and MFH staff |       |              |
|         |             | try to resolve the    |       |              |
|         |             | financial issue to    |       |              |
|         |             | protect the cash flow |       |              |
|         |             | of the property and   |       |              |
|         |             | to insure the debt    |       |              |
|         |             | service payments are  |       |              |
|         |             | made to USDA.         |       |              |
|         |             |                       |       |              |
|         |             | These budgets are     |       |              |
|         |             | developed             |       |              |
|         |             | cooperatively with RD |       |              |
|         |             | staff and the         |       |              |
|         |             | borrower/management   |       |              |
|         |             | company to insure     |       |              |
|         |             | that the property can |       |              |
|         |             | make the debt service |       |              |
|         |             | payments on the RD    |       |              |
|         |             | loan.                 |       |              |
+---------+-------------+-----------------------+-------+--------------+
| RD      | Electric    | RD believes they have | FY06  | Not          |
|         | Programs    | met this standard. A  | Q3    | Applicable   |
|         |             | full copy of their    |       |              |
|         |             | plan is available in  |       |              |
|         |             | Specific Plans, pages |       |              |
|         |             | 16-17.                |       |              |
|         |             |                       |       |              |
|         |             | Borrowers are         |       |              |
|         |             | required to meet      |       |              |
|         |             | specific financial    |       |              |
|         |             | rations contained in  |       |              |
|         |             | the loan contract and |       |              |
|         |             | defined in the        |       |              |
|         |             | regulations.          |       |              |
|         |             |                       |       |              |
|         |             | The headquarters      |       |              |
|         |             | staff and general     |       |              |
|         |             | field representatives |       |              |
|         |             | monitor annually the  |       |              |
|         |             | financial             |       |              |
|         |             | requirements via the  |       |              |
|         |             | submission of         |       |              |
|         |             | financial statements, |       |              |
|         |             | specifically, the     |       |              |
|         |             | Form 7 for            |       |              |
|         |             | distribution borrower |       |              |
|         |             | and the Form 12 for   |       |              |
|         |             | power supply          |       |              |
|         |             | borrowers. In         |       |              |
|         |             | addition, the field   |       |              |
|         |             | accountants conduct   |       |              |
|         |             | loan funds audit      |       |              |
|         |             | reviews. The          |       |              |
|         |             | utilities program     |       |              |
|         |             | staff reviews annual  |       |              |
|         |             | financial audits      |       |              |
|         |             | prepared by           |       |              |
|         |             | independent auditors. |       |              |
|         |             |                       |       |              |
|         |             | The Electric Program  |       |              |
|         |             | will continue to      |       |              |
|         |             | monitor annually the  |       |              |
|         |             | borrowers' financial  |       |              |
|         |             | statements and assess |       |              |
|         |             | regularly whether     |       |              |
|         |             | borrowers meet the    |       |              |
|         |             | financial ratios.     |       |              |
+---------+-------------+-----------------------+-------+--------------+
| RD      | Telecom     | RD believes they have | FY06  | Not          |
|         | munications | met this standard. A  | Q3    | Applicable   |
|         | Programs    | full copy of their    |       |              |
|         |             | plan is available in  |       |              |
|         |             | Specific Plans, pages |       |              |
|         |             | 21-22.                |       |              |
|         |             |                       |       |              |
|         |             | Borrowers are         |       |              |
|         |             | required to meet      |       |              |
|         |             | specific financial    |       |              |
|         |             | ratios contained in   |       |              |
|         |             | the loan contract and |       |              |
|         |             | defined in the        |       |              |
|         |             | regulations.          |       |              |
|         |             |                       |       |              |
|         |             | The headquarters      |       |              |
|         |             | staff and general     |       |              |
|         |             | field representatives |       |              |
|         |             | monitor annually the  |       |              |
|         |             | financial             |       |              |
|         |             | requirements via the  |       |              |
|         |             | submission of         |       |              |
|         |             | financial statements, |       |              |
|         |             | specifically, the RUS |       |              |
|         |             | Form 479, Financial & |       |              |
|         |             | Statistical Report.   |       |              |
|         |             | In addition, the      |       |              |
|         |             | field accountants     |       |              |
|         |             | conduct loan funds    |       |              |
|         |             | audit reviews. The    |       |              |
|         |             | utilities program     |       |              |
|         |             | staff reviews annual  |       |              |
|         |             | financial audits      |       |              |
|         |             | prepared by           |       |              |
|         |             | independent auditors. |       |              |
|         |             |                       |       |              |
|         |             | The                   |       |              |
|         |             | Telecommunications    |       |              |
|         |             | Program will continue |       |              |
|         |             | to monitor annually   |       |              |
|         |             | the borrowers'        |       |              |
|         |             | financial statements  |       |              |
|         |             | and assess regularly  |       |              |
|         |             | whether borrowers     |       |              |
|         |             | meet the financial    |       |              |
|         |             | ratios.               |       |              |
+---------+-------------+-----------------------+-------+--------------+
| RD      | Water       | A full copy of their  | FY08  | Risk         |
|         | Programs    | plan is available in  | Q1    | Standard is  |
|         |             | Specific Plans, pages |       | selected:    |
|         |             | 24-27.                |       | September    |
|         |             |                       |       | 2006         |
|         |             | The legislation       |       |              |
|         |             | defines the borrower  |       | D            |
|         |             | segments clearly;     |       | ocumentation |
|         |             | however, for credit   |       | of risk      |
|         |             | risk management       |       | standard is  |
|         |             | systems, this         |       | provided for |
|         |             | segmentation alone is |       | OCFO, OIG,   |
|         |             | unsatisfactory.       |       | and OMB      |
|         |             |                       |       | review,      |
|         |             | Banking organizations |       | April 2007   |
|         |             | use internal rating   |       |              |
|         |             | systems for purposes  |       | Requirements |
|         |             | ranging from          |       | to modify    |
|         |             | determining approval  |       | cash flow    |
|         |             | requirements,         |       | models are   |
|         |             | identifying problem   |       | presented to |
|         |             | loans, and portfolio  |       | the Credit   |
|         |             | monitoring and        |       | Reform       |
|         |             | managing. The rating  |       | Working      |
|         |             | systems use           |       | Group, July  |
|         |             | methodologies based   |       | 2007         |
|         |             | on some statistical   |       |              |
|         |             | or financial models   |       | Cash flow    |
|         |             | used to identify and  |       | models are   |
|         |             | measure credit risk.  |       | revised,     |
|         |             | The Water Programs    |       | December     |
|         |             | has not used a        |       | 2007         |
|         |             | specific methodology  |       |              |
|         |             | to monitor the loan   |       |              |
|         |             | portfolio. Developing |       |              |
|         |             | a model would enhance |       |              |
|         |             | its ability to        |       |              |
|         |             | control the quality   |       |              |
|         |             | of individual loans   |       |              |
|         |             | approved and monitor  |       |              |
|         |             | loan performance over |       |              |
|         |             | time.                 |       |              |
|         |             |                       |       |              |
|         |             | Typically, the rating |       |              |
|         |             | system for Water      |       |              |
|         |             | Programs is based on  |       |              |
|         |             | points awarded for    |       |              |
|         |             | projects that meet    |       |              |
|         |             | priorities for        |       |              |
|         |             | population, health,   |       |              |
|         |             | median household      |       |              |
|         |             | income, and other     |       |              |
|         |             | priorities such as    |       |              |
|         |             | type of applicant,    |       |              |
|         |             | and applicant         |       |              |
|         |             | contributions. There  |       |              |
|         |             | is no rating system   |       |              |
|         |             | based on such scales  |       |              |
|         |             | as loss concepts, or  |       |              |
|         |             | current or future     |       |              |
|         |             | financial conditions. |       |              |
|         |             |                       |       |              |
|         |             | The Water Programs    |       |              |
|         |             | use an underwriting   |       |              |
|         |             | tool to evaluate an   |       |              |
|         |             | applicant's ability   |       |              |
|         |             | to afford a loan. The |       |              |
|         |             | underwriting tool     |       |              |
|         |             | primarily evaluates   |       |              |
|         |             | the applicant's       |       |              |
|         |             | ability to repay the  |       |              |
|         |             | loan based on a       |       |              |
|         |             | typical year cash     |       |              |
|         |             | flow projection.      |       |              |
|         |             | Because the program   |       |              |
|         |             | historically has had  |       |              |
|         |             | a low delinquency     |       |              |
|         |             | rate, WEP has not     |       |              |
|         |             | used credit risk      |       |              |
|         |             | ratings to            |       |              |
|         |             | differentiate the     |       |              |
|         |             | degree of credit risk |       |              |
|         |             | in loans and other    |       |              |
|         |             | sources of credit     |       |              |
|         |             | exposure. For         |       |              |
|         |             | example, financial    |       |              |
|         |             | ratios or other       |       |              |
|         |             | objective indicators  |       |              |
|         |             | of a borrower's       |       |              |
|         |             | financial performance |       |              |
|         |             | are not used as a     |       |              |
|         |             | rating system.        |       |              |
|         |             |                       |       |              |
|         |             | Although the          |       |              |
|         |             | Community Programs    |       |              |
|         |             | Application Process   |       |              |
|         |             | (CPAP) implements     |       |              |
|         |             | financial analysis in |       |              |
|         |             | the underwriting      |       |              |
|         |             | program, it does not  |       |              |
|         |             | use a rating system   |       |              |
|         |             | that a specialist can |       |              |
|         |             | apply to set, written |       |              |
|         |             | criteria in           |       |              |
|         |             | determining the       |       |              |
|         |             | feasibility of a      |       |              |
|         |             | loan. Often the       |       |              |
|         |             | decision to fund a    |       |              |
|         |             | project is based on   |       |              |
|         |             | the specialist's      |       |              |
|         |             | judgment and          |       |              |
|         |             | experience, confirmed |       |              |
|         |             | later by              |       |              |
|         |             | administrative        |       |              |
|         |             | reviews by an         |       |              |
|         |             | approval official or  |       |              |
|         |             | the National Office.  |       |              |
|         |             |                       |       |              |
|         |             | One of the issues in  |       |              |
|         |             | implementing a rating |       |              |
|         |             | system has been the   |       |              |
|         |             | different types of    |       |              |
|         |             | borrowers encountered |       |              |
|         |             | in the program and    |       |              |
|         |             | outlined in the       |       |              |
|         |             | legislation: public   |       |              |
|         |             | body, Indian tribe    |       |              |
|         |             | and nonprofit         |       |              |
|         |             | organization. Then    |       |              |
|         |             | there are the         |       |              |
|         |             | different types of    |       |              |
|         |             | projects for water,   |       |              |
|         |             | waste water, etc.     |       |              |
|         |             | Segmenting these for  |       |              |
|         |             | rating purposes has   |       |              |
|         |             | not been done.        |       |              |
|         |             | However, with the     |       |              |
|         |             | improved management   |       |              |
|         |             | information systems   |       |              |
|         |             | that are in place and |       |              |
|         |             | the upgrades and      |       |              |
|         |             | improvements in CPAP, |       |              |
|         |             | segmentation or       |       |              |
|         |             | gradations could      |       |              |
|         |             | occur.                |       |              |
|         |             |                       |       |              |
|         |             | A second issue in     |       |              |
|         |             | implementing a rating |       |              |
|         |             | system concerns the   |       |              |
|         |             | WW Program's function |       |              |
|         |             | not only as a lender  |       |              |
|         |             | but also as an        |       |              |
|         |             | arbitrator of social  |       |              |
|         |             | equity or fairness in |       |              |
|         |             | credit markets. If    |       |              |
|         |             | the program operates  |       |              |
|         |             | as a lender and       |       |              |
|         |             | considers the degrees |       |              |
|         |             | of credit risk, some  |       |              |
|         |             | communities might be  |       |              |
|         |             | unable to obtain even |       |              |
|         |             | subsidized credit. If |       |              |
|         |             | the program operates  |       |              |
|         |             | as an arbitrator,     |       |              |
|         |             | then some credit      |       |              |
|         |             | risks such as those   |       |              |
|         |             | based on loss or      |       |              |
|         |             | profitability         |       |              |
|         |             | concepts will not be  |       |              |
|         |             | considered as         |       |              |
|         |             | strongly. The two     |       |              |
|         |             | issues should not be  |       |              |
|         |             | barriers to           |       |              |
|         |             | developing an         |       |              |
|         |             | internal rating       |       |              |
|         |             | system.               |       |              |
|         |             |                       |       |              |
|         |             | In response to        |       |              |
|         |             | recommendations made  |       |              |
|         |             | in the 2003 PART, a   |       |              |
|         |             | long-term goal will   |       |              |
|         |             | focus on maintaining  |       |              |
|         |             | sustainable water     |       |              |
|         |             | systems in rural      |       |              |
|         |             | communities. The      |       |              |
|         |             | measurements will     |       |              |
|         |             | focus on tracking a   |       |              |
|         |             | set of financial      |       |              |
|         |             | ratios to gauge       |       |              |
|         |             | borrower viability.   |       |              |
|         |             | The target would be   |       |              |
|         |             | to establish a data   |       |              |
|         |             | collection format and |       |              |
|         |             | scoring criteria for  |       |              |
|         |             | rating borrowers.     |       |              |
+---------+-------------+-----------------------+-------+--------------+

-   Establishes or verifies partner lenders have established sound
    lending policies and procedures that are implemented in effective
    transaction approval processes, loan portfolio management, and loss
    recovery:

```{=html}
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```
-   effective transaction approval process (FY 2006 Q1);

    -   effective loan portfolio management (FY 2011 Q1); and

    -   effective loss recovery processes (FY 2011 Q1).

USDA has three major loan areas that need to meet this standard.

+-------+--------+-------------------------+-------+-----------------+
| A     | P      | Comments                | Qu    | Milestones      |
| gency | rogram |                         | arter |                 |
+=======+========+=========================+=======+=================+
| FSA   | Farm   | The full plan submitted | FY11  | -   Develop     |
|       | Loan   | by the agency is in     | Q1    |     contract    |
|       | Pr     | Specific Plans, pages   |       |                 |
|       | ograms | 4-5.                    |       |  specifications |
|       |        |                         |       |     and issue   |
|       |        | FSA will identify what  |       |     contract,   |
|       |        | potential risk          |       |     December,   |
|       |        | characteristics         |       |     2007        |
|       |        | correlate with direct   |       |                 |
|       |        | loan portfolio          |       | -   Contractor  |
|       |        | performance and         |       |     completes   |
|       |        | determine how changes   |       |     study and   |
|       |        | in those risk           |       |     makes       |
|       |        | characteristics may     |       |                 |
|       |        | impact future portfolio |       | recommendation, |
|       |        | performance.            |       |     October,    |
|       |        |                         |       |     2009        |
|       |        | To assist in the        |       |                 |
|       |        | identification and      |       | -   Risk        |
|       |        | correlation of          |       |     standards   |
|       |        | characteristics and     |       |     are         |
|       |        | loan portfolio          |       |     selected    |
|       |        | performance, FSA will   |       |     based upon  |
|       |        | contract with an        |       |     contractor  |
|       |        | outside party who       |       |                 |
|       |        | possesses the necessary |       | recommendation, |
|       |        | expertise to analyze    |       |     December,   |
|       |        | the available data.     |       |     2009        |
|       |        | Contracting for this    |       |                 |
|       |        | study and analysis will |       | -   Develop     |
|       |        | be subject to           |       |                 |
|       |        | availability of         |       |    differential |
|       |        | funding.                |       |     loan making |
|       |        |                         |       |     and loan    |
|       |        | At the completion of    |       |     servicing   |
|       |        | their analysis, FSA     |       |     processes   |
|       |        | would receive           |       |     and         |
|       |        | recommendations of risk |       |     procedures  |
|       |        | standards from the      |       |     if          |
|       |        | contractor, along with  |       |     appropriate |
|       |        | the necessary           |       |     for         |
|       |        | documentation to        |       |     different   |
|       |        | support that            |       |     risk        |
|       |        | recommendation. The     |       |     c           |
|       |        | contractor will also    |       | haracteristics, |
|       |        | verify the accuracy of  |       |     October,    |
|       |        | any recommended new     |       |     2010        |
|       |        | standards by            |       |                 |
|       |        | backtesting existing    |       |                 |
|       |        | portfolio performance.  |       |                 |
|       |        |                         |       |                 |
|       |        | FSA will review the     |       |                 |
|       |        | recommendations and     |       |                 |
|       |        | adjust loan making and  |       |                 |
|       |        | loan servicing          |       |                 |
|       |        | processes and           |       |                 |
|       |        | procedures as           |       |                 |
|       |        | appropriate, based upon |       |                 |
|       |        | identified risk         |       |                 |
|       |        | differentiations.       |       |                 |
+-------+--------+-------------------------+-------+-----------------+
| RD    | S      | RD believes they have   | FY06  | Not Applicable  |
|       | ection | met this standard. A    | Q3    |                 |
|       | 502    | full copy of their plan |       |                 |
|       | Single | is available in         |       |                 |
|       | Family | Specific Plans, pages   |       |                 |
|       | H      | 7-10.                   |       |                 |
|       | ousing |                         |       |                 |
|       |        | The SFHGLP verifies     |       |                 |
|       |        | that its partner        |       |                 |
|       |        | lenders have            |       |                 |
|       |        | established sound       |       |                 |
|       |        | lending policies and    |       |                 |
|       |        | procedures. The         |       |                 |
|       |        | approval process for a  |       |                 |
|       |        | lender includes an      |       |                 |
|       |        | analysis of the quality |       |                 |
|       |        | control plan used for   |       |                 |
|       |        | monitoring loan         |       |                 |
|       |        | production and          |       |                 |
|       |        | portfolio servicing.    |       |                 |
|       |        | This includes           |       |                 |
|       |        | information regarding   |       |                 |
|       |        | the lenders recovery    |       |                 |
|       |        | process. The lender     |       |                 |
|       |        | approval process also   |       |                 |
|       |        | includes a review of    |       |                 |
|       |        | the firm's internal     |       |                 |
|       |        | control criteria for    |       |                 |
|       |        | reviewing a borrower's  |       |                 |
|       |        | credit history and loan |       |                 |
|       |        | repayment ability. In   |       |                 |
|       |        | addition, each lender   |       |                 |
|       |        | is re-reviewed every 2  |       |                 |
|       |        | years to confirm they   |       |                 |
|       |        | continue to have sound  |       |                 |
|       |        | lending policies and    |       |                 |
|       |        | procedures and are      |       |                 |
|       |        | still eligible to       |       |                 |
|       |        | participate in the      |       |                 |
|       |        | SFHGLP.                 |       |                 |
|       |        |                         |       |                 |
|       |        | In addition, reports    |       |                 |
|       |        | are generated on a      |       |                 |
|       |        | regular basis to        |       |                 |
|       |        | evaluate the            |       |                 |
|       |        | performance of a lender |       |                 |
|       |        | loans. Lenders who fail |       |                 |
|       |        | to meet standards may   |       |                 |
|       |        | be removed from the     |       |                 |
|       |        | program approved lender |       |                 |
|       |        | list. All loss claim    |       |                 |
|       |        | files are reviewed by   |       |                 |
|       |        | the agency and the loss |       |                 |
|       |        | claim may be denied if  |       |                 |
|       |        | the lender did not      |       |                 |
|       |        | adhere to the risk      |       |                 |
|       |        | standards.              |       |                 |
|       |        |                         |       |                 |
|       |        | The SFHGLP has an       |       |                 |
|       |        | effective loss recovery |       |                 |
|       |        | process which was       |       |                 |
|       |        | recently revised        |       |                 |
|       |        | effective December 21,  |       |                 |
|       |        | 2005 in section         |       |                 |
|       |        | 1980.377 of the         |       |                 |
|       |        | regulation. The         |       |                 |
|       |        | proceeds of any amounts |       |                 |
|       |        | recovered shall be      |       |                 |
|       |        | shared in proportion to |       |                 |
|       |        | the amount of loss      |       |                 |
|       |        | borne between the       |       |                 |
|       |        | SFHGLP and the lender.  |       |                 |
|       |        | Although the lender\'s  |       |                 |
|       |        | actual loss may be      |       |                 |
|       |        | different than the      |       |                 |
|       |        | amount on which loss    |       |                 |
|       |        | settlement was based,   |       |                 |
|       |        | the proportion of       |       |                 |
|       |        | recovery sharing must   |       |                 |
|       |        | be based on the loss    |       |                 |
|       |        | percentage upon which   |       |                 |
|       |        | the loss payment        |       |                 |
|       |        | calculation was based.  |       |                 |
|       |        |                         |       |                 |
|       |        | When an estimated claim |       |                 |
|       |        | is paid, the Agency     |       |                 |
|       |        | will advise the lender  |       |                 |
|       |        | of the following: 1)    |       |                 |
|       |        | the estimated sale      |       |                 |
|       |        | price (appraised value) |       |                 |
|       |        | used to calculate the   |       |                 |
|       |        | claim, 2) that future   |       |                 |
|       |        | recovery may be due if  |       |                 |
|       |        | the actual sale price   |       |                 |
|       |        | exceeds the estimated   |       |                 |
|       |        | sale price, 3) when and |       |                 |
|       |        | how to report future    |       |                 |
|       |        | recovery of sale        |       |                 |
|       |        | proceeds, and 4) the    |       |                 |
|       |        | consequences of failure |       |                 |
|       |        | to report future        |       |                 |
|       |        | recoveries, including   |       |                 |
|       |        | Agency monitoring and   |       |                 |
|       |        | the possible            |       |                 |
|       |        | termination of lender   |       |                 |
|       |        | eligibility.            |       |                 |
|       |        |                         |       |                 |
|       |        | The Agency will flag    |       |                 |
|       |        | claims that were paid   |       |                 |
|       |        | based on estimated sale |       |                 |
|       |        | proceeds and contact    |       |                 |
|       |        | the lender 6 months     |       |                 |
|       |        | after loss claim        |       |                 |
|       |        | payment to inquire      |       |                 |
|       |        | about the Real Estate   |       |                 |
|       |        | Owned (REO) status if   |       |                 |
|       |        | the actual sale         |       |                 |
|       |        | information has not     |       |                 |
|       |        | been received. If the   |       |                 |
|       |        | REO has been sold, the  |       |                 |
|       |        | Agency will request the |       |                 |
|       |        | lender to submit a      |       |                 |
|       |        | HUD-1, Settlement       |       |                 |
|       |        | Statement, or similar   |       |                 |
|       |        | document as             |       |                 |
|       |        | verification of the     |       |                 |
|       |        | sale amount. Agency     |       |                 |
|       |        | follow-up continues     |       |                 |
|       |        | until the sale          |       |                 |
|       |        | information is          |       |                 |
|       |        | received.               |       |                 |
|       |        |                         |       |                 |
|       |        | Lender monitoring       |       |                 |
|       |        | reviews include the     |       |                 |
|       |        | review of lender        |       |                 |
|       |        | compliance with future  |       |                 |
|       |        | recovery loss sharing   |       |                 |
|       |        | provisions. For more    |       |                 |
|       |        | information on lender   |       |                 |
|       |        | monitoring, audits, and |       |                 |
|       |        | reviews, please see the |       |                 |
|       |        | first section of this   |       |                 |
|       |        | document, above.        |       |                 |
+-------+--------+-------------------------+-------+-----------------+
| RD    | Bu     | The Agency let a        | FY09  | -               |
|       | siness | contract to completely  | Q4    |   Documentation |
|       | and    | rewrite the Business    |       |     of risk     |
|       | In     | and Industry Guaranteed |       |     standard is |
|       | dustry | Loan program            |       |     provided to |
|       | Loans  | regulations.            |       |     OCFO, OIG,  |
|       |        | Significant program     |       |     and OMB for |
|       |        | improvements are        |       |     review,     |
|       |        | anticipated. However,   |       |     June 2006.  |
|       |        | the rewrite has been    |       |                 |
|       |        | suspended pending the   |       | -   Provide     |
|       |        | results of another      |       |     additional  |
|       |        | initiative.             |       |     direction   |
|       |        |                         |       |     to field    |
|       |        | Over the past few       |       |     offices to  |
|       |        | years, the Agency has   |       |     verify loan |
|       |        | been stressing to State |       |                 |
|       |        | Offices the need to     |       |  classification |
|       |        | accurately classify     |       |     on B&I      |
|       |        | their B&I loans and     |       |     loans and   |
|       |        | records the             |       |     update      |
|       |        | classification in GLS.  |       |     Guaranteed  |
|       |        | This is accomplished by |       |     Loan System |
|       |        | Administrative Notices  |       |                 |
|       |        | to the field and during |       |    accordingly, |
|       |        | on-site Business        |       |     September   |
|       |        | Programs Assessment     |       |     2006.       |
|       |        | Review of State         |       |                 |
|       |        | Offices. Nevertheless,  |       | -   Validate    |
|       |        | GLS reports indicate    |       |     the data in |
|       |        | that the loan           |       |     the         |
|       |        | classification has not  |       |     Guaranteed  |
|       |        | been entered for every  |       |     Loan        |
|       |        | loan in the portfolio.  |       |     System,     |
|       |        | It has also become      |       |     June 2007.  |
|       |        | evident that the        |       |                 |
|       |        | classification assigned |       | -   Hire a      |
|       |        | by some lenders and     |       |     contractor  |
|       |        | field offices do not    |       |     to          |
|       |        | accurately reflect the  |       |     ascertain   |
|       |        | risk. Additional        |       |     the         |
|       |        | emphasis needs to be    |       |     validity of |
|       |        | assigned to this task.  |       |     loan        |
|       |        |                         |       |                 |
|       |        | The Uniform             |       |  classification |
|       |        | Classification System   |       |     as a        |
|       |        | allows for loans to be  |       |     suitable    |
|       |        | assigned more than one  |       |     risk        |
|       |        | classification when     |       |     standard,   |
|       |        | portions of the loan    |       |     September   |
|       |        | meet different          |       |     2007        |
|       |        | classification          |       |                 |
|       |        | standards. This avoids  |       | -               |
|       |        | classifying an entire   |       |    Requirements |
|       |        | loan as Doubtful or     |       |     to modify   |
|       |        | Loss when collection of |       |     cash flow   |
|       |        | a specific portion      |       |     models are  |
|       |        | appears highly          |       |     presented   |
|       |        | probable.               |       |     to the      |
|       |        | Unfortunately, GLS is   |       |     Credit      |
|       |        | limited to recording    |       |     Reform      |
|       |        | only one classification |       |     Working     |
|       |        | for each loan. The      |       |     Group, July |
|       |        | Agency is looking into  |       |     2008.       |
|       |        | modifying GLS to        |       |                 |
|       |        | accommodate multiple    |       | -   Cash flow   |
|       |        | classifications.        |       |     model is    |
|       |        | However, the commercial |       |     revised,    |
|       |        | lending industry seems  |       |     July 2009.  |
|       |        | to be moving toward a   |       |                 |
|       |        | more detailed           |       |                 |
|       |        | classification system.  |       |                 |
|       |        | Because the Agency      |       |                 |
|       |        | would like to utilize   |       |                 |
|       |        | industry standards      |       |                 |
|       |        | whenever possible, the  |       |                 |
|       |        | Agency is postponing    |       |                 |
|       |        | modifications to the    |       |                 |
|       |        | GLS until it is clear   |       |                 |
|       |        | which loan              |       |                 |
|       |        | classification system   |       |                 |
|       |        | the industry will use.  |       |                 |
|       |        |                         |       |                 |
|       |        | In addition, loans that |       |                 |
|       |        | are adversely           |       |                 |
|       |        | classified and lenders  |       |                 |
|       |        | with higher             |       |                 |
|       |        | concentrations of       |       |                 |
|       |        | adversely classified    |       |                 |
|       |        | loans should receive a  |       |                 |
|       |        | higher level Agency     |       |                 |
|       |        | oversight. We will      |       |                 |
|       |        | provide more guidance   |       |                 |
|       |        | to the field office to  |       |                 |
|       |        | include this in their   |       |                 |
|       |        | routine evaluations of  |       |                 |
|       |        | lender expertise.       |       |                 |
|       |        |                         |       |                 |
|       |        | Identified and          |       |                 |
|       |        | Monitored Risk Factors  |       |                 |
|       |        | (or plan to develop     |       |                 |
|       |        | risk factors)           |       |                 |
|       |        |                         |       |                 |
|       |        | The Agency intends to   |       |                 |
|       |        | hire a contractor to    |       |                 |
|       |        | ascertain the validity  |       |                 |
|       |        | of using the loan       |       |                 |
|       |        | classifications         |       |                 |
|       |        | assigned to each loan   |       |                 |
|       |        | in the B&I portfolio as |       |                 |
|       |        | a risk standard.        |       |                 |
|       |        | Currently, the Agency   |       |                 |
|       |        | relies heavily of the   |       |                 |
|       |        | delinquency rate of the |       |                 |
|       |        | portfolio to estimate   |       |                 |
|       |        | its risk of loss. It    |       |                 |
|       |        | appears that using loan |       |                 |
|       |        | classification would be |       |                 |
|       |        | a more proactive        |       |                 |
|       |        | approach; as the        |       |                 |
|       |        | potential for loss and  |       |                 |
|       |        | amount of loss exposure |       |                 |
|       |        | in individual loans can |       |                 |
|       |        | often be identified     |       |                 |
|       |        | prior to default.       |       |                 |
+-------+--------+-------------------------+-------+-----------------+

\_ Establishes or verifies that partner lenders have established
collateral valuation processes with clear policies and procedures
ensuring independence in appraisals and valuations, and adequate
monitoring of appraisers' quality and certification:

-   implemented policies and procedures (FY 2011 Q1).

The Department of Agriculture (USDA) has three major loan areas that
need to meet this standard.

+-------+--------+---------------------------+-------+----------------+
| A     | P      | Comments                  | Qu    | Milestones     |
| gency | rogram |                           | arter |                |
+=======+========+===========================+=======+================+
| FSA   | Farm   | Policies and procedures   | FY11  | -   Develop    |
|       | Loan   | to evaluate collateral    | Q1    |     contract   |
|       | Pr     | valuation processes will  |       |                |
|       | ograms | be included as part of    |       | specifications |
|       |        | the establishing and      |       |     and issue  |
|       |        | monitoring risk standards |       |     contract,  |
|       |        | process.                  |       |     December,  |
|       |        |                           |       |     2007       |
|       |        |                           |       |                |
|       |        |                           |       | -   Contractor |
|       |        |                           |       |     completes  |
|       |        |                           |       |     study and  |
|       |        |                           |       |     makes      |
|       |        |                           |       |     r          |
|       |        |                           |       | ecommendation, |
|       |        |                           |       |     October,   |
|       |        |                           |       |     2009       |
|       |        |                           |       |                |
|       |        |                           |       | -   Risk       |
|       |        |                           |       |     standards  |
|       |        |                           |       |     are        |
|       |        |                           |       |     selected   |
|       |        |                           |       |     based upon |
|       |        |                           |       |     contractor |
|       |        |                           |       |     r          |
|       |        |                           |       | ecommendation, |
|       |        |                           |       |     December,  |
|       |        |                           |       |     2009       |
|       |        |                           |       |                |
|       |        |                           |       | Develop        |
|       |        |                           |       | differential   |
|       |        |                           |       | loan making    |
|       |        |                           |       | and loan       |
|       |        |                           |       | servicing      |
|       |        |                           |       | processes and  |
|       |        |                           |       | procedures if  |
|       |        |                           |       | appropriate    |
|       |        |                           |       | for different  |
|       |        |                           |       | risk           |
|       |        |                           |       | ch             |
|       |        |                           |       | aracteristics, |
|       |        |                           |       | October, 2010  |
+-------+--------+---------------------------+-------+----------------+
| RD    | S      | RD believes they have met | FY06  | Not Applicable |
|       | ection | this standard. A full     | Q3    |                |
|       | 502    | copy of their plan is     |       |                |
|       | Single | available in Specific     |       |                |
|       | Family | Plans, pages 7-10.        |       |                |
|       | H      |                           |       |                |
|       | ousing | The SFHGLP has            |       |                |
|       |        | established and           |       |                |
|       |        | implemented policies and  |       |                |
|       |        | procedures for effective  |       |                |
|       |        | collateral valuation      |       |                |
|       |        | processes. An appraisal   |       |                |
|       |        | of any property serving   |       |                |
|       |        | as security for the       |       |                |
|       |        | proposed loan will be     |       |                |
|       |        | completed and submitted   |       |                |
|       |        | to the Agency for review  |       |                |
|       |        | along with the request    |       |                |
|       |        | for loan guarantee. The   |       |                |
|       |        | appraisal must have been  |       |                |
|       |        | completed within 6 months |       |                |
|       |        | of the date the request   |       |                |
|       |        | for a conditional         |       |                |
|       |        | commitment is submitted   |       |                |
|       |        | to the Agency. Lenders    |       |                |
|       |        | are instructed to use     |       |                |
|       |        | appraisers that are       |       |                |
|       |        | properly licensed or      |       |                |
|       |        | certified, as             |       |                |
|       |        | appropriate, to make      |       |                |
|       |        | residential real estate   |       |                |
|       |        | appraisals in accordance  |       |                |
|       |        | with the criteria set     |       |                |
|       |        | forth by the Appraiser    |       |                |
|       |        | Qualification Board (AQB) |       |                |
|       |        | of the Appraisal          |       |                |
|       |        | Foundation. All           |       |                |
|       |        | appraisals must comply    |       |                |
|       |        | with the current edition  |       |                |
|       |        | of the Uniform Standards  |       |                |
|       |        | of Professional Appraisal |       |                |
|       |        | Practice (USPAP).         |       |                |
|       |        | Appraisers may not        |       |                |
|       |        | discriminate against any  |       |                |
|       |        | person in making or       |       |                |
|       |        | performing appraisal      |       |                |
|       |        | services because of race, |       |                |
|       |        | color, familial status,   |       |                |
|       |        | religion, sex, age,       |       |                |
|       |        | disability, or national   |       |                |
|       |        | origin.                   |       |                |
|       |        |                           |       |                |
|       |        | Residential appraisals    |       |                |
|       |        | will be completed using   |       |                |
|       |        | the sales comparison      |       |                |
|       |        | (market) and cost         |       |                |
|       |        | approach to market value. |       |                |
|       |        | The appraiser will use    |       |                |
|       |        | the most recent revision  |       |                |
|       |        | of the Uniform            |       |                |
|       |        | Residential Appraisal     |       |                |
|       |        | Report (URAR). The        |       |                |
|       |        | \"Estimated Reproduction  |       |                |
|       |        | Cost-New of               |       |                |
|       |        | Improvements\" section of |       |                |
|       |        | the form must be          |       |                |
|       |        | completed when the        |       |                |
|       |        | dwelling is less than 1   |       |                |
|       |        | year old.                 |       |                |
|       |        |                           |       |                |
|       |        | In order to verify that   |       |                |
|       |        | lender partners have      |       |                |
|       |        | established collateral    |       |                |
|       |        | valuation processes with  |       |                |
|       |        | clear policies and        |       |                |
|       |        | procedures ensuring       |       |                |
|       |        | independence in           |       |                |
|       |        | appraisals and            |       |                |
|       |        | valuations, and adequate  |       |                |
|       |        | monitoring of appraisers' |       |                |
|       |        | quality and               |       |                |
|       |        | certification, the Agency |       |                |
|       |        | has established a         |       |                |
|       |        | comprehensive appraisal   |       |                |
|       |        | review procedure. The     |       |                |
|       |        | Agency has established 3  |       |                |
|       |        | levels of reviews. The    |       |                |
|       |        | level of review can       |       |                |
|       |        | escalate based on         |       |                |
|       |        | perceived risk. The 3     |       |                |
|       |        | types of reviews are 1)   |       |                |
|       |        | Administrative Review; 2) |       |                |
|       |        | \"Technical Review\" and  |       |                |
|       |        | \"Field Review.\" An      |       |                |
|       |        | Administrative Review     |       |                |
|       |        | will always be done. A    |       |                |
|       |        | percentage of appraisals  |       |                |
|       |        | are selected for a        |       |                |
|       |        | Technical Review, and     |       |                |
|       |        | also when problems are    |       |                |
|       |        | perceived during an       |       |                |
|       |        | Administrative Review.    |       |                |
|       |        | Lastly a more             |       |                |
|       |        | comprehensive Field       |       |                |
|       |        | Review is conducted as    |       |                |
|       |        | deemed appropriate by the |       |                |
|       |        | Agency.                   |       |                |
+-------+--------+---------------------------+-------+----------------+
| RD    | Bu     | RD believes they have met | FY06  | Not Applicable |
|       | siness | this standard. A full     | Q3    |                |
|       | and    | copy of their plan is     |       |                |
|       | In     | available in Specific     |       |                |
|       | dustry | Plans, pages 7-10.        |       |                |
|       | Loans  |                           |       |                |
|       |        | Lenders are responsible   |       |                |
|       |        | for ensuring that         |       |                |
|       |        | appraisal values          |       |                |
|       |        | adequately reflect the    |       |                |
|       |        | actual value of the       |       |                |
|       |        | collateral securing all   |       |                |
|       |        | guaranteed loans. All     |       |                |
|       |        | real property appraisals  |       |                |
|       |        | associated with Agency    |       |                |
|       |        | guaranteed loanmaking and |       |                |
|       |        | servicing transactions    |       |                |
|       |        | must meet the             |       |                |
|       |        | requirements contained in |       |                |
|       |        | the Financial             |       |                |
|       |        | Institutions Reform,      |       |                |
|       |        | Recovery and Enforcement  |       |                |
|       |        | Act (FIRREA) of 1989 and  |       |                |
|       |        | the appropriate           |       |                |
|       |        | guidelines contained in   |       |                |
|       |        | Standards 1 and 2 of the  |       |                |
|       |        | Uniform Standards of      |       |                |
|       |        | Professional Appraisal    |       |                |
|       |        | Practices (USPAP). See RD |       |                |
|       |        | Instruction 4279-B,       |       |                |
|       |        | section 4279.144.         |       |                |
|       |        | Chattels are evaluated in |       |                |
|       |        | accordance with normal    |       |                |
|       |        | banking practices and     |       |                |
|       |        | generally accepted        |       |                |
|       |        | methods of determining    |       |                |
|       |        | value. In addition, field |       |                |
|       |        | offices are provided with |       |                |
|       |        | "Administrative Appraisal |       |                |
|       |        | Field Review Report" and  |       |                |
|       |        | a "USPAP Appraisal        |       |                |
|       |        | Technical Review" to      |       |                |
|       |        | assist in evaluating      |       |                |
|       |        | appraisals used in        |       |                |
|       |        | loanmaking and servicing  |       |                |
|       |        | actions.                  |       |                |
|       |        |                           |       |                |
|       |        | The appraiser is required |       |                |
|       |        | by the industry standards |       |                |
|       |        | to disclose his/her       |       |                |
|       |        | qualifications and any    |       |                |
|       |        | potential conflicts of    |       |                |
|       |        | interest in the appraisal |       |                |
|       |        | document to ensure        |       |                |
|       |        | independence.             |       |                |
|       |        |                           |       |                |
|       |        | The lender is responsible |       |                |
|       |        | for obtaining the lien    |       |                |
|       |        | coverage and lien         |       |                |
|       |        | priorities specified in   |       |                |
|       |        | the Conditional           |       |                |
|       |        | Commitment, properly      |       |                |
|       |        | recording or filing lien  |       |                |
|       |        | or notice instruments to  |       |                |
|       |        | obtain or maintain such   |       |                |
|       |        | lien priorities during    |       |                |
|       |        | the existence of the      |       |                |
|       |        | guarantee by the Agency,  |       |                |
|       |        | assuring collateral is    |       |                |
|       |        | maintained, assuring that |       |                |
|       |        | the Borrower obtains      |       |                |
|       |        | marketable title to the   |       |                |
|       |        | collateral, assuring that |       |                |
|       |        | any party liable is not   |       |                |
|       |        | released from liability   |       |                |
|       |        | for all or any part of    |       |                |
|       |        | the loan, except in       |       |                |
|       |        | accordance with Agency    |       |                |
|       |        | regulations, and provides |       |                |
|       |        | periodic reporting of     |       |                |
|       |        | borrower status.          |       |                |
+-------+--------+---------------------------+-------+----------------+

-   Maintains a reasonable level of risk and productivity of taxpayer
    cash used in lending programs through effective management
    information reporting, such as indicators of loan volume, exceptions
    to underwriting standards, concentrations of credit risk,
    delinquency and default rates, rating changes, problem loans, and
    charge offs and using such information to improve program results:

    -   identified and substantiated risk indicators and (FY 2006 Q3)

    -   implemented. (FY 2006 Q3)

There are many indicators that USDA maintains a reasonable level of risk
and productivity of taxpayer cash used in lending programs.

Over the last four fiscal years, USDA direct loans had higher
collections, lower delinquencies and lower write-offs than the
government-wide average.[^2]

  --------------------------- ------------- ---------- ---------- ----------
  Quarter                     FY06 Q2       FY05 Q4    FY04 Q4    FY03 Q4

                              Collection                          
                              Rates                               

  Department of Agriculture   12.52%        25.32%     21.27%     23.49%

  Government Wide             8.63%         24.53%     20.36%     19.52%

                              Delinquency                         
                              Rates                               

  Department of Agriculture   3.05%         3.31%      3.48%      3.86%

  Government Wide             10.34%        11.04%     12.78%     11.98%

                              Write-Off                           
                              Rates                               

  Department of Agriculture   0.47%         0.91%      0.62%      0.74%

  Government Wide             0.60%         3.35%      0.40%      1.03%
  --------------------------- ------------- ---------- ---------- ----------

USDA's major guaranteed loan programs are revising their fee structures
to increase the productivity of taxpayer cash. Guaranteed 502 housing
and Business and Industry loans have already implemented increased fees.
Guaranteed farm loans have proposed legislation to increase their fees.

Implementation of requirements 6-8 should only increase the
effectiveness of USDA's well-managed loan programs.

-   Establishes mutually agreeable goals that can by justified by
    comparisons to relevant programs to control the total cost of
    originating, servicing and liquidating loans and improve the rate of
    debt recovery:

    -   established current cost estimates; (FY 2008 Q3)

    -   established benchmarks and goals; and (FY 2008 Q3)

    -   reaches goals (FY 2009 Q4).

The Department of Agriculture (USDA) has two major loan areas that need
to meet this standard.

+-------+------------------------------+-------+-----------------------+
| A     | Comments                     | Qu    | Milestones            |
| gency |                              | arter |                       |
+=======+==============================+=======+=======================+
| FSA   | FSA is building a managerial | FY09  | -   Define metrics -- |
|       | cost accounting process as   | Q4    |     sessions have     |
|       | part of the Budget and       |       |     already started   |
|       | Performance Management       |       |     within FSA Farm   |
|       | System (BPMS) initiative.    |       |     Loans to define   |
|       | The milestone plan for BPMS  |       |     the cost pools    |
|       | has been reviewed by OMB via |       |     and units of      |
|       | the USDA Financial Data      |       |     measures which    |
|       | Integration Improvement Plan |       |     will constitute   |
|       | (FDIIP). A full copy of      |       |     the cost per      |
|       | their plan is available in   |       |     service area unit |
|       | Specific Plans, pages 5-6.   |       |     metrics (and      |
|       |                              |       |     related analysis) |
|       |                              |       |     (4 QTR 2006)      |
|       |                              |       |                       |
|       |                              |       | -   Analyze metrics   |
|       |                              |       |     (1 QTR 2007)      |
|       |                              |       |                       |
|       |                              |       | -   Establish         |
|       |                              |       |     baseline (4 QTR   |
|       |                              |       |     2007)             |
|       |                              |       |                       |
|       |                              |       | -   Establish target  |
|       |                              |       |     (2 QTR 2008)      |
|       |                              |       |                       |
|       |                              |       | -   Report results    |
|       |                              |       |     and trends (4 QTR |
|       |                              |       |     2008)             |
|       |                              |       |                       |
|       |                              |       | -   Report 2^nd^      |
|       |                              |       |     year's results (4 |
|       |                              |       |     QTR 2009)         |
+-------+------------------------------+-------+-----------------------+
| RD    | All Rural Development        | FY09  | -   Develop an        |
|       | salaries and expense funds   | Q4    |     approach to       |
|       | are merged together for all  |       |     allocate salaries |
|       | programs. This will make     |       |     and expense costs |
|       | developing a methodology to  |       |     between the many  |
|       | calculate the cost of        |       |     RD programs and   |
|       | originating, servicing and   |       |     lending           |
|       | liquidating specific loans   |       |     activities (FY07  |
|       | very difficult. The kick-off |       |     Q2)               |
|       | meeting for this project is  |       |                       |
|       | current scheduled for the    |       | -   Implement         |
|       | 2^nd^ week of June 2006.     |       |     approach and      |
|       |                              |       |     establish         |
|       |                              |       |     baseline costs    |
|       |                              |       |     and future goals  |
|       |                              |       |     (FY08 Q4)         |
|       |                              |       |                       |
|       |                              |       | -   Report 2^nd^ year |
|       |                              |       |     results and meet  |
|       |                              |       |     goals set the     |
|       |                              |       |     prior year (FY09  |
|       |                              |       |     Q4)               |
+-------+------------------------------+-------+-----------------------+

-   Complies with all relevant provisions of the Debt Collection
    Improvement Act of 1996. (FY 2007 Q3)

The Debt Collection Improvement Act of 1996 (DCIA) requires federal
agencies to comply with six major provisions. A seventh DCIA provision
is optional. The Office of Management and Budget's implementation
guidance (Circular A-129) added another requirement.

+--------------------------------------------+-------------------------+
| **DCIA Requirements**                      | **Status of USDA        |
|                                            | Compliance**            |
+============================================+=========================+
| **Treasury Offset Program**: The DCIA      | Treasury Report of      |
| requires that all agencies recover debt    | Receivables Due from    |
| delinquent more than 180 days by referring | the Public FY06 Q2      |
| those debts to Treasury for offset of tax  | Referral percentage.    |
| refunds and other Federal payments.        |                         |
|                                            | Direct Loans: 100%      |
|                                            |                         |
|                                            | Guarantees: 100%        |
+--------------------------------------------+-------------------------+
| **Cross Servicing:** The DCIA requires     | Treasury Report of      |
| that all debts owed to agencies which are  | Receivables Due from    |
| more than 180 days delinquent shall be     | the Public FY06 Q2      |
| transferred to Treasury/FMS or a           | Referral percentage.    |
| Treasury-designated debt collection center |                         |
| for servicing.                             | Direct Loans: 100%      |
|                                            |                         |
|                                            | Guarantees: 100%        |
+--------------------------------------------+-------------------------+
| **Taxpayer Identification Number:** All    | All programs require    |
| agencies and lenders extending credit      | taxpayer identification |
| shall require the applicant or borrower to | numbers as part of the  |
| supply taxpayer identification numbers as  | application process.    |
| a prerequisite to obtaining credit or      |                         |
| assistance.                                |                         |
+--------------------------------------------+-------------------------+
| **Barring delinquent Federal debtors from  | All loan programs use   |
| obtaining Federal loans or loan insurance  | at least one method of  |
| guarantees:** A person may not obtain any  | checking for delinquent |
| Federal financial assistance in the form   | Federal debt.           |
| of a loan or loan insurance or guarantee   |                         |
| administered by the agency if the person   |                         |
| has an outstanding debt with any Federal   |                         |
| agency which is in a delinquent status.    |                         |
+--------------------------------------------+-------------------------+
| **Reporting to credit bureaus:** Agency    | All agencies refer      |
| servicing systems must be able to identify | debts to credit         |
| and refer debts to credit bureaus.         | bureaus.                |
+--------------------------------------------+-------------------------+
| **Asset Sales:** The DCIA, as codified at  | No asset sales to date  |
| 31 U.S.C. 3711(i) authorizes agencies to   | have been determined to |
| sell any nontax debt owed to the United    | be in the best interest |
| States that is more than 90 days           | of the government.      |
| delinquent, subject to the provisions of   |                         |
| the Federal Credit Reform Act of 1990. The |                         |
| Administration's budget policy is that     |                         |
| agencies are required to sell any nontax   |                         |
| debts that are delinquent for more than    |                         |
| one year for which collection action has   |                         |
| been terminated, if the Secretary of the   |                         |
| Treasury determines that the sale is in    |                         |
| the best interest of the United States     |                         |
| Government.                                |                         |
+--------------------------------------------+-------------------------+
| **Administrative Wage Garnishment          | Regulations authorizing |
| (Optional):** Agencies have the authority  | administrative wage     |
| to administratively garnish the wages of   | garnishment are in the  |
| delinquent debtors in order to recover     | process of being        |
| delinquent debt.                           | developed and issued.   |
+--------------------------------------------+-------------------------+
| **Delinquent Debt must be Written-Off      | USDA does have          |
| after 2 Years (A-129 requirement):**       | non-exempt debt         |
| Beginning in FY 2000, for programs with    | delinquent over two     |
| \$100 million in assets (unpaid principal  | years. USDA intends to  |
| balance) that are delinquent for more than | exempt or write-off all |
| two years, the agency is expected to       | debt delinquent more    |
| dispose of assets expeditiously. Agencies  | than two years by FY07  |
| may request from OMB, an exception for the | Q3.                     |
| following:                                 |                         |
|                                            | 12/15/06 -- Agencies    |
| \(1\) Loans to foreign countries and       | will submit plans to    |
| entities;                                  | OCFO to write off all   |
|                                            | delinquent debt over    |
| \(2\) Loans in structured forbearance,     | two years or provide a  |
| when conversion to repayment status is     | justification for an    |
| expected within 24 months or after         | OMB/Treasury exemption. |
| statutory requirements are met;            |                         |
|                                            | 12/30/06 -- OCFO will   |
| \(3\) Loans that are written off as        | submit exemption        |
| unenforceable *e.g.*, due to death,        | requests to             |
| disability, or bankruptcy;                 | OMB/Treasury            |
|                                            |                         |
| \(4\) Loans that have been submitted to    | 4/30/07 -- All          |
| Treasury for offset and are expected to be | non-exempt debt         |
| extinguished within three (3) years;       | delinquent more than    |
|                                            | two years will be       |
| \(5\) Loans in adjudication or             | written-off.            |
| foreclosure; and                           |                         |
|                                            |                         |
| \(6\) Student loans.                       |                         |
+--------------------------------------------+-------------------------+

The following long-term delinquent debt needs to be addressed:

  ------------ --------------------------- ----------------- ---------------- -----------------
  **Agency**   **Program**                 **Direct**        **Guarantee**    **Total**

  FSA          Agricultural Credit         621,212,260       6,620,191        627,832,451
               Insurance                                                      

  RD           Rural Housing Insurance     237,319,019                        237,319,019
               Fund                                                           

  RD           Rural Elec. & Telephone     5,265,077                          5,265,077

  RD           Rural Development Insurance 27,375,689        77,164,234       104,539,923
               Fund                                                           

  RD           Rural Development Loan Fund 189,753                            189,753

               **Total**                   **891,361,798**   **83,784,425**   **975,146,223**
  ------------ --------------------------- ----------------- ---------------- -----------------

**KEY MILESTONES for the Department of Agriculture**

[FY 2006 -- Fourth Quarter]{.underline}

-   Guaranteed Business and Industry Program - Provide additional
    direction to field offices to verify loan classification on B&I
    loans and update Guaranteed Loan System accordingly by September 30,
    2006.

-   Water Programs - Risk Standard is selected by September 30, 2006.

[FY 2007 -- First Quarter]{.underline}

-   DCIA Compliance -- Agencies will submit plans to OCFO to write off
    all delinquent debt over two years or provide a justification for an
    OMB/Treasury exemption by December 15, 2006.

-   DCIA Compliance -- OCFO will submit exemption requests to
    OMB/Treasury by December 30, 2006.

-   FSA Cost Accounting - Analyze metrics by December 31, 2006.

[FY 2007 -- Second Quarter]{.underline}

-   RD Cost Accounting - Develop an approach to allocate salaries and
    expense costs between the many RD programs and lending activities by
    February 15, 2007.

[FY 2007 -- Third Quarter]{.underline}

-   DCIA Compliance -- All non-exempt debt delinquent more than two
    years will be written-off by April 30, 2007.

-   Water Programs - Documentation of risk standard is provided for
    OCFO, OIG, and OMB review by April 30, 2007.

-   Guaranteed Business and Industry Program - Validate the data in the
    Guaranteed Loan System by June 30, 2007.

**KEY RESULTS - We Would Be Proud to Achieve**

-   Plans are developed to implement all yellow requirements

-   Substantial progress and milestones are met

-   USDA complies with all relevant provisions of the Debt Collection
    Improvement Act of 1996.

[^1]: Includes the following agencies: Agriculture, Defense, Energy,
    HHS, Homeland Security, Interior, Justice, Labor, State, DOT, VA,
    Corps, GSA, and NASA.

[^2]: As reported by the Treasury Report on Receivables Due from the
    Public