Office of 

Inspector General 

Audit of FCA’s Financial Statements 

Fiscal Year 2013

 A-13-FS 

November 20, 2013 
TABLE OF CONTENTS 

Inspector General’s Transmittal Letter of Auditor’s Report..................................... 1 

Auditor’s Opinion Letter on the Financial Statements........................................... 5 

For the financial statements and related notes to each fiscal year’s financial audit reports, refer 

to FCA’s Performance and Accountability Report (PAR) for that year. The PARs can be found 

at http://www.fca.gov/reports/performance_reports.html. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Farm Credit Administration	 Office of Inspector General 

1501 Farm Credit Drive 

McLean, VA 22102-5090 

(703) 883-4030 

November 20, 2013 

The Honorable Jill Long Thompson, Board Chair and Chief Executive Officer 

The Honorable Kenneth A. Spearman, Board Member 

The Honorable Leland A. Strom, Board Member 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, Virginia 22102-5090 

Dear Board Chair Long Thompson and FCA Board Members Spearman and Strom: 

This letter transmits the report on the audit of the Farm Credit Administration’s financial 

statements for the fiscal year (FY) ended September 30, 2013. The Office of Inspector General 

(OIG) contracted with the U.S. Department of the Treasury’s Bureau of the Fiscal Service for 

Brown & Company CPAs, PLLC, an independent public accounting firm, to perform the audit. 

Brown & Co. issued an unmodified opinion on the Agency’s financial statements. It opined that 

FCA’s principal financial statements present fairly, in all material respects, the financial position 

of the Agency as of the FYs ended September 30, 2013 and 2012, in conformity with generally 

accepted accounting principles. 

Brown & Co. considered FCA’s internal control over financial reporting to determine the audit 

procedures that were appropriate for the limited purpose of expressing an opinion on the 

financial statements. Although Brown & Co. did not express an opinion on the effectiveness of 

FCA’s internal controls, it did not identify any deficiencies in internal controls considered to be a 

material weakness. 

Additionally, Brown & Co. performed tests of FCA’s compliance with certain provisions of laws, 

regulations, contracts, and grant agreements that could have a direct and material effect on the 

financial statements. Although Brown & Co. did not express an opinion on compliance with 

those provisions, it did not identify any instances of noncompliance or other matters required to 

be reported under Government Auditing Standards or OMB Bulletin No. 07-04, as amended. 

In the OIG’s opinion, Brown & Co.’s audit provides a reasonable basis on which to render its 

opinion, and we concur with the report dated November 6, 2013. 

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The OIG’s contract with the Bureau of the Fiscal Service required that Brown & Co. perform the 

audit in accordance with Government Auditing Standards issued by the Comptroller General of 

the United States and Office of Management and Budget Bulletin No. 07-04, Audit 

Requirements for Federal Financial Statements, as amended. To ensure the quality of the work 

performed, the OIG 

• reviewed Brown & Co.’s approach to and planning of the audit, 

• evaluated the qualifications and independence of the auditors, 

• monitored the progress of the audit, 

• examined work papers, and 

• reviewed the audit reports. 

Management and Performance Challenges 

As part of the Agency’s annual Performance and Accountability Report, the Inspector General is 

required by law to provide a summary statement on management and performance challenges 

facing the Agency. The challenges identified fall into two general categories. First is the 

challenge related to FCA’s mandate of ensuring a safe, sound, and dependable Farm Credit 

System (FCS or System) as a source of credit and related services to agriculture and rural 

America. However, it should be recognized that some factors affecting this challenge may be 

influenced by events outside the control of the Agency. Second, and of equal importance, is the 

challenge related to the Agency, remaining an independent, arm’s-length, objective, and 

effective regulator of the FCS. 

Farm Credit System 

Safety and Soundness 

The System is a lender to a single industry—agriculture—and is therefore vulnerable to 

continuing market volatility and uncertain economic conditions. Although the System’s overall 

condition and performance is sound, there are many highly correlated uncontrollable or 

macroeconomic forces directly affecting agriculture. While the FCS remains generally safe and 

sound, the current risk environment is a challenge in some FCS institutions, requiring 

heightened oversight and supervision. System institutions continue to grow in both size and 

complexity, requiring greater risk management skills and oversight responsibilities both in 

examination and regulation. 

In providing for System oversight, the challenge for the Agency is twofold: to continue to be an 

independent, objective, arm’s-length and effective regulator; to continue to assess in a timely 

manner economic and operational conditions affecting System institutions; and to take prompt 

preemptive or remedial actions to ensure their ongoing safety and soundness. 

Mission 

Further, the overall environment facing agriculture, rural America, and the FCS is everchanging, presenting new vulnerabilities and opportunities. FCA’s challenge in this 

environment is to continue to ensure the FCS fulfills its public policy purpose of providing 

constructive credit to farmers, ranchers, rural residents, agricultural and rural utility 

cooperatives, and other eligible borrowers. 

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Farm Credit Administration 

Agency Governance 

The Farm Credit Act of 1971, as amended, provides for a full-time three-member Board to 

govern the Agency. Board members are appointed by the President and confirmed by the 

Senate, and the President designates the Chairman. Board Chair Long Thompson, an FCA 

Board member since March 2010, replaced Board Member Strom as Chair in November 2012. 

Board Chair Long Thompson’s term expires in May 2014. Board Member Spearman was 

appointed in October 2009, and his term expires in May 2016. Board Member Strom’s term 

expired October 2012. In accordance with law, he may continue to serve until the President 

appoints a successor. 

All three current Board members are well-experienced, with each having been on the Board for 

a number of years. Nevertheless, a full-time three-member Board, particularly when a new 

Chairman is named and a new member(s) joins the Board, presents an ongoing challenge of 

coordination and cooperation for the Chairman and Board members in defining roles and 

responsibilities. In this regard, the Board’s various rules of operation are a significant asset; 

they provide a foundation for trust and shared expectations among its members, enable the 

Board to engage in professional and constructive policy debate, and provide continuity of 

operations and a sound course for the Board and the Agency. 

Agency Organization 

Although the Agency’s statutory mission has remained constant, many factors affect the 

Agency’s operations and organization. A major factor is the periodic turnover in the Board’s 

composition and chairmanship. In addition, the banks and associations of the FCS have 

continued merging, geographic territories of merged institutions have changed, and FCS 

institutions’ products and the examination thereof have become more complex. 

These and other factors bear on FCA’s organizational structure. An ongoing challenge to the 

Board and senior management is to periodically reassess FCA’s organizational structure to 

ensure it remains optimal. 

Agency Staffing 

The Agency has a comprehensive five-year Human Capital Plan covering FYs 2014 to 2018. 

Recent recruitment initiatives for all levels within the Agency have broad search criteria and 

have focused on obtaining the best skill sets and achieving diversity in FCA’s workforce. 

The Board and senior management recognize the area of human capital as critical for the 

ongoing success of FCA as an effective Federal financial regulator. A few of the factors 

contributing to the critical nature of human capital, as delineated by the Agency’s Office of 

Management Services, are as follows: 

•	 Projections indicate that a substantial portion of the Agency’s workforce is eligible to 

retire during the next several years. 

•	 The loss of employees during this period will challenge the Agency to retain historical 

knowledge and perspectives on the programs, practices, and mission of the FCS as 

well as that of FCA. 

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•	 The evolution of FCA, agriculture and rural America, the FCS, and the financial 

services industry means FCA will need to continue to attract and maintain an 

experienced and qualified professional staff to meet the anticipated growth and 

complexity of the FCS and its environment. 

The Agency’s challenge is to continue to emphasize the implementation of its human capital 

plan to ensure FCA has the staff it needs to remain an effective regulator of the FCS by, for 

example, continuing to identify the critical skills needed in the future, appropriately allocating 

resources between line and staff functions, and ensuring continuity within senior management 

and other staff positions. 

Leveraging Technology 

The Agency’s ability to leverage investments in technologies is a key element in management’s 

efforts to continually improve Agency performance by increasing the efficiency and 

effectiveness of operations. The Agency has an active information resource management 

planning process that identifies, reviews, and prioritizes information technology initiatives to 

improve Agency operations. The Agency has made significant investments in technologies and 

implemented several tools to improve communication, collaboration, and efficiency of 

operations. The Agency’s challenge is to continue to maximize the use of information 

technology investments that will increase Agency efficiency and effectiveness. The successful 

implementation of technologies will provide FCA staff with the tools and skills that will enable the 

Agency to continue to 

•	 improve the quality and availability of financial data that can be used to examine 

potential risks across the FCS without creating an undue burden on the FCS; 

•	 streamline business processes and build business intelligence to provide decisionmakers with timely management information; 

•	 develop electronic recordkeeping and knowledge management capability for capturing, 

maintaining, and sharing institutional knowledge; and 

•	 protect and secure FCA information systems and data from ever-increasing external 

and internal threats. 

Respectfully, 

Elizabeth M. Dean
 

Inspector General
 

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INDEPENDENT AUDITOR'S REPORT 

Farm Credit Administration 

The Board and Office of Inspector General 

Report on the Financial Statements 

We have audited the accompanying balance sheets of the Farm Credit Administration (FCA) as of 

September 30, 2013 and 2012, and the related statements of net cost, changes in net position, and 

budgetary resources, for the years then ended (collectively referred to as the financial statements), and the 

related notes to the financial statements. 

Management’s Responsibility for the Financial Statements 

Management is responsible for the preparation and fair presentation of these financial statements in 

accordance with accounting principles generally accepted in the United States of America; this includes 

the design, implementation, and maintenance of internal control relevant to the preparation and fair 

presentation of financial statements that are free from material misstatement, whether due to fraud or 

error. 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these financial statements based on our audit. We 

conducted our audit in accordance with auditing standards generally accepted in the United States of 

America and the standards applicable to financial audits contained in Government Auditing Standards, 

issued by the Comptroller General of the United States; and the Office of Management and Budget 

(OMB) Bulletin No. 07-04, Audit Requirements for Federal Financial Statements, as amended. Those 

standards and OMB Bulletin No. 07-04, as amended, require that we plan and perform the audit to obtain 

reasonable assurance about whether the financial statements are free from material misstatements. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in 

the financial statements. The procedures selected depend on the auditor’s judgment, including the 

assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. 

In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation 

and fair presentation of the financial statements in order to design audit procedures that are appropriate in 

the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s 

internal control. Accordingly, we express no such opinion. An audit also includes evaluating the 

appropriateness of accounting policies used and the reasonableness of significant accounting estimates 

made by management, as well as evaluating the overall presentation of the financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for 

our audit opinion. 

1101 MERCANTILE LANE, SUITE 122 ● LARGO, MD 20774 

PHONE: (240) 770-4900 ● FAX: (301) 773-2090 ● mail@brownco-cpas.com ● www.brownco-cpas.com

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Opinion 

In our opinion, the financial statements referred to above present fairly, in all material respects, the 

financial position of FCA as of September 30, 2013 and 2012, and its net costs, changes in net position, 

and budgetary resources for the years then ended, in conformity with accounting principles generally 

accepted in the United States of America. 

Other Matters 

Accounting principles generally accepted in the United States of America require that the information in 

the Management’s Discussion and Analysis (MD&A), Required Supplementary Information, and 

Required Supplementary Stewardship Information sections be presented to supplement the basic financial 

statements. Such information, although not a part of the basic financial statements, is required by the 

Federal Accounting Standards Advisory Board, who considers it to be an essential part of financial 

reporting for placing the basic financial statements in an appropriate operational, economic, or historical 

context. We have applied certain limited procedures to the required supplementary information in 

accordance with auditing standards generally accepted in the United States of America, which consisted 

of inquiries of management about the methods of preparing the information and comparing the 

information for consistency with management's responses to our inquiries, the basic financial statements, 

and other knowledge we obtained during our audit of the basic financial statements. We do not express an 

opinion or provide any assurance on the information because the limited procedures do not provide us 

with sufficient evidence to express an opinion or provide any assurance. 

Internal Control Over Financial Reporting 

In planning and performing our audit of the financial statements, we considered the FCA’s internal 

control over financial reporting (internal control) to determine the audit procedures that are appropriate in 

the circumstances for the purpose of expressing our opinion on the financial statements, but not for the 

purpose of expressing an opinion on the effectiveness of FCA’s internal control. Accordingly, we do not 

express an opinion on the effectiveness of FCA’s internal control. 

A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, or 

detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination 

of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement 

of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A 

significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less 

severe than a material weakness, yet important enough to merit attention by those charged with 

governance. 

Our consideration of the internal control was for the limited purpose described in the first paragraph of 

this section and was not designed to identify all deficiencies in internal control over financial reporting 

that might be deficiencies, significant deficiencies or material weaknesses. In our fiscal year 2013 audit, 

we did not identify any deficiencies in internal control that we consider to be a material weakness. 

However, material weaknesses may exist that have not been identified. 

Compliance and Other Matters 

As part of obtaining reasonable assurance about whether FCA’s financial statements are free from 

material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, 

contracts and grant agreements, noncompliance with which could have a direct and material effect on the 

determination of financial statement amounts. However, providing an opinion on compliance with those 

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provisions was not an objective of our audit, and accordingly, we do not express such an opinion. Our 

fiscal year 2013 audit, disclosed no instances of noncompliance or other matters that are required to the 

reported under Government Auditing Standards or OMB Bulletin No. 07-04, as amended. 

This report is intended solely for the information and use of the management of FCA, the Office of 

Inspector General of FCA, OMB, and Congress, and is not intended to be and should not be used by 

anyone other than these specified parties. 

Largo, Maryland 

November 6, 2013 

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