OFFICE OF

INSPECTOR GENERAL

Survey of

Farm Credit System InsƟtuƟons

Regarding the Agency’s

ExaminaƟon FuncƟon

Survey Report

FARM CREDIT ADMINISTRATION

Issued March 26, 2015

First Quarter

Fiscal Year 2015

(Oct. 1 ‐ Dec. 31, 2014)
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First Quarter FY 2015 OIG Summary Report on the Survey of FCS Institutions 

Regarding the Examination Function 

First Quarter (October 1 – December 31, 2014)
 

Fiscal Year (FY) 2015 Summary Report
 

OFFICE OF INSPECTOR GENERAL’S (OIG) SURVEY OF FARM CREDIT SYSTEM (FCS) 

INSTITUTIONS REGARDING THE AGENCY’S EXAMINATION FUNCTION 

Introduction 

During the period October 1 – December 31, 2014, the Office of Examination identified 10 FCS 

institutions that were in a position to provide meaningful survey responses. 

The OIG sent surveys to those 10 institutions on February 10, 2015. Of the 10 institutions 

surveyed, 8 submitted completed surveys (80% response rate). When outstanding responses 

from prior quarters are received, they are included in the next quarterly report. The OIG did not 

receive any responses to prior surveys; therefore, no additional responses are included in this 

report. 

The OIG will continue to provide an email report to you based on each FY quarter-end, i.e., 

December 31, March 31, June 30, and September 30, so that you may timely take whatever 

action you deem necessary to address the responses. The fourth quarter report will include FY 

2015 summary data. 

The survey asks respondents to rate the eight survey statements from "1" (Completely Agree) 

to "5" (Completely Disagree). The rating options are as follows: 

Completely Agree 1
 

Agree 2
 

Neither Agree nor Disagree 3
 

Disagree 4
 

Completely Disagree 5
 

There is also an available response of “6” (Does Not Apply) for each survey statement. These 

responses are not included in averages. 

Narrative responses are provided verbatim, except identifying information has been removed 

and any grammatical, punctuation and spelling errors may have been corrected. Any narrative 

in “brackets” is explanatory information provided by the OIG based on conversations with 

institution management. 

Survey Results – First Quarter FY 2015 

Average numerical responses to survey statements 1–8 ranged from 1.5 to 2.4 for the first 

quarter of FY 2015. 

Average Numerical Response Range to Survey Statements 1–8 

1st Quarter FY15 4th Quarter FY14 3rd Quarter FY14 2nd Quarter FY14 

1.5 – 2.4 1.6 – 2.1 1.8 – 2.4 2.0 – 2.2 
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Fourth Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions 

Regarding the Examination Function 

The average response for all survey statements was 1.9 for the first quarter of FY 2015. 

Average Response for all Survey Statements 

1st Quarter FY15 4th Quarter FY14 3rd Quarter FY14 2nd Quarter FY14 

1.9 1.9 2.0 2.2 

In this quarter, there were more positive than negative narrative comments to survey 

statements 1–8. (Negative comments of any degree are color coded in maroon.) 

Survey item 9 asks for feedback on the most beneficial aspect of the examination process. 

Consistent with prior quarters’ responses to this survey item, many very positive comments 

were provided about the examiners and the examination process. 

Survey item 10 asks for feedback on the least beneficial aspect of the examination process. 

While most were negative, as would be expected, several comments provide a perspective that 

should prove constructive. 

Survey item 11 asks for any additional comments from the board as a whole. It elicited a 

number of thoughtful responses from full boards, which was the objective of the question. 

Responses to Survey Statements 1–8 

EXAMINATION PROCESS 

Survey Statement 1: The scope of examination activities was focused on areas of risk 

to the institution and appropriate for the size, complexity, and risk 

profile of the institution. 

Average Response: 2.4 Statement 1st 2nd 3rd 4th FY 

1 Qtr Qtr Qtr Qtr Average 

FY 15 2.4 2.4 

FY 14 2.0 2.2 2.4 1.9 2.1 

FY 13 2.0 1.7 1.9 2.0 1.9 

FY 12 1.9 2.1 2.1 1.8 2.0 

Comments: 

•	 The Board felt the scope of examination was appropriate and comprehensive. 

•	 Consistent with the strength of our institution, financial, credit, and management. 

•	 The institution's main risk is credit risk. Acknowledging the institution's loan portfolio is 

exceptionally strong right now, it seems this main risk area got very little attention, 

instead focusing resources on areas of low risk. 

March 26, 2015 2 
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Fourth Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions 

Regarding the Examination Function 

Survey Statement 2:	 Examiners appropriately applied laws, regulations, and other 

regulatory criteria to examination findings and conclusions. 

Average Response: 2.0 Statement 1st 2nd 3rd 4th FY 

2 Qtr Qtr Qtr Qtr Average 

FY 15 2.0 2.0 

FY 14 1.8 2.1 1.9 1.8 1.9 

FY 13 1.9 1.6 1.8 2.3 1.9 

FY 12 1.8 1.8 1.9 2.0 1.9 

Comments: 

•	 We agree that examiners were correct in their application of laws and regulations. 

•	 Conclusions and recommendations on standards of conduct were based on questionable 

interpretation of the regulations. 

Survey Statement 3:	 The recommendations, required actions, and any supervisory 

agreement with FCA assisted the board and management in 

addressing the risks of the institution. 

Average Response: 2.1 

FY 14 

Statement 

3 

FY 15 

1.7 

1st 

Qtr 

2.1 

2.0 

2nd 

Qtr 

2.1 

3rd 

Qtr 

2.1 

4th 

Qtr 

2.0 

FY 

Average 

2.1 

FY 13 2.0 2.0 1.8 2.2 2.0 

FY 12 2.1 2.0 2.4 2.0 1.8 

Comments: 

•	 The recommendations were appropriate and reasonable. 

•	 Risk arising from the issues was minimal at most. 

•	 The institution's main risk is credit risk. Acknowledging the institution's loan portfolio is 

exceptionally strong right now, it seems this main risk area got very little attention, 

instead focusing resources on areas of low risk. [same response to statement 1] 

Survey Statement 4:	 The examiners were professional and efficiently conducted 

examination activities. 

Average Response: 1.5 Statement 

4 

1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 15 1.5 1.5 

FY 14 1.4 2.2 1.8 1.6 1.8 

FY 13 1.5 1.3 1.4 2.0 1.6 

FY 12 1.7 1.7 1.6 1.8 1.9 

March 26, 2015 3 
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Fourth Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions 

Regarding the Examination Function 

Comments: 

•	 On-site and electronic examination activities were all handled professionally and 

efficient.
 

•	 Examiners were professional, provided good explanations for their conclusions (we just 

did not agree with all conclusions) and made their best efforts to avoid disrupting 

operations during the exam. 

•	 Examiners were good to work with. However, not sure how efficient they were. 

COMMUNICATIONS 

Survey Statement 5: Communications between the Office of Examination staff and the 

institution were clear, accurate, and timely. 

Average Response: 1.5 

FY 14 

Statement 

5 

FY 15 

1.6 

1st 

Qtr 

1.5 

2.2 

2nd 

Qtr 

2.0 

3rd 

Qtr 

1.7 

4th 

Qtr 

1.9 

FY 

Average 

1.5 

FY 13 1.9 1.5 1.4 2.1 1.8 

FY 12 1.7 1.9 1.9 2.0 1.8 

Comments: 

•	 Overall communications were clear, accurate and timely - particularly with the EIC. 

Survey Statement 6: Examination communications included the appropriate amount 

and type of information to help the board and audit committee 

fulfill their oversight responsibilities. 

Average Response: 2.0 Statement 1st 2nd 3rd 4th FY 

6 Qtr Qtr Qtr Qtr Average 

FY 15 2.0 2.0 

FY 14 2.1 2.2 1.8 1.9 2.0 

FY 13 1.7 1.6 1.6 1.9 1.7 

FY 12 1.7 1.8 2.3 1.9 1.8 

Comments: 

•	 Communications were both informative and helpful. 

•	 More information for the basis of standards of conduct conclusions by FCA would have 

been helpful. 

•	 Communications were adequate but were often not regarding high risk areas. 

March 26, 2015 4 
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Fourth Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions 

Regarding the Examination Function 

Survey Statement 7: Examiners fairly considered the views and responses of the 

board and management in formulating conclusions and 

recommendations. 

Average Response: 1.8 

Statement 1st 2nd 3rd 4th FY 

7 Qtr Qtr Qtr Qtr Average 

FY 15 1.8 1.8 

FY 14 1.8 2.2 1.9 2.1 2.0 

FY 13 1.8 1.6 1.6 2.0 1.8 

FY 12 1.8 1.9 2.1 1.9 1.9 

Comments: 

•	 Examiners were open to dialogue in all areas prior to formulating conclusions. 

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

and helpful. 

Average Response: 1.9 

Statement 1st 2nd 3rd 4th FY 

8 Qtr Qtr Qtr Qtr Average 

FY 15 1.9 1.9 

FY 14 2.0 2.2 2.0 2.1 2.1 

FY 13 2.6 2.4 1.9 2.1 2.3 

FY 12 2.0 1.9 2.3 2.1 1.9 

Comments: 

•	 Guidance is readily available and helpful for most areas. 

•	 OE communications through informational Memorandums, bookletters, and other
 

correspondence is helpful.
 

Responses to Survey Items 9–11 

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

Comments: 

•	 Good communications and dialogue with [name withheld] and [name withheld]. 

•	 Professional appearance and conduct as well as open communication approach exhibited 

by all FCA staff members assigned to this institution's recent examination. 

•	 Open and clear communication with the EIC prior to and during the exam process. 

•	 Confirmation our controls are adequate. 

•	 Being able to ask questions during the exit meetings was helpful. 

•	 The overall communication process between management, the Board and the examiners 

was beneficial to the institution. Discussions about the focus areas of FCA and the 

challenges facing the institution and the System were also beneficial. 

•	 Exam for this year was best in years from an examiner in charge perspective. Clear 

communication and a willingness to understand local practices. 

March 26, 2015 5 
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Fourth Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions 

Regarding the Examination Function 

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

Comments: 

•	 Heavy focus on Standards of Conduct. 

•	 The time needed to devote to the overall examination can be burdensome. 

•	 Regulatory overreach. 

•	 Amount of time spent on low risk areas. 

•	 We are not aware of any areas that might be characterized as "least beneficial." We 

honestly did not identify areas of the examination that we considered unproductive. 

Survey Item 11:	 Please provide any comments from the Board as a whole regarding the 

examination process not provided in the preceding responses. 

Comments: 

•	 Comments from the Board as a whole reflect appreciation for depth of review in regards to 

the institution's policies and procedures as well as asset review. 

•	 The Board considered the overall examination to be informative, candid and helpful to our 

institution. 

•	 This survey was reviewed by the Board during its February 2015 meeting. The Board 

continues to be concerned about costs related to the FCA examination as annual costs to 

the institution go up every year. It seems the amount of resources used to complete the 

audit did not compare well with the level of benefits received. Reflecting over the years of 

Board experience, the number of audit exceptions which affected the institution's safety 

and soundness has been very low in comparison to the number of very technical 

suggestions for changes to policies and procedures. The Board routinely asks questions 

during the FCA exam presentations to the Board as to what the institution might consider 

doing differently to enhance the institution, basis the FCA's experience through 

examinations of other institutions, but has never received any suggestions. The FCA 

appears to be taking more of a micro-management approach than an auditing or regulator 

approach. During post-audit conversations between the Board and FCA, examiners have 

said that a high level of scrutiny will be applied in the next year due to a change in 

management, even though the management team in their new positions has significant 

experience and training and the institution spent several years specifically planning for the 

transition. In general, the FCA staff was professional while dealing with the Board. 

March 26, 2015 6