Credit Administration 

Office of Inspector General 

Farm Credit Administration 

Office of Inspector General 

Audit Report 

The Office of Secondary Market

Oversight’s Examination Policies

and Procedures 

A-21-01

September 24, 2021 
 

PCA0IG 

Farm Credit Administration 

Office of Inspector General 

September 24, 2021 

The Honorable Glen R. Smith, Board Chairman 

The Honorable Jeffery S. Hall, Board Member 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, Virginia 22102-5090 

Dear Chairman Smith and Board Member Hall: 

The Office of Inspector General (OIG) completed an audit of the Office of Secondary Market Oversight’s 

(OSMO) examination policies and procedures. The objective of this audit was to determine whether 

OSMO’s examination policies and procedures are documented and implemented. 

We found opportunities to improve OSMO’s policies and procedures to guide the areas unique 

to the Federal Agricultural Mortgage Corporation (Farmer Mac) examination and to document 

departures from the Farm Credit Administration Examination Manual. During our audit, we found 

that OSMO’s directives focused on the approval and planning of the annual Farmer Mac 

examination, the completion of the conflict of interest questionnaire, and other various items. 

However, the directives did not contain guidance on conducting the examination of Farmer Mac. 

The OIG also found that OSMO generally implemented the processes tested during the audit, 

despite a lack of formalized policies and procedures that uniquely apply to Farmer Mac 

examination work. OSMO conducted of the 2020 Farmer 

Mac examination and examiners assigned to OSMO generally completed the conflict of interest 

forms. However, the OIG identified a need for OSMO to strengthen internal controls and expand 

written guidance in order to improve the conflict of interest certification process. 

We made four recommendations to reduce risk and increase consistency in OSMO’s annual 

examination of Farmer Mac and improve the conflict of interest certification process. FCA agreed 

to the four recommendations and provided responsive corrective actions for each recommendation. 

Because of the actions initiated by OSMO over the course of the audit, we consider recommendations 

3 and 4 closed. 

We appreciate the courtesies and professionalism extended by FCA to our staff during the audit. If you 

have any questions about this audit, feel free to contact Christopher Coccaro or me, and we would be 

pleased to meet with you at your convenience. 

Respectfully, 

Sonya K. Cerne 

Assistant Inspector General for Audits, Inspections, and Evaluations 

1501 Farm Credit Drive, McLean, VA 22102 703-883-4030 www.fca.gov/about/inspector-general
 

EXECUTIVE SUMMARY 

Audit of the Office of Secondary Market Oversight’s 

Examination Policies and Procedures 

Report No. A-21-01 

Objective 

The objective of this audit was to 

determine whether OSMO’s examination 

policies and procedures are documented 

and implemented. 

Recommendations 

Based on our review, we made four 

recommendations to reduce risk and 

increase consistency in OSMO’s annual 

examination of Farmer Mac and improve 

the conflict of interest certification process: 

1. The Office of Inspector General

recommends the Office of Secondary

Market Oversight document those parts

of the Farm Credit Administration

Examination Manual that do not apply

to the examination of the Federal

Agricultural Mortgage Corporation.

2. The Office of Inspector General

recommends the Office of Secondary

Market Oversight document 

examination policies and procedures

unique to the examination of the

Federal Agricultural Mortgage 

Corporation.

3. The Office of Inspector General

recommends the Office of Secondary

Market Oversight expand the conflict of

interest guidance in Directive 3 to

require examiners to complete the

conflict of interest form before

engaging in examination activities.

4. The Office of Inspector General

recommends the Office of Secondary

Market Oversight develop internal

controls to ensure examiners complete

the conflict of interest form according to

guidance.

September 24, 2021 

The Farm Credit Administration (FCA or Agency) is an independent 

federal agency responsible for regulating, examining, and supervising

the Farm Credit System (System), including the Federal Agricultural 

Mortgage Corporation (Farmer Mac). The Agency ensures that all 

System institutions are safe, sound, and dependable sources of credit 

and related services for all creditworthy and eligible persons in 

agriculture and rural America. Farmer Mac is a government-sponsored

enterprise with the mission of providing a secondary market for

agricultural real estate mortgage loans, rural housing mortgage loans,

and rural utility cooperative loans. FCA’s Office of Secondary Market

Oversight (OSMO) has the responsibility for the examination and

supervision of Farmer Mac to ensure its safety and soundness. OSMO 

also ensures that Farmer Mac complies with applicable laws and 

regulations. 

The OIG found that OSMO had limited documented policies and

procedures for the areas unique to Farmer Mac examination work. To 

reduce risk and increase consistency in the examination process, the 

OIG identified a need for OSMO to document policies and procedures

to guide the areas unique to the Farmer Mac examination and to

document departures from the FCA Examination Manual. 

Despite a lack of formalized policies and procedures that uniquely apply 

to Farmer Mac examination work, the OIG found that OSMO generally 

implemented the processes tested during the audit. OSMO conducted 

the of the 2020 Farmer Mac 

exam MO generally completed the 

conflict of interest forms. However, to improve the conflict of interest

certification process, the OIG identified a need for OSMO to strengthen 

internal controls and expand written guidance. 

Over the course of this audit, OSMO began drafting and implementing 

written guidance for portions of its examination process and in July

2021 OSMO published two new directives and revisions to two existing 

directives. The recommendations made in this report, in conjunction 

with the changes made over the course of the audit, will enhance overall 

OSMO operations. 

ination and examiners assigned to OS
TABLE OF CONTENTS 

Acronyms ....................................................................................................................................... 1 

Background.................................................................................................................................... 1 

Audit Results.................................................................................................................................. 4 

Documentation of Examination Procedures.....................................................................................................4 

Contributing Factors and Significance...........................................................................................................7 

Recommendations 1-2 .............................................................................................................................................7 

Implementation of Examination Procedures....................................................................................................8 

Testing of .........................................................................................8 

Testing of Conflict of Interest Forms..............................................................................................................9 

Contributing Factor and Significance.......................................................................................................... 10 

Recommendations 3-4 .......................................................................................................................................... 11 

Management Comments ............................................................................................................ 12 

Objective, Scope, and Methodology ......................................................................................... 14 
-

ACRONYMS 

Agency or FCA Farm Credit Administration 

Farm Credit Act Farm Credit Act of 1971, as amended 

Farmer Mac Federal Agricultural Mortgage Corporation 

FIRS Financial Institution Rating System 

OE Office of Examination 

OIG Office of Inspector General 

OSMO Office of Secondary Market Oversight 

System Farm Credit System 

BACKGROUND 

Farm Credit Administration 

The Farm Credit Administration (FCA or Agency) is an independent federal agency responsible for 

regulating, examining, and supervising the Farm Credit System (System), including the Federal 

Agricultural Mortgage Corporation (Farmer Mac). The Agency ensures that all System institutions, 

are safe, sound, and dependable sources of credit and related services for all creditworthy and 

eligible persons in agriculture and rural America. 

Farmer Mac 

Farmer Mac was established by section 8.1 of the Farm Credit Act of 1971, as amended (Farm 

Credit Act).1 Farmer Mac is a government-sponsored enterprise with the mission of providing a 

secondary market2 for a variety of loans made to borrowers in rural America. This secondary 

market was designed to increase the availability of credit at competitive interest rates to America’s 

rural communities and agricultural sectors, as well as to provide borrowers with the benefits of 

capital markets pricing and product innovation.3 Farmer Mac conducts its secondary market 

activities through four lines of business: 

1 12 U.S.C. §2279aa-1. 2 Farmer Mac defines a secondary market as an economic arrangement in which the owners of financial assets, such as 

the originators of loans, may sell all or part of those assets or pay a fee to offset some or all of the inherent risks of 

holding the assets. 3 Farmer Mac Annual Report for Fiscal Year ending December 31, 2020 (SEC Form 10-k). 

1 
Farm and Ranch 

• Mortgage loans secured by first liens on agricultural real estate.

 

• Portions of loans that are guaranteed by the U.S. Department of

Agriculture under the Farm Service Agency and Rural Development

programs.

• Loans made by cooperative lenders to rural electric cooperatives (both

generation and transmission loans as well as electric distribution

cooperative loans) and telecommunication facilities.

• Farmer Mac's purchase or guarantee of general obligation bonds, known

as AgVantage securities, which are issued by lenders and other

institutions including financial funds.

FCA regulates Farmer Mac through the Office of Secondary Market Oversight (OSMO), which was 

established pursuant to the Food, Agriculture, Conservation, and Trade Act Amendments of 1991 

(Public Law 102-237). OSMO is responsible for the regulation, examination, and general 

supervision of Farmer Mac’s safe and sound performance of its powers, functions, and duties and 

the accomplishment of its public policy purpose as authorized by Congress. 

OSMO 

OSMO is currently staffed with a Director, two Associate Directors, one Senior Financial Risk 

Analyst, and an Assistant to the Director. OSMO supplements its full-time staff with employees 

from other FCA offices such as examiners, legal staff, and other specialists. There are two types of 

supplemental employees. The first type is a rotational assignment where the supplemental 

employee is realigned to OSMO.

4 The second type is an employee who joins the examination 

team for a limited period of time to conduct a portion of the examination before returning to their 

original offices. 

4 According to OSMO’s new Directive 6, “rotational assignments vary in length and may last up to 3 years.” 

2 

U.S. Department of Agriculture Guarantees 

Rural Utilities 

Institutional Credit 
Section 8.11(b)(1) and (2) of the Farm Credit Act requires FCA, acting through OSMO, to examine 

the financial transactions of Farmer Mac no less than once each year. In accordance with a riskbased examination approach, OSMO focuses its oversight efforts and resources on those areas

that could materially impact Farmer Mac’s safety and soundness. To evaluate the safety and 

soundness of Farmer Mac, OSMO uses the Financial Institution Rating System (FIRS). A composite 

rating is based on a qualitative and quantitative analysis of factors comprised of each of the 

following: Capital, Assets, Management, Earnings, Liquidity, and Sensitivity. Each area is rated on 

a scale of 1-5 with “1” indicating the strongest performance and management practices and “5” 

indicating an extremely high, immediate, or near-term probability of failure. OSMO issues 

Examination Activity Letters to Farmer Mac to communicate matters requiring attention for

interim examination activities and a Report of Examination at the end of each annual examination 

cycle. 

FCA Examination Manual 

FCA’s Office of Examination (OE) is responsible for programs of supervision, regulation, and 

examination of each System institution, except for Farmer Mac,

5 in accordance with the Farm 

Credit Act, and applicable regulations. OE Directive 15, “FCA Examination Manual Maintenance” 

provides that the FCA Examination Manual represents the primary source of guidance for 

conducting System institution examination activities. OE’s Examination Guidance Division 

oversees the FCA Examination Manual’s development and maintenance. While the FCA 

Examination Manual does not include specific references to Farmer Mac requirements, OSMO 

officials reported that staff performing the Farmer Mac examination follow the examination 

process established by OE and use the FCA Examination Manual as guidance for its examinations, 

where possible. 

Prior Reports 

In 2018, the Farm Credit Administration Office of Inspector General (OIG) issued an audit report, 

The Farm Credit Administration’s Office of Secondary Market Oversight (A-17-03). The 

objective of the audit was to assess the staffing arrangements and reporting process for OSMO. 

The OIG made three recommendations to OSMO: 

1. Revise OSMO Office Directive 3 to include the risks of specific conflicts of interest or 

bias from using examiners and other staff that also review, or provide services relating 

to, System associations and banks; 

2. Require independence documentation from rotational staff to mitigate the risks of 

conflicts of interest or impartiality concerns; and 

3. Create an office directive on the assessment process roles and responsibilities. 

5 While Farmer Mac is a System institution, OE is not responsible for the oversight of Farmer Mac. OSMO is responsible 

for the regulation, examination, and general supervision of Farmer Mac. 

3 
The OIG also recommended the Office of the Chief Financial Officer: 

4. Document the methodology and process used to calculate the Farmer Mac 

assessments to include: details on how the Agency arrives at direct, indirect, overhead, 

and blended rates; communicating quarterly reports showing charges against annual

Farmer Mac assessments to the OSMO Director for review and confirmation; and a 

method to clearly separate the costs of shared OSMO employees also performing FCA

work from the assessments to Farmer Mac. 

Lastly, the OIG recommended the Office of the Board: 

5. Document the reporting relationship between the OSMO Director and the FCA Board 

including delegations, supervisory relationships, and FCA Board oversight involvement 

of the OSMO Director. 

All recommendations were closed by June 2018. 

AUDIT RESULTS 

The objective of this audit was to determine whether OSMO’s examination policies and 

procedures are documented and implemented. The OIG found that OSMO had limited 

documented policies and procedures for the areas unique to Farmer Mac examination work. To 

reduce risk and increase consistency in the examination process, the OIG identified a need for 

OSMO to document policies and procedures to guide the areas unique to the Farmer Mac 

examination and to document departures from the FCA Examination Manual. 

Despite a lack of formalized policies and procedures that uniquely apply to Farmer Mac 

examination work, the OIG found that OSMO generally implemented the processes tested during 

the audit. OSMO conducted the of the 2020 Farmer Mac 

examination and examiners assigned to OSMO generally completed the conflict of interest forms. 

However, to improve the conflict of interest certification process, the OIG identified a need for 

OSMO to strengthen internal controls and expand written guidance. 

Documentation of Examination Procedures 

OSMO has limited documented examination policies and procedures that uniquely apply to 

Farmer Mac examination work. During the testing phase of this audit, OSMO had four internal 

directives which are noted in the chart below.

6 

 

6 OSMO updated Directives 1 and 3 in July 2021. Additionally, in July 2021, OSMO published two new directives:

Directive 5, “Quality Assurance Program” and Directive 6, “Rotational Opportunities.” 

4 
OSMO Directive 1, Approval of Examination Scope 

and Activity Plans, sets forth the parameters and 

responsibilities for approval of the planning that 

guides the annual examination and oversight of 

Farmer Mac. 

OSMO Directive 2, OSMO Enforcement 

Procedures, sets forth the OSMO procedures on 

the FCA enforcement authorities for Farmer Mac, 

or its directors, officers, or employees. 

OSMO Directive 3, Ethics for FCA Staff, sets forth 

the examiners’ most significant specific 

authorities, responsibilities, and limitations found 

in the Farm Credit Act, the regulations, and the 

body of ethics laws and rules applicable to all 

executive branch employees. 

OSMO Directive 4, Farmer Mac Assessment 

Procedures sets forth the OSMO procedures on 

the FCA financial assessment authorities for 

Farmer Mac. 

During our audit we found that OSMO’s directives focused on the approval and planning of the 

annual Farmer Mac examination, the completion of the conflict of interest questionnaire, and 

other various items. However, the directives did not contain guidance on conducting the 

examination of Farmer Mac. Over the course of this audit, OSMO began drafting and 

implementing written guidance for portions of its examination process. As an example, OSMO

previously did not have a documented process for its quality assurance review. OSMO officials 

explained that OSMO relied on OE to conduct its quality assurance reviews. The officials explained 

that the newly hired Assistant to the OSMO Director will perform the quality assurance review 

beginning with the 2021 examination.7 OSMO published a directive outlining this new quality 

assurance process in July 2021. 

According to OSMO officials, staff performing the Farmer Mac examination follow the examination 

process established by OE and use the FCA Examination Manual as guidance for Farmer Mac 

examinations, as applicable. The FCA Examination Manual contains procedures and guidance for 

examining System institutions. The Examination Manual cannot cover all potential examination 

areas, but aims to provide examiners a base of procedures, criteria, and guidance to promote

examination quality and consistency. However, the FCA Examination Manual is maintained by OE 

and does not specifically address areas unique to Farmer Mac. 

We identified the following two areas of concern when using the FCA Examination Manual for 

Farmer Mac examinations without further written OSMO guidance. First, there are sections in the 

Examination Manual containing steps or references not applicable to Farmer Mac, and second, 

the Examination Manual does not include examination procedures specific to OSMO. 

7 The Assistant to the Director is also performing quality assurance reviews on interim examination activity letters 

associated with the 2021 Farmer Mac examination. 

5 
For example, the FCA Examination Manual references standards of conduct rules for System

Institutions8 but does not reference the FCA Standards of Conduct regulations for Farmer Mac.

9 

Thus, examiners relying on the FCA Examination Manual to review Farmer Mac’s compliance with 

Standards of Conduct regulations would be led to incorrect regulations.

10 Because OSMO 

examiners are relying, in part, on the FCA Examination Manual to conduct the examination of

Farmer Mac, there needs to be clear guidance on which areas of the manual do not apply to 

Farmer Mac. 

Secondly, there are times when examiners are unable to follow the OE process because Farmer 

Mac’s business model differs from System banks and associations. Specifically, certain aspects of 

Farmer Mac’s are unique. For such unique areas, OSMO needs to 

develop uniform, written policies and procedures. The following examples identify review areas 

unique to the OSMO examination process that are not addressed in the FCA Examination Manual. 

•

•

These examples illustrate the concerns in relying on the FCA Examination Manual without 

documenting the differences for the Farmer Mac examination process. However, these examples 

are not all inclusive of the OSMO examination process. To ensure that the OSMO examination 

process is accurate and consistent, OSMO needs to document the following: (1) its reliance on the 

FCA Examination Manual, (2) those areas of the FCA Examination Manual not applicable to Farmer 

Mac, and (3) the OSMO examination steps not addressed in the FCA Examination Manual. 

8 Examination Manual at § 31.1-13, “[Standards of Conduct] SOC Policy & Procedure.” 

9 The OIG reviewed the FCA regulations referenced in the FCA Examination Manual Section 31.1-13, “[Standards of 

Conduct] SOC Policy & Procedure,” and determined that they do not apply to Farmer Mac. 

10 The Farmer Mac Standards of Conduct regulations at 12 C.F.R. §§ 651.22-.24 are not referenced in the FCA Examination 

Manual. 

6 
Contributing Factors and Significance 

There are several contributing factors to the areas for improvement relating to OSMO’s 

examination policies and procedures that uniquely apply to Farmer Mac examination work. OSMO 

relies on the experience of examiners understanding the examination process. An OSMO official 

explained that the examiners who rotate to OSMO are high-performing, seasoned examiners.

OSMO focuses its rotational examiner training on how the System uses Farmer Mac products, the 

responsibilities of OSMO, and the similarities between OSMO supervision of Farmer Mac and OE’s

supervision of other System institutions. The training materials we reviewed did not highlight the 

differences between the OE examination process and the OSMO examination process. However, 

an OSMO official stated that by explaining Farmer Mac’s unique operations in the training, the 

examiners understand how the examination process needs to be different for Farmer Mac. 

While we are not questioning the performance of the seasoned examiners used by OSMO, 

documenting the examination process is an important control for an office with such a crucial 

mission. OSMO risks issues with inaccuracy and inconsistency by not having a fully documented 

examination process. These risks are made even greater by the fact that OSMO largely relies on a 

rotational staff of examiners to conduct the Farmer Mac annual examination. Overall, these risks 

can potentially affect the quality and reliability of the examination process in OSMO from year to 

year. 

Another factor to consider is OSMO’s small size. With a permanent staff of only five full-time 

employees, OSMO may lack the resources to complete and maintain a separate Examination 

Manual. 

Over the course of this audit, OSMO began drafting and implementing written guidance for 

portions of its examination process. Specifically, in July 2021, OSMO published two new directives 

and revisions to two existing directives. Directive 5 outlines OSMO’s quality assurance program 

while Directive 6 outlines OSMO’s policy on rotational employees. Revisions to Directive 1 expand 

the previous version by setting forth the operating procedures that guide the annual examination 

of Farmer Mac. Additionally, revisions to Directive 3 expand on the conflict of interest process. 

Finally, in an effort to standardize practices amongst examination teams, OSMO recently 

developed and began using templates for its examination activities. 

Recommendations 1-2 

To reduce risk and increase consistency in its examination of Farmer Mac, the OIG makes the 

following recommendations: 

1. The Office of Inspector General recommends the Office of Secondary Market Oversight 

document those parts of the Farm Credit Administration Examination Manual that do not 

apply to the examination of the Federal Agricultural Mortgage Corporation. 

7 
2. The Office of Inspector General recommends the Office of Secondary Market Oversight 

document examination policies and procedures unique to the examination of the Federal 

Agricultural Mortgage Corporation. 

FCA Response

The Agency agreed with recommendations 1 and 2. The Director of OSMO stated a detailed 

reference document will be created for examination staff that will include regulations that are 

applicable to Farmer Mac. Additionally, OSMO created a Farmer Mac Supplemental Examination 

Guidance and Procedures Development Plan, which establishes expectations and timelines for 

creating Farmer Mac examination guidance. 

OIG Response

The OIG finds the actions responsive to our recommendations. OSMO’s response can be found in 

the Management Comments section of this report. 

Implementation of Examination Procedures 

While the OIG found that OSMO had limited documented policies and procedures, our review of 

certain unique examination activities found that OSMO generally implemented its examination 

processes. Specifically, OSMO conducted the unique of the 

2020 Farmer Mac examination despite a lack of formal policies and procedures for such reviews. 

Additionally, examiners assigned to the Farmer Mac examination generally completed the conflict 

of interest forms required by OSMO Directive 3. However, we found opportunities to improve the 

conflict of interest certification process by strengthening internal controls and expanding written 

guidance. 

Testing of 

Although OSMO did not have formal policies and procedures for the loan review process, the OIG

reviewed selected OSMO workpapers and determined that examiners completed the aspects of

the unique to Farmer Mac. 

OSMO assigned an asset team lead for the annual examination who was responsible for providing 

guidance for the loan review. An OSMO official explained that for the 2020 examination, the asset 

lead had a pre-examination team meeting with the examiners conducting the loan review during

which they conducted a walk-through of the loan review workpaper. This walk-through was 

important because examiners normally conduct a loan review using a standard workpaper,

whereas in OSMO, there is no standard workpaper. Additionally, for the 2020 examination, the 

asset lead developed and provided examiners with detailed, written guidance for conducting the 

loan review. 

The guidance explains that the objective of the loan review is 

The guidance provides examiners with details on how to access the information and 

the criteria used during the examination. Additionally, the guidance describes the loan sample 

8 
(including how to access the sample) and provides an overview of the

However, this guidance came directly from the asset lead and was 

not part of OSMO formal policies and procedures. Additionally, because asset leads frequently 

change for the examination, there is no assurance that subsequent asset leads will provide the 

same guidance. 

The OIG reviewed the of the 2020 examination and the 

corresponding workpapers in order to test whether OSMO implemented the guidance. 

•

The OIG reviewed 

OSMO’s internal working papers and found the analysis that supported this observation. 

•

The OIG reviewed OSMO’s internal working papers 

and found the analysis that supported the observations 

The OIG reviewed 

OSMO’s internal working papers and found the analysis that supported this observation. 

Testing of Conflict of Interest Forms 

The OIG also tested OSMO’s implementation of its policies and procedures related to the 

examiner conflict of interest certification process. We found that OSMO implemented a process 

to maintain documentation supporting the questionnaire’s completion by examination staff. 

However, we identified opportunities to improve the conflict of interest process by strengthening 

internal controls and expanding written guidance. 

As a result of the 2018 OIG audit, OSMO revised Directive 3, Ethics for FCA Staff, and developed a 

conflict of interest questionnaire for examination staff. OSMO Directive 3 requires individuals 

working on rotational assignments and FCA examiners assigned to the annual Farmer Mac 

examination to annually sign OSMO’s Conflict of Interest Questionnaire.13 OSMO established an 

internal site for the completed forms for the years we reviewed (2019, 2020, and 2021 to date). 

To determine whether individuals working on rotational assignments and FCA examiners assigned 

to the Farmer Mac examination signed OSMO’s conflict of interest form, the OIG compared the 

13 Full-time OSMO employees are not required to complete the conflict of interest form because they do not have 

involvement with System banks or associations. 

9 
Farmer Mac examination participation list for the 2019, 2020, and 2021 examinations with the 

conflict of interest forms retained by OSMO. The OIG found that: 

• For 2019, 4 out of 23 individuals did not complete a conflict of interest form. 

• For 2020, 4 out of 23 individuals did not complete a conflict of interest form. 

• For 2021, 814 out of 17 individuals did not complete a conflict of interest form. According 

to Directive 3, these individuals are required to annually complete the form and thus have 

until December 31, 2021 to meet the annual requirement. However, completing the form 

after performing Farmer Mac examination work defeats the purpose of the form, which is 

to identify (and consequently eliminate or mitigate) any conflicts of interest an examiner 

may have as a result of their examination work with System banks and associations.

15 

Based on our testing, the controls over the process for completing and verifying the forms could 

be improved. While OSMO established an internal site for storing the forms, there were insufficient 

controls to ensure that examiners were completing the form as required. In addition, there were 

inconsistencies in the timing of completing the form, which as noted above, undermines the 

purpose of the form. 

Contributing Factor and Significance 

The contributing factor to the noted weaknesses is that OSMO guidance is mostly silent on the 

process for completing and approving the conflict of interest form. According to Directive 3, the 

Associate Director for Examination and Supervision will work with the Examiner-in-Charge and 

Assistant Examiner-in-Charge as needed to obtain the signatures on the form and the form will 

be filed on an internal drive for verification purposes. However, the directive does not describe 

the process for completing the conflict of interest form or outline any internal controls to ensure 

when and if examiners have completed the form. 

Examiners should complete the conflict of interest form before engaging in work for OSMO to 

certify that they can and will remain impartial when engaging in OSMO matters. Additionally, 

specifying when examiners should complete the form will help OSMO management ensure 

examiners complete the form as required. 

As a result of this audit, OSMO changed Directive 3 to include specific information on how and 

when examiners must complete the conflict of interest form. The update expands the requirement 

for completing a conflict of interest form to include non-examiner employees assigned to Farmer 

Mac examination activities. The update states that each examination participant must complete 

the form before commencing any examination work and that, at least semi-annually, the Associate 

14 During the audit, OSMO provided additional documentation that showed 3 of the 8 individuals had not yet started 

performing Farmer Mac examination work even though they were on the 2021 examination participation list. 15 Section 8.11(f)(2) of the Farm Credit Act provides that the FCA Board shall ensure that “the supervision of the powers, 

functions, and duties, of the Corporation [Farmer Mac] is performed, to the extent practicable, by personnel who are 

not responsible for the supervision of the banks and associations of the Farm Credit System.” 

10 
Director for Examination and Supervision will verify that examiners have completed the conflict of 

interest form in compliance with the directive. 

Recommendations 3-4 

To improve the conflict of interest certification process, the OIG makes the following 

recommendations: 

3. The Office of Inspector General recommends the Office of Secondary Market Oversight 

expand the conflict of interest guidance in Directive 3 to require examiners to complete 

the conflict of interest form before engaging in examination activities. 

4. The Office of Inspector General recommends the Office of Secondary Market Oversight

develop internal controls to ensure examiners complete the conflict of interest form 

according to guidance. 

FCA Response

The Agency agreed with recommendations 3 and 4. The Director of OSMO stated that OSMO 

revised Directive 3 to require each examination participant complete the conflict of interest form 

before commencing examination work. Additionally, Directive 3 now requires that the Associate

Director for Examination and Supervision verify that questionnaire forms are completed. 

OIG Response 

The OIG finds the actions responsive to our recommendations. Due to the corrective actions 

implemented over the course of our audit, we consider recommendations 3 and 4 closed. 

OSMO’s responses to the recommendations can be found in the Management Comments section 

of this report. The OIG held an exit conference with OSMO personnel on September 10, 2021. 

11 
.andum Farm Cred'i Ad'ministration 

15<Jr:ll Fann Credi [hive 

Md..ean, VA 2'2.:ll02-50'.90 

(703) 883-4000 

To: 

FliOITI: 

Subj ect: 

Sony a Ceme, Assislta ,t [r1Specto:1r G'e1"1era'I fu1· Audits, [nspecti:ons,, a d 

Eval111 a'ltiolils 

Office of S eco cllarry Ma,rk.elt Overrsi, t's R,espolils.e Ito 0 1:G's d riaft a It rreport 

1rn:led A rli lt of the Office of Seooncllarry Marke Overrsi',ght's. Exami aU011J l>ol'icies 

art1 d P,rnocedl.lTes 

Thiis me morandum respmlds flto ti-le draft a rli lt re:piOlt from U:ire Office of U:ire lnspecto · 

General (OlG),. dated August 31., ~021., "Hed A~~ of the OHic;e of Secondary Madrat 

Overnght:'s (OSMOJ1 & amine.tiwi Polities an d P;,-r,Joedr.ues, The stated obj ecti'llle of tli!e audilt 

was flto dete,rmi e "'' ' etherr OSMO's exa m i altion poaid es a!iid p.m ~ s a,-e clocu mel!il'lbe;d 

am:I impLleniJe . ed. 

The draft aud 1,;eporl i li1CI rles. fou · 11-eoonJlillelllcllaUo s to, im -ove 00.MO's exam ·lilatiO:lil 

po des and p1rocedw11res. OSIMO agrees "'nlth OIG's raoommeru:la'lti:ons,, and 01111" plalilS and 

artiofils. t o addlieSs each reco.mmendatio.llil ai-e detarled belo""". 

Recm:nme1r1da' iOl!I # 1 : The Offil!le of ln:sperto · Gen et·a 1-ec:omme , ds flt , e Office of 

.Se,oo , dar·y Ma i-kel Ove 1-s.igh cloclllm:enlt those parts of flthe FCA Eliram " atio , Ma u a I thalt do 

ndlt apply m llthe Fai-mei- Mac eoca i altio , 

OSMO Resoort1 s.e: 00 0 agrrees to, impfet111et1 this rrec:ommenda · Iii, Followirt1g the 

c:omllill "catiol"I o this. 1-e.co:m el!ildatio:n, 11<1e ~an flto: do:o m em those pa1,1ts of the FC:A. 

Examinalti:on, Ma iral fltlhat do not a pl)y to ' e Fa1rm e1r Mac exa ·natio:n. '{e ,na to, 

accomp1isl:ii thriS by craa. ·ng a detai'led 1-e ei-eliJC,e doc:u E!ll forr exam·na. ·,,m staff t o, . "lize 

"''li!rle p;arlicip:a ·llilg i.n fltli!e Farmer 1!ac: ecleam i a'ltion1; flt is doc:u ent 1•.11'11 i llilc d e 1-eg1.11~ • 1"15 

fltlriat a ·ea plk able ito, Fa1rm e1r Mac fo~ exam· ei· i-eferenc:e. 

Recm:nmenda' iOl!I #2: The Offil!le of Jnspecbol· Gene.-a reco:mme , ds lltlhe Office of 

Secort1da1ry Ma i-kelt Ove1-s.igh clocume m examinatiol"I po~icies a cl prro c:edui-es. unique to il:he 

FalTllet· Mac exami'na ·on. 

OSMO R,espons.e: OS ,0 agrrees to, im ,E!flllE!ll this. rrecommenda'tion. ·11,e lRCA. Examin,a ·:on, 

Mal"lual d i1-ects s taff to: apply eoca i ei- j,udgrnet1 a cl disoret:io.lil 'lllrien perrm rm·ng 

procedu,nes,, raga -clles:s of time ililStili:ution. Accorningly, OS , o "liz.es lriizjlllly trai ed 

examillilerrs and oli: , 121· FQl!f; staff "''i:t:h s,pecia raecl s ·11 se.lts llbo co:mple!i:e exam·na. ·o:n '-''Dirk on 

MANAGEMENT COMMENTS 

12 
rn · Mac,. alild they a -e• fa m ilitar lii:lra the need to, tarlorr e-xa · ina li:iollil pn icedurres Ito each 

indliv i I inst:il:ul:iollil. Ho 11eve1·, ther·e are s ituations. ,-.1here th e• IFa1m e1· Mac exam·llilation is 

1.m·que d suppleme tlta g ·aance• is ,-.1arrranted. We· h ave c 1·e.al:ed a Falfllillerr 1lac 

Supplem ental Exami ,a ·.an G1.11tda .ce· al!ild IProc.edu1·es Dev er.o m ellill: PllaJl\, .-.,hich ,establishes 

ex;ped:ations and t im in es fo1- crreal i'ng guid an ce. Su~quen to, the devefopmen and 

2 

impf.E!ITlen.ration o · idanoe forr the c1ri' · cal a -eas .-.•e icl.e11i:ified, .-.·e 1o-1ill oon ··nue main. enarlce• 

and devef-op · en; of s1111pplem elfilt al pto ceduFes going fo1w arrdl. 

Recornmemda.'tiOfil #3-: The• Office o Inspector Ge1i1e1-al rec:ommetmds. th.e• Office of 

Secolildary Ma rket Oltersi gh e-x;pan d the• conflict of i lilt -est guidance• i llil OS ,1.0 Dirrecti\i\e 3 ·Ito 

rrequi ·,e exarninerrs COfl'lJl ete the cord l ict of interrest forrm ben:in ~• elilgaging ilil OSMO 

examilfilatiollil ad:iv t · es. 

OSMO R,esoolilse: OSMO impr.emernted t is 1,ecomm elildation by fillilalizing updates. 

irrect'i\i\e .3 : Ethics. fo1· Staff on J1111 ly 21, 2i021.. The irrecti\i\e 1o-1as rev i1Sed to, inc 

·foUowing: "The fo1m must be comp leted by each examinatiolil participant p1iorr o 

commerndng any ,examirla ·on 1o-rori<.,.. 

o OS1 0 

the 

Recommerula.'tiOfil #-4: The• Office o th.e• lnspecto1· Gelileral 1-ecommelildls. the Office of 

Seco11i1da1y Ma rkel: Overs igh de\i\efop internal contrnlls Ito ensure exami ers compl ete• the· 

col!ilHid of interresl: fonn a=rrdling fo OS O guidarnce. 

OSMO Rie§P?nse: OSND impr.emernli:ed t is 11ECOmmendatiolil by eilqliall'lding OSMO Di1ced:ive· 

J : Ethics fo1· staff-to establ isl, inteJ"rlal cont ro ls to, ensurre exami ners complete ·the oonfl d: o · 

inti: ·est forrm according fo OSMO guid,mce. The l"E!Visedl directirVe• states that i:lhe exam·nerin-dmarrge arnl assista t exami et~illil-charge· sh.01.11 f- fol low up all examination 

pa1-l:icipa ts to, ens1.11 rre they complete• the· fo1m befot-e begimmirlg Ith -.,.. exa · im1i:iollil 

assign en ts. Also, a least semi-annually, the Associate• Di1-ed:ot· forr Examirla ·:on a rnl 

Superviis.iollil ,-,srll ve1ify th at questionlilai1-e• fotrns ane complelbed in compl" rlce• with 'It is 

di l'ed ive,. 

Thank you fo1· tile oppC1b.mfty to, 1-espornl Ito the OIG's. find·ngs and rrecommemla ·;ons 

rrella eel to OS O's. e~m-lilatiollil po l'ides an d procedurres. 

13 
OBJECTIVE, SCOPE, AND METHODOLOGY 

The objective of this audit was to determine whether OSMO’s examination policies and 

procedures are documented and implemented. We remotely performed this audit from 

February 2021 through September 2021. The scope of this audit was limited to OSMO’s policies 

and procedures for conducting examinations. 

We performed the following steps to accomplish the audit objective: 

• Identified and reviewed related laws, regulations, and Agency policies and procedures 

related to Farmer Mac; 

• Evaluated prior reviews and corrective actions; 

• Interviewed OSMO leadership, staff, and selected examiners from the current and previous 

examination teams; 

• Identified significant internal control processes and determined if they are operating 

effectively and efficiently; 

• Reviewed and analyzed materials from the 2021 OSMO training for rotational examiners; 

• Retrieved conflict of interest forms from OSMO’s internal drive and compared the forms 

with a list of examination team members for the 2019, 2020, and 2021 examinations; 

• Tested a judgmental sample of findings in the 2020 Report of Examination to determine 

whether OSMO implemented examination steps. The sample was based on criteria unique 

to Farmer Mac and limited to of the 2020 

examination. We reviewed selected OSMO workpapers to determine if examiners 

completed the unique to 

Farmer Mac. However, we limited our testing to verifying the completion of work in this 

area and did not verify examination results. Accordingly, we did not make an independent 

determination on the examination findings or conclusions. Because this sample was 

judgmental, it cannot be projected to the population; 

• Reviewed OSMO draft directives and templates; and 

• Assessed fraud risks relevant to the objective. 

We conducted this audit in accordance with Generally Accepted Government Auditing Standards. 

Those standards require that we plan and perform the audit to obtain sufficient, appropriate

evidence to provide a reasonable basis for our findings and conclusions based on our audit 

14 
objective. We believe that the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objective. 

We reviewed internal controls identified as significant to the audit objective and did not identify 

any material control weaknesses. Because our review was limited, it would not necessarily have 

disclosed all internal control deficiencies that may have existed at the time of our audit. We also 

assessed the data relevant to our audit objective and determined that the data was sufficiently 

reliable. 

We considered the risk of fraud and abuse during our audit and nothing came to our attention to 

indicate fraud or abuse was occurring. 

15 
.A 

Farm Cr dit Admini tration 

Offic of In pector General 

REPORT FRAUD, WASTE, ABUSE, & 

MISMANAGEMENT: 

Phone: (800) 437-7322 (Toll-Free)

(703) 883-4316 

Fax: (703) 883-4059 

Email: fca-ig-hotline@rcn.com 

Mail: 1501 Farm Credit Drive 

McLean, VA 22102-5090 

To learn more about reporting wrongdoing to the OIG, please visit our

website at https://www.fca.gov/about/inspector-general.