OFFICE OF 

INSPECTOR GENERAL 

Survey Report 

Survey of 

Farm Credit System Institutions 

Regarding the Agency’s 

Examination Function

Third Quarter 

Fiscal Year 2016 

(April 1 ‐ June 30, 2016) 

Issued September 7, 2016 

FARM CREDIT ADMINISTRATION 
Office of Inspector General’s Survey of Farm Credit System Institutions

Regarding the Agency’s Examination Function

Third Quarter of Fiscal Year 2016 Summary Report

(April 1 – June 30, 2016) 

Introduction

During the period April 1 – June 30, 2016, the Office of Examination identified thirteen Farm Credit System 

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

The Office of Inspector General (OIG) sent surveys to those institutions on July 25, 2016. Eleven of the 

thirteen institutions surveyed submitted completed surveys (85% 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 Fiscal Year (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 2016 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 

Does Not Apply (not included in averages) 6 

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 – Third Quarter FY 2016 

Average numerical responses to survey statements 1–8 ranged from 1.6 to 2.2 for the third quarter. 

Average Numerical Response Range to Survey Statements 1–8

3rd Quarter FY15 2nd Quarter FY16 1st Quarter FY16 4th Quarter FY15

1.6 – 2.2 1.5 – 2.2 1.5 – 2.1 1.5 – 2.3 

The average numerical response for all survey statements was 1.9 for the third quarter. 

Average Numerical Response for all Survey Statements

3rd Quarter FY15 2nd Quarter FY16 1st Quarter FY16 4th Quarter FY15

1.9 1.9 1.8 1.9 

In this quarter, there were more positive than negative narrative comments to survey statements 1–8. 

(Perceived negative comments of any degree are color coded in maroon.)
Third Quarter FY 2016 OIG Summary Report on the Survey of FCS Institutions

Regarding the Examination Function

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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. 

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: 1.9 

Comments:

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

• Examination efforts appropriately addressed organizational risk issues and understanding the 

institution’s enterprise risk management approach to identify, monitor and manage risks in 

consideration of risk appetite. Further, there was increased examination attention on loan review 

and internal controls. With loan review, the scope was comprehensive and inclusive of portfolio 

concentration risk areas, and loans in the industries experiencing stress. The examination of 

internal controls assured an initial understanding of the institution's system of internal controls, 

and then completed a more detailed review in various areas (e.g., internal review and audit, 

delegations of authority, loan disbursements, etc.). 

• The scope of examination activities at the institution appeared to be comprehensive and 

appropriately considered the risks within and facing the organization. The institution has made a 

considerable investment to develop and maintain a strong control environment and we believe 

the FCA's examination focus should continue to evolve to be risk and controls based as opposed to 

substantive testing. Additionally, during the last review cycle, the examiners appeared to increase 

their leverage of the work performed by the institution's 2nd and 3rd lines of defense to better 

understand risks within the organization and the underlying control environments prior to 

developing their review plans. 

• On a positive note there seemed to be more focus on credit in this exam where most of the risk is 

found. However, time spent on some exam activities was excessive given the size of our 

institution.

• The focus on delegated authority transactions and score card overrides was appropriate. 

Functions performed by another institution (e.g. Treasury functions) may be more appropriately 

covered within the scope of that institution’s examination.

Statement

1 

1st

Qtr

2nd

Qtr

3rd 

Qtr

4th

Qtr

FY 

Average

FY 16 1.6 1.8 1.9 1.8 

FY 15 2.4 1.8 1.9 1.9 2.0

FY 14 2.0 2.2 2.4 1.9 2.1

FY 13 2.0 1.7 1.9 2.0 1.9
Third Quarter FY 2016 OIG Summary Report on the Survey of FCS Institutions

Regarding the Examination Function

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

examination findings and conclusions.

Average Response: 2.1

Comments:

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

• Examiners demonstrated a sound understanding of laws and regulations, and measured these 

against institution policies, procedures and practices. Examination findings and conclusions were 

complete and accurate. 

• Completely agree. 

• First of all we wish to acknowledge our EIC because she tried as much as possible to bring a 

balanced view to the discussions that are the subject of this comment. Our critique is concerning 

one particular examiner. He has many years of experience, but in our view was overly prescriptive 

in areas beyond the jurisdiction of an examiner and was reckless with one comment. Specifically, 

during on-site exam activity in discussion with the CCO, he criticized our repayment capacity 

underwriting standard and commented that FCA might have to place us under a supervisory 

agreement if we did not change the standard. (This standard had been in effect for years and 

stood the test of other examinations without comment.) Additionally, the same examiner was 

critical of our concentration risk policy and the institution’s single exposure limit methodology 

(more on this later in the survey).

• Some of the examiners interpretations of the regulations were not the same interpretations 

previously discussed with FCA examiners. A procedure that followed the Whistleblower guidance 

from July 2015 was not acceptable to the reviewers and an enhancement became a required 

action. UCS classifications other than Acceptable focused on the loss history of the member rather 

than considering all the credit factors as outlined in the definitions. 

Statement 

2 

1st

Qtr

2nd

Qtr

3rd 

Qtr

4th

Qtr

FY 

Average

FY 16 1.9 1.8 2.1 1.9

FY 15 2.0 1.7 1.5 1.8 1.8 

FY 14 1.8 2.1 1.9 1.8 1.9

FY 13 1.9 1.6 1.8 2.3 1.9

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

Comments:

• The recommendations were appropriate and reasonable. 

• Management and the Board agreed with the recommendations presented in the report to the 

Board of Directors. 

Statement 

3 

1st

Qtr

2nd

Qtr

3rd 

Qtr

4th

Qtr

FY

Average

FY 16 2.1 2.2 2.1 2.1 

FY 15 2.1 1.8 2.0 2.3 2.1

FY 14 1.7 2.0 2.1 2.1 2.0

FY 13 2.0 2.0 1.8 2.2 2.0
Third Quarter FY 2016 OIG Summary Report on the Survey of FCS Institutions

Regarding the Examination Function

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• The FCA interacted frequently with the Audit Committee Chairman through the various reviews 

and presented their results in the Board Meeting. We viewed the results as favorable and felt that 

the related discussions were valuable in the development of our understanding of the related 

risks. In 2015 through 2016, we saw increased collaboration between the institution and the FCA 

regarding the management of difficulties in the areas of internal control and standards of conduct 

and view this as a very effective and efficient process to address the related risks and in the 

development of remediation plans and actions. 

• It was a required action that the board "define an absolute single borrower exposure limit to fully 

comply with FCA regulation." This limit would presumably apply to loans exceeding the board 

approved internal hold maximum, but less than the legal lending limit. For years FCA has been 

satisfied with our practice of approving such loans through our employee Senior Loan Committee 

and then post approval reporting to the board. The concern of the board is that FCA is mandating 

by regulation their involvement in the loan approval process and the board does not believe it is 

their role to approve individual loan transactions. 

• A few actions assisted with addressing the associated risks, however, the remaining actions were 

not associated with significant risks to the institution. After the onsite reviews it became apparent 

that someone at FCA, who had not been onsite or had any communication with management, was 

having significant input on the outcome of the review. The understandings between management 

and the FCA team leaders changed after what we believed were the final discussions. 

• Recommendations at times are generic. For example...Management should enhance controls to 

ensure proper credit analyses. Credit analysis is a fairly comprehensive area, making it difficult to 

know where enhancements are needed. 

Survey Statement 4: The examiners were professional and efficiently conducted examination activities.

Average Response: 1.8

Comments:

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

• The Senior Portfolio Manager and Examiner in Charge conducted the on-and off-site examination 

activities in an effective and professional manner. In addition, challenges that occurred during the 

examination due to health issues of the EIC were handled well, especially in communication with 

the institution’s Chief Risk Officer, and also in the handing-off of oversight responsibilities to other 

qualified examiners. 

• The institution was assigned a new EIC for the 2015/2016 examination cycle that was able to 

quickly step in to support the various reviews. He established a very professional, productive and 

effective arms-length working relationship with the institution. Additionally, the FCA deployed 

skilled resources with a breadth of backgrounds (credit, technology, operations risk, assurance, 

etc.) that were able to effectively and efficiently evaluate the risks within the organization. 

Statement

4 

1st

Qtr

2nd

Qtr

3rd 

Qtr

4th

Qtr FY Average

FY 16 1.5 1.5 1.8 1.6 

FY 15 1.5 1.6 1.9 1.5 1.6

FY 14 1.4 2.2 1.8 1.6 1.8

FY 13 1.5 1.3 1.4 2.0 1.6
Third Quarter FY 2016 OIG Summary Report on the Survey of FCS Institutions

Regarding the Examination Function

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• We only took issue with one examiner, other than him the exam team was professional and 

effective. 

• Most examiners were professional, however, a few became overly resistant to management’s 

point of view during some discussions. The new examiners' inexperience with general agricultural 

practices and terminology created inefficiencies for everyone involved. Recommend additional 

education in the area of general agriculture and agricultural finance for FCA examiners. 

• The EIC was late to our board meeting by 15 minutes to give the final report. 

COMMUNICATIONS

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

clear, accurate, and timely.

Average Response: 1.8 

Comments:

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

• Overall communications were timely and effective, as noted in (4) above. However, the review of 

internal controls involved off-site examination activities which led to back and forth emails 

between institution staff and the examiner. That approach can lead to misinterpretation by either 

party, so it is important that phone calls be held before the email request and/or after the 

response, ensuring a correct understanding. 

• Very good communications with the FCA staff. 

• Communications between the FCA and the institution's staff and board were clear, accurate and 

timely. Additionally, the Chief Risk Officer and the EIC have scheduled regular monthly update 

calls and the FCA examiners meet quarterly with the institution's Strategic Relations Division 

staff. These timely communications have proved to be very effective. 

• The office of examination staff were not timely in their communications with the institution after 

being onsite. Communication with the institution was not clear or accurate in a few examination 

areas. 

• Examination activities aligned with communicated scope. FCA staff was sufficiently responsive in 

communications with institution staff. 

Statement

5 

1st

Qtr

2nd

Qtr

3rd 

Qtr 4th Qtr FY Average

FY 16 1.8 1.7 1.8 1.8

FY 15 1.5 2.0 1.7 1.8 1.8 

FY 14 1.6 2.2 2.0 1.7 1.9

FY 13 1.9 1.5 1.4 2.1 1.7
Third Quarter FY 2016 OIG Summary Report on the Survey of FCS Institutions

Regarding the Examination Function

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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: 1.6 

Comments:

• Communications were both informative and helpful. 

• Board and Audit Committee communication was limited to the presentation of the Report of 

Examination and the subsequent executive session. Both of these provided institution directors 

good opportunity to engage in discussion on examination activities and conclusions, as well as to 

ask clarifying questions. It would be helpful to the audit committee to have some time with the 

examiners. 

• The FCA provided complete and detailed communications in the form of ongoing verbal updates 

and through the written final Report of Examination. 

• Level of communication associated with examination activities was satisfactory. 

• Both the report and the read out with the Board were valuable. 

Statement 

6 

1st

Qtr

2nd

Qtr

3rd 

Qtr

4th

Qtr

FY 

Average

FY 16 1.7 1.7 1.6 1.7

FY 15 2.0 1.8 1.7 1.9 1.9

FY 14 2.1 2.2 1.8 1.9 2.0

FY 13 1.7 1.6 1.6 1.9 1.7

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

management in formulating conclusions and recommendations.

Average Response: 1.9

Comments:

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

• Discussion with institution management (and staff) were held throughout the examination 

process, and contributed to an accurate and fair assessment of institution operations and 

performance. In addition, from these discussions, it was clear that examiners gained an 

understanding of institution operations and processes, and also of management's perspective 

regarding the issue or question raised. 

• Board of directors had minimal views or responses for the examiners to consider in formulating 

their conclusions and recommendations. Exam team and EIC had significant discussions with 

management as appropriate before finalizing recommendations. 

• In most areas after extensive discussions the examiners considered the views of management. 

Statement

7 

1st

Qtr

2nd

Qtr

3rd 

Qtr

4th

Qtr

FY 

Average

FY 16 1.9 1.8 1.9 1.9

FY 15 1.8 1.6 1.9 2.1 1.9

FY 14 1.8 2.2 1.9 2.1 2.0

FY 13 1.8 1.6 1.6 2.0 1.8
Third Quarter FY 2016 OIG Summary Report on the Survey of FCS Institutions

Regarding the Examination Function

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• Examiners appropriately challenged management with recommendations made through the 

examination process. 

• There was positive interaction between FCA examiners and the institution’s credit leadership. 

• For the vast majority of issues, there are no concerns. However, the grain exposure discussion was 

more theoretical than practical. The examiner was asking for additional risk management while 

being very general about the actions desired. 

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

Average Response: 2.2

Comments:

• Guidance is readily available and helpful. 

• Guidance from the Office of Examination provides the institution's Board and management with 

insight to the regulatory view of the topic raised. The examiners demonstrated good judgment 

when assessing the institution’s response to guidance, taking into consideration the 

appropriateness and/or applicability of the guidance given the institution’s risk environment and 

existing business practices. 

• FCS-wide guidance from the Office of Examination in the form of the annual National Oversight 

Plan, various information memorandums, and other non-formal communication are all very 

helpful in the understanding of direction and requirements. 

• Guidance was generally helpful. 

• Guidance issued does provide insight relative to how the agency expects risk to be managed by 

System institutions. 

Statement

8 

1st

Qtr

2nd

Qtr

3rd 

Qtr

4th

Qtr

FY 

Average

FY 16 1.7 2.2 2.2 2.0

FY 15 1.9 1.9 2.0 2.2 2.0

FY 14 2.0 2.2 2.0 2.1 2.1

FY 13 2.6 2.4 1.9 2.1 2.3

GENERAL QUESTIONS

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

Comments:

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

• Prior to completing examination steps, the examiners obtained a clear understanding of the 

institution's practices and processes. This allowed them to effectively measure institution

performance against examination scope items. More specifically, the loan review and internal 

controls assessments provided value to the Board and management in validating existing 

institution practices. 

• We had good communication and open dialogue with the examiners. The recommendations to 

the Board were in line with prior discussions. Recommendations presented by the EIC were useful 

to management and Board. 
Third Quarter FY 2016 OIG Summary Report on the Survey of FCS Institutions

Regarding the Examination Function

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• Opportunities to collaborate on the various risks facing the organization and the Farm Credit 

System as a whole. Greater integration in the handling of certain District events. 

• The examination team brought to our attention weaknesses in the loan disbursement process via 

wire transfer. Because of their findings, that process has been evaluated and improved. 

• While there are always complaints about being audited we appreciated the friendliness of the 

entire staff. Insights from some of the examiners was helpful. 

• The most beneficial aspect of the examination process is to provide manage with an assessment 

of their regulatory compliance and risk management ability which in turn provides the board with 

information to effectively oversee the institution. 

• FCA's recommendation to validate the credit score card was aligned with the direction that 

institution leadership had identified in 2015 and was in the process of completing in 2016. 

• Our EIC and examiners allowed plenty of time to discuss findings. 

• ________ is very good to work with. 

• Getting Regulator philosophy on credit classification. 

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

Comments:

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

• We did not have any area that we technically found least beneficial. No problems with the 

examination process or results. 

• Similar to prior feedback provided, there is an ongoing opportunity for lesser experienced 

examiners to enhance their understanding and knowledge of assigned areas. This would 

accelerate the reviews and lessen the overall examination burden on the organization. 

• Communication issues both on and off site. Some of the communication issues occurred due to 

the inexperience of some of the team leaders which is understandable given the limited time they 

had been in their positions and apparent lack of confidence their superiors had in their ability to 

assess situations. 

• Examination of functions performed by another institution (e.g. Treasury functions). 

• Too many trainees were brought to the institution. Institution staff could not complete their day 

to day tasks due to the review. 

• The insistence that chattel valuations be done by someone independent of the loan officer is 

illogical. 

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

examination process not provided in the preceding responses. 

Comments:

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

our institution.

• The Board was pleased with the examination process and the communication both during the 

examination and at the presentation. There was some discussion about Board size but the Board 

feels comfortable at its current level at this time. 

• The survey has been reviewed by and discussed with the Audit Committee of the Board. The Audit 

Committee concurs with management's responses to questions 1 to 10 and has no additional 
Third Quarter FY 2016 OIG Summary Report on the Survey of FCS Institutions

Regarding the Examination Function

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9 

comments. The board as a whole has not discussed the responses to this questionnaire but a copy 

of the draft responses has been shared with the full board prior to its submission. 

• Audits provide some beneficial support to the board in having an outside look at the inside of our 

institution. However, considering the number of audits performed they are becoming 

burdensome. The FCA staff often come up with a certain agenda and seem to be determined to 

oppose an item no matter what they find when they look into it. While we appreciate the insights 

provided we feel that management and other outside resources are providing the detail needed 

to maintain and govern a sound institution. We believe FCA's oversite and direction is over 

stretching its mission and at times requires unnecessary additional expense. To remain viable our 

institution must provide financial services to farmers and ranchers at a low cost while remaining 

safe and sound. 

• The Board appreciates the diligence with which the FCA examiners approach this review and finds 

great value in the report and our discussions with the examiners.