OFFICE OF 

INSPECTOR GENERAL 

Survey Report 

Survey of 

Farm Credit System Institutions 

Regarding the Agency’s 

Examination Function 

Second Quarter 

Fiscal Year 2017 

(Jan. 1 - March 31, 2017) 

Issued July 7, 2017 

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

Regarding the Agency’s Examination Function 

Second Quarter Fiscal Year 2017 Summary Report 

(January 1 - March 31, 2017) 

Introduction 

During the period January 1 – March 31, 2017, 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 May 8, 2017. 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 a report to you based on each Fiscal Year (FY) quarter‐end, i.e., December 

31, March 31, June 30, and September 30; we trust this will give you an opportunity to take timely action 

should you find it necessary. The fourth quarter report will include FY 2017 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 – Second Quarter FY 2017 

Average numerical responses to survey statements 1–8 ranged from 1.5 to 2.0 for the second quarter.  

Average Numerical Response Range to Survey Statements 1–8

2nd Quarter FY17  1st Quarter FY17  4th Quarter FY16  3rd Quarter FY15 

1.5 – 2.0  1.6 – 2.0  1.3 – 2.0  1.6 – 2.2 

The average numerical response for all survey statements was 1.7 for the second quarter.  

Average Numerical Response for all Survey Statements

2nd Quarter FY17  1st Quarter FY17  4th Quarter FY16  3rd Quarter FY15 

1.7  1.8  1.7  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.) 
Second Quarter Fiscal Year 2017 Summary OIG Report 

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 several 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:  1.6  Statement 

1 

1st

 Qtr 

2nd

Qtr 

3rd  

Qtr 

4th

Qtr 

FY 

Average 

FY 2017  1.8  1.6  1.7 

FY 2016  1.6  1.8  1.9  1.7  1.8 

FY 2015  2.4  1.8  1.9  1.9  2.0 

FY 2014  2.0  2.2  2.4  1.9  2.1 

Comments: 

 They took into consideration past experience and size and impact on FCS Administration.  

 In general, we agree that the examination activities were focused on the appropriate areas of risk 

to the institution and were appropriate for our size, complexity, and risk profile. We do however 

continue to struggle with the examination team's focus on the institution's management of 

market value of equity. The institution consistently has expressed its strategic view of managing 

IRR in a manner that supports stable net interest income in all rate environments. Our eleven 

consecutive years of increasing earnings has illustrated this strategy has resulted in an institution 

with solid earnings performance and the ability to build capital and pay patronage. The rating 

agencies have consistently rated the institution and the System very highly because earnings are 

the first line of defense when problems arise with capital being the second line of defense. The 

institution's board of directors has established limits on market value of equity, and the institution 

performs well within those limits. Every examination of the finance/treasury area brings with it an 

element of the regulator's displeasure with our market value of equity sensitivity. Many times, this 

displeasure comes in the form of comments related to the institution's adopting of short funding 

to enhance earnings or to risk related to the institution's funds transfer pricing process. When 

discussions occur related to these issues the examination team always circles back to market value 

of equity sensitivity.

The institution has had several productive meetings with the examination staff where we have 

invited the capital markets specialists to have a dialog about a single topic. For the last two years, 

we have met with agency staff in a non‐examination environment to discuss the institution's 

pension strategy. FCA has participated in person and via video conference call. These meetings are 

very beneficial and generally take about a half day. In addition, we invited the FCA capital markets 
Second Quarter Fiscal Year 2017 Summary OIG Report 

Survey of FCS Institutions Regarding the Examination Function 

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3 

specialist to come down and discuss our interest rate risk management process. The meeting 

included our CEO. The session was very informative and comfortable allowing participants to 

discuss concepts in detail. Unfortunately, this did not translate back into an understanding of the 

institution's management of market value of equity risk when the examination cycle occurred. We 

will continue to work with FCA staff and keep conducting these types of information sharing 

sessions. We appreciate their time and willingness to participate. With respect to the portion of 

the examination focused on the institution's IT operations, the scope of the examination findings 

was relevant and the recommendations were appropriate.  

 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 which was 

appropriately considered by the FCA as part of their examination activities. Additionally, 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 and during their onsite review activities.  

 Larger score in mid‐year examinations, anticipated crop and credit weaknesses that had not really 

materialized yet. 

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

examination findings and conclusions.  

Average Response:   1.7  Statement 

2 

1st

 Qtr 

2nd

Qtr 

3rd  

Qtr 

4th

Qtr 

FY 

Average 

FY 2017  1.8  1.7  1.8 

FY 2016  1.9  1.8  2.1  1.8  1.9 

FY 2015  2.0  1.7  1.5  1.8  1.8 

FY 2014  1.8  2.1  1.9  1.8  1.9 

Comments: 

 We agree the examination team generally applied the appropriate laws, regulations and 

regulatory criteria to the current examination findings and conclusions. Many times, however, we 

find that examiners look to other financial regulatory agencies for guidance, which, while it can be 

worthwhile, needs to be balanced with the unique attributes of the Farm Credit System's business 

model. Because System banks and associations are non‐depository institutions with limited 

business lines, a more flexible and practical application of the other federal financial regulators' 

guidance to our business model is needed. One recent example is the recommendation by FCA 

examiners that the institution monitor the relationship of book capital to market value of capital 

and have the board establish a threshold limit for the variance. While this concept is important to 

an institution that has publicly traded stock, it provides little value to our business model. Instead, 

we believe that the appropriate course of action for examiners is to consider other financial 

regulatory agency guidance as a point of reference, but at the same time ensure that its 

application really addresses the real risks presented in a System institution. 

 As expected, the examination activity included a review of regulatory requirements and the 

institution’s compliance with such requirements. In completing the compliance review, the 

examiners focused significantly on the technical and specific letter of the law reading to identify 

non‐compliance issues. In a handful of cases, the institution had trouble connecting these 

technical findings with the achievement of the intent and spirit of the regulations. In our view, the 
Second Quarter Fiscal Year 2017 Summary OIG Report 

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4 

result in those cases was an application of the regulations that while technical in nature add 

limited value with respect to achieving the true public policy or safety and soundness outcomes 

intended by the regulatory requirements. 

 Our examiners advised us that our institution has no discretion to conclude a person did not act 

with intent to defraud when considering a potential criminal referral, and directed our institution 

(as a required action) to make a criminal referral on a particular matter. We believe the 

regulations and related guidance make clear that institutions have discretion to determine 

whether there is a reasonable basis to believe a person acted with intent to defraud the 

institution. See FCA reg. 612.2300(d); 62 Fed. Reg. 24562, 24564 (at Section II.E. "Discretion to 

Make a Criminal Referral") (5/6/1997). "Agree" is still our rating, as all other exam findings were 

consistent in our opinion, with regulations and criteria.  

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:  1.8

   

Statement 

3 

1st

 Qtr 

2nd

Qtr 

3rd  

Qtr 

4th

Qtr 

FY 

Average 

FY 2017  1.8  1.8  1.8 

FY 2016  2.1  2.2  2.1  2.0  2.1 

FY 2015  2.1  1.8  2.0  2.3  2.1 

FY 2014  1.7  2.0  2.1  2.1  2.0 

Comments: 

 All recommendations provided were reasonable and added value to the day to day operations of 

our institution.  

 As noted in the response to #1, we believe that the agency's recommendations concerning the 

institution's management of the market value of equity reflected a fundamental misunderstanding 

of the institution's business model and were not particularly helpful to address the institution's 

risks. 

 The FCA appropriately interacted with various board members throughout the course of the 

examination cycle as they deemed necessary to support the individual reviews and presented 

their results in the May 2017 Board Meeting. We viewed the institution examination results as 

favorable and felt that the related discussions were valuable in the development of our 

understanding of the related risks. We continue to see increased collaboration between the 

institution and the FCA regarding the management of difficulties in the areas of internal control 

and standards of conduct across the System and view this as a very effective and efficient process 

to address the related risks and in the development of remediation plans and actions.  

 Recommendations were fair and did point out areas of weakness that we have since improved on 

in our underwriting. See #2 for comments regarding opinions concerning the required action.  

 Recommendations in the report are treated the same as Requirements. If the expectation is the 

institution is expected to complete the “recommended” action, then it should be listed as 

required.  
Second Quarter Fiscal Year 2017 Summary OIG Report 

Survey of FCS Institutions Regarding the Examination Function 

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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 2017  1.8  1.5  1.7 

FY 2016  1.5  1.5  1.8  1.3  1.5 

FY 2015  1.5  1.6  1.9  1.5  1.6 

FY 2014  1.4  2.2  1.8  1.6  1.8 

Comments: 

 We appreciate the professionalism of everyone involved.  

 For the most part, we agree. However, we did have one examiner who was not efficient. He asked 

for data to be produced, then when we produced it, he asked for it to be produced again in a 

different format and structure, then when we produced it that way, he asked for it to be produced 

again in a third, new format and structure. After about four iterations going back and forth like 

this, he was finally satisfied and ceased. This process created a lot of wasted time and effort. This 

was not a novice examiner, he was a seasoned examiner, who apparently was on a mission to 

prove something that wasn't there. We have nothing to hide and are very open. We provide 

everything the examiners ask for. This examiner was far too demanding.  

 The examiners were very professional throughout the review. They were well prepared when 

delivering their report of examination to the Board and Management Team.  

 Examiners were consistently professional and efficient in conducting examination activities. We 

are concerned that examiners may sometimes interpret our efforts to engage in substantive 

discussions with them as disrespectful when that is not our intent at all. We simply want to ensure 

that the agency evaluates our performance in light of a sound understanding of our business 

model, and strongly believe that both the regulator and the institution benefit from robust dialog.  

 FCA staff were very professional and productive. Additionally, the FCA deployed skilled resources 

with a breadth of backgrounds (credit, technology, operations risk, assurance, management, etc.) 

that were able to effectively and efficiently evaluate the risks within the organization. The FCA 

utilized the 2016 examination cycle to transition a new Examiner In‐Charge (EIC) onto the 

institution’s exam who will be the point on the institution’s examination in 2017.  

 The exam consisted of 3 on‐site visits over a 6‐month period, plus some off‐site examination of 

policies and procedures, which did seem to require more time and staff resources than in the past,

but understand given the cycle we are in. Examiners were professional and interacted well with 

staff.  

 During our exam cycle, the EIC assigned to our institution left the agency. I was impressed with 

how well FCA staff completed the exam.  

 Efficient in the review/onsite aspect; however, post onsite and prior to report issuance, several 

new topics brought up that would have been more efficiently addressed while onsite. Following 

up on items discussed earlier is understandable but bringing up new topics at the very end of the 

review is not only disruptive but also inefficient for all parties involved. 
Second Quarter Fiscal Year 2017 Summary OIG Report 

Survey of FCS Institutions Regarding the Examination Function 

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COMMUNICATIONS 

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

clear, accurate, and timely. 

Average Response:  1.5 

Statement 

5 

1st

 Qtr 

2nd

Qtr 

3rd  

Qtr 

4th

Qtr  FY Average 

FY 2017  1.6  1.5  1.6 

FY 2016  1.8  1.7  1.8  1.6  1.7 

FY 2015  1.5  2.0  1.7  1.8  1.8 

FY 2014  1.6  2.2  2.0  1.7  1.9 

Comments: 

 There was significant back and forth after the examination.  

 For the most part, we agree. However, see our response to the previous question. We had a 

particular seasoned examiner who changed the form of his request for particular information 

multiple times. In effect, he was not clear in what he was after, and created a timeliness problem. 

 Communications are generally clear, timely and accurate. The examination team allows the 

institution to give adequate input on examination findings. Where we do not agree with the 

findings, we have had the ability to document our disagreement and to seek alternative ways to 

address the issue. An example is our disagreement with FCA's recent finding on the institution's 

transfer pricing process and recommendation to change it. Institution management and the board 

disagreed with that finding and recommendation, and the agency agreed to the middle ground of 

allowing institution staff to develop a white paper addressing whether there was risk in the 

current process.  

 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 Quarterly meetings with the 

Executive team allow the institution to provide timely updates to the FCA regarding organization 

matters and for the FCA to provide the leadership updates on ongoing examination activities and 

other agency topics of discussion requiring discussion.  

 Communications were timely and professional, both on‐site and off. Willing to listen to our 

concerns and adjust findings when additional information was presented to them. Very good 

communication and cooperation with EIC, ________.  
Second Quarter Fiscal Year 2017 Summary OIG Report 

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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  Statement 

6 

1st

 Qtr 

2nd

Qtr 

3rd  

Qtr 

4th

Qtr 

FY 

Average 

FY 2017  1.8  1.6  1.7 

FY 2016  1.7  1.7  1.6  1.6  1.7 

FY 2015  2.0  1.8  1.7  1.9  1.9 

FY 2014  2.1  2.2  1.8  1.9  2.0 

Comments: 

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

close‐out meeting with the various management teams, a formal readout of institution results 

with the Executive team, presentation of Examination results in the May Board Meeting, and 

through the written final Report of Examination.  

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 

7 

1st

 Qtr 

2nd

Qtr 

3rd  

Qtr 

4th

Qtr 

FY 

Average 

FY 2017  1.6  1.8  1.7 

FY 2016  1.9  1.8  1.9  1.8  1.9 

FY 2015  1.8  1.6  1.9  2.1  1.9 

FY 2014  1.8  2.2  1.9  2.1  2.0 

Comments: 

 The examiners effectively demonstrated an openness to discussion on topics prior to formalizing 

their conclusions and recommendations.  

 We believe in general that our views are considered. We do find, however, that examiners overly 

rely on written best practices and do not have enough practical experience to adapt best practices 

to our GSE business model. 

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

their conclusions and recommendations. However, conversations held between Examiners and 

certain board members throughout the Examination were effective. The Exam team and EIC had 

significant discussions with management as appropriate before finalizing recommendations.  

 Yes, we found the end result of the examination to be fair, with the exception of the required 

action concerning Criminal Referrals. 
Second Quarter Fiscal Year 2017 Summary OIG Report 

Survey of FCS Institutions Regarding the Examination Function 

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

Average Response:   2.0 Statement 

8 

1st

 Qtr 

2nd

Qtr 

3rd  

Qtr 

4th

Qtr 

FY 

Average 

FY 2017  2.0  2.0  2.0 

FY 2016  1.7  2.2  2.2  1.8  2.0 

FY 2015  1.9  1.9  2.0  2.2  2.0 

FY 2014  2.0  2.2  2.0  2.1  2.1 

Comments: 

 Requirements for new capital calculations in the business plan were not clear and expectations 

was that we would be complying with projections. 

 FCS‐wide guidance was not a factor in the current examination. In general, FCS‐wide guidance is 

helpful.  

 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.  

 The guidance is definitely helpful, but sometimes the application of that guidance from issuance 

to examination teams may vary which is difficult to implement.

 Agree guidance is helpful but two comments to mind. (1) When guidance is put out, examiners do 

not always seem to be fully knowledgeable of the new guidance and how to apply it when in the 

field. (2) As we looked to put in place the direction outlined in Bookletter 066, we ran a few things 

by FCA. The response we received back fell along a more conservative interpretation of FCA 

Regulations than what was presented in the Bookletter. The inconsistent interpretation is 

frustrating at the institution level. 

GENERAL QUESTIONS 

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

Comments: 

 Meeting with full Board was informative and collaborative. The discussion provided examples that 

could be acted on.  

 The examination report was delivered in person to our board by the EIC and her supervisor. This 

was well received by our board.  

 The recommendations from FCA were helpful for the Board in addressing matters that need 

attention.  

 The examiners are knowledgeable and very well qualified.  

 The Team's willingness to offer advice on the best practices they've identified throughout the 

System.  

 The examination process is well coordinated and communicated with staff. This allows institution 

staff to provide adequate information to examiners ahead of time, which facilitates efficiency and 

the best use of time for the both the FCA and institution staff. In addition, FCA does a good job in 

close‐out process by discussing issues and giving staff a chance to address/challenge issues and 

facilitate better communication.  
Second Quarter Fiscal Year 2017 Summary OIG Report 

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 and System matters.  

 The examination of the Audit & Review process as well as the standard loan review examination. 

Interactions with the exam staff and getting a better understanding of their perspective.  

 We always find the dialogue with FCA staff to be useful and informative.  

 Exit conference in executive session.  

 Continuity in the review team – provides more efficiency as FCA examiners know the institution 

better and institution personnel can better understand examiner point of view based on past 

experiences.  

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

Comments: 

 At times the comment seems to be more form over substance.  

 See our response to question number four, regarding an examiner who wasted our time by 

requesting the same information multiple times, in a different format and structure each time. 

 Timing of the exam. 

 At times it seems as though Districts are being compared without consideration of differences in 

funding mechanisms and other significant shared service arrangements. 

 The least beneficial part of the examination process is the fact that many of the examiners have 

never actually had any practical business knowledge of running the operations of a financial 

institution. As a result, examiners have a tendency to focus on written best practices that have 

little relevance to our actual operations. Best practices are a good starting place but should lead to 

more in‐depth discussions on the real risks in the organization. 

 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. 

 Preparing for multiple site visits by the examination team; lengthy review during one of our 

busiest times of year. 

 Approach on recommendations. The focus on how we handled/addressed the recommendations 

seems disproportionate. If it is expected for us to fully address/complete the recommendations, 

then call them what they really are:  requirements. The way they are currently handled is not 

conducive to efficient communication. 

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

examination process not provided in the preceding responses. 

Comments: 

 Their process is on its way to being more than satisfactory and almost superior. They did genuinely 

appear to seek all our input as to how we are trying to improve. And their engagement was 

beyond just checking the boxes. Only minor critique is their continued focus sometimes of form 

over substance. 

 The board looks at the examination team and the examination process as a way of supporting 

what we do right, and to comment on things that we need to do to improve.  

 It would be beneficial for the board to meet and discuss the report prior to the FCA presentation.  
Second Quarter Fiscal Year 2017 Summary OIG Report 

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10 

 The board was satisfied with the results of the examination and receptive to the examiners' 

recommendations.  

 This was my first report of the examiners as a Board member. I was impressed with their 

professionalism.  

 Exceptionally conducted exit interview and presentation.  

 The Chairman of the Board of Directors agreed to allow the Audit Committee to review and 

discuss this survey prior to its submission. Based on the timing of the survey release and the 

requested due date, a discussion on the responses amongst the full Board was not available. 

However, the survey will be appropriately discussed in the August Board Meeting with the Audit 

Committee and the Board as a whole. The Audit Committee concurs with management's 

responses to questions 1 to 10 and has no additional comments. 

 Again, the comments made by the different exam teams to different institutions may put one 

institution at a disadvantage versus another. We know that is hard to do, but it is too important 

that FCA be consistent in its application and interpretation of regs and overall expectations.  

 Excellent communication from the EIC and Senior Examiner to the Board. Disappointed with a "2" 

rating for management and Board.  

 Our board of directors appreciates the opportunity to meet with FCA staff in executive session 

following their presentation of the ROE.