OFFICE OF 

INSPECTOR GENERAL 

Survey Report 

Survey of

Farm Credit System Institutions 

Regarding the Agency’s 

Examination Function 

Third Quarter 

Fiscal Year 2017 

(April 1 - June 30, 2017) 

Issued September 29, 2017 

FARM CREDIT ADMINISTRATION 
 

 

 

Office of Inspector General’s Survey of Farm Credit System Institutions
 

Regarding the Agency’s Examination Function
 

Third Quarter Fiscal Year 2017 Summary Report
 

(April 1 - June 30, 2017)
 

Introduction 

During the period April 1 – June 30, 2017, the Office of Examination identified eleven 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 in August 2017. Nine 

of the eleven institutions surveyed submitted completed surveys (82% 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, so that you may timely take 

whatever action you deem necessary to address the responses. 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 – Third Quarter FY 2017 

Average numerical responses to survey statements 1–8 ranged from 1.4 to 2.2 for the third 

quarter. 

Average Numerical Response Range to Survey Statements 1–8 

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

1.4 – 2.2 1.5 – 2.0 1.6 – 2.0 1.3 – 2.0 

The average numerical response for all survey statements was 1.8 for the third quarter. 

Average Numerical Response for all Survey Statements 

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

1.8 1.7 1.8 1.7 

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 Fiscal Year 2017 Summary OIG Report on the Survey of FCS Institutions

Regarding the Examination Function

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. This item 

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: 1.8 

Statement 1 1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.8 1.6 1.8 1.8 

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: 

	 We believe the scope of the examination appropriately addressed material areas of 

risk. 

	 Discussions with the examiners regarding stress testing were unduly challenging as 

the examiners were reluctant to fully assess the models in light of the specific 

characteristics of the portfolio. As a result, the focus was not appropriate to the risk 

profile and inefficient. 

 We felt the exam was designed to appropriately address the institution's risk. We also 

feel that the findings were appropriate and helpful to the institution. 

 Exam areas were as expected based on early communications with the FCA and were 

generally risk based. 

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

regulatory criteria to examination findings and conclusions. 

Average Response: 1.8 Statement 2 1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.8 1.7 1.8 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 

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Third Quarter Fiscal Year 2017 Summary OIG Report on the Survey of FCS Institutions

Regarding the Examination Function

Comments: 

 All findings were sufficiently documented with regulatory grounds for specific 

recommendations. 

 Findings can sometimes be more like "best practice" recommendations, but appear to 

be a regulatory violation in the report. 

	 New capital regulations were a focus and the examination team’s findings and 

suggested changes were appropriate and further supported the institution's 

implementation. 

	 Examiner's recommendation to use forward looking information in our allowance for 

loan loss analysis is not GAAP compliant. Examiner has been insistent that our auditor 

is okay with institution using the forward looking information but our discussions with 

our auditor have confirmed that this is not appropriate under current GAAP. 

	 The examination team appeared to work from checklists based from the exam manual. 

We had no concerns in this area. 

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: 2.2 Statement 3 1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.8 1.8 2.2 1.9 

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: 

	 Recommendations were helpful and add value to management's goal of maintaining a 

sound financial condition. 

	 The findings and recommendations were appropriate and helpful. 

	 FCA has micromanaged and second guessed board decisions regarding HR related 

issues of the institution. 

	 Our institution received only two required actions, neither of which had material 

impact on the risk of the institution. 

Survey Statement 4:	 The examiners were professional and efficiently conducted 

examination activities. 

Average Response: 1.4 

Statement 4 1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.8 1.5 1.4 1.6 

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 

3 
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Third Quarter Fiscal Year 2017 Summary OIG Report on the Survey of FCS Institutions

Regarding the Examination Function

Comments: 

	 Examiners were very professional. The majority were of a lower tenure but conducted 

themselves very well and demonstrated a respectful approach with a high level of 

conscientiousness. 

 Much of the exam was handled off site and this I feel improved efficiency for the 

agency and the institution. The examiners were very professional and accommodating. 

 We appreciate the good working relationship we have had with our EIC and their 

supervisor. 

COMMUNICATIONS 

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

institution were clear, accurate, and timely. 

Average Response: 1.7 

Statement 5 1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.6 1.5 1.7 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: 

	 Communications were clear and timed appropriately. Requests for information were 

well coordinated and did not seem overwhelming. It was apparent there was an effort 

to understand files before questions were asked. Reasonable expectations of response 

times were also helpful. 

	 Management has difficulty distinguishing between recommendations and requirements 

in examination report. It seems that virtually all recommendations eventually become 

requirements. 

	 Communication was very open and well received by both parties. 

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: 1.7 

Statement 6 1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.8 1.6 1.7 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: 

	 Presentations gave enough detail to support recommendations and provided 

suggestions to assist the Board and Audit Committee in setting expectations for staff. 

	 Communications were accurate and professional, but did not provide new or different 

information relative to information we receive from the bank, management, and 

Internal Audit. 

4 
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Third Quarter Fiscal Year 2017 Summary OIG Report on the Survey of FCS Institutions

Regarding the Examination Function

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

and management in formulating conclusions and recommendations. 

Average Response: 2.1 

Statement 7 1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.6 1.8 2.1 1.8 

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: 

	 Questions from management were heard and responses were respectful. There was 

very little debate or disagreement with the Agency's findings. 

	 Examiners tend not to consider the cost benefit of their recommendations which often 

makes discussions with them unproductive. This results in unnecessary inefficiencies in 

the institution's operations and cost structure. 

 Examiners were firm but fair. 

 FCA has micromanaged and second guessed board decisions regarding HR related 

issues of the institution. [same response to statement #3] 

 The exam team was very open to communication and discussion of potential issues. 

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

helpful. 

Average Response: 1.9 

Statement 8 1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 2.0 2.0 1.9 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: 

	 Focus areas are always appreciated and are helpful but should already be on minds of 

the board and management. 

	 When asked questions regarding new Capital regulation oversight activities planned, 

our EIC facilitated a conference with FCA team members with specific expertise in this 

area. 

GENERAL QUESTIONS 

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

Comments: 

	 Board appreciates the in person visit that included a report of examination 

presentation and an executive session. 

	 The ongoing interaction between staff and examiners is generally beneficial. It assists 

staff in understanding regulatory perspective and enhances their risk management 

perspective. 

5 
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Third Quarter Fiscal Year 2017 Summary OIG Report on the Survey of FCS Institutions

Regarding the Examination Function

	 Determining where the institution may have some areas of risk that may need more 

attention given by the institution that has not been considered. 

 Overall discussion of perceived risks in the portfolio and the environment in general. 

 We appreciate good dialogue throughout the examination process and feedback on 

best practices. 

 Overall guidance was helpful for management. The FCA examiners were professional 

and helpful. 

 The preparation by our team for the exam. 

 The Audit Committee appreciates the communication with your staff and their ability to 

give perspective related to our peers in System and regulatory expectations. 

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

Comments: 

 Recommendations and requirements that have little or negative cost benefit. 

 Time consuming for staff (an examination can last months); sometimes info requested 

more than once from different people. 

 The exam team included trainees. The trainees struggled with some nonaccrual details 

because of complexity. The uncertainty caused some confusion with our staff. 

	 FCA's recommendation on our allowance for loan loss calculation is in contrast to what 

our auditor is telling us. We end up caught in the middle between our regulator and 

our auditor on the topic. 

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

examination process not provided in the preceding responses. 

Comments: 

 Generally, the examination process went well, and we consider our relationship with 

the regulator to be good. 

 Report addresses the risks areas that has direct impact to the institution and help 

them in meeting their fiduciary responsibilities as a board. 

 Board responses in general mirror the responses above. 

 The exam was proactive but excessive in some areas. 

 Given the increased efforts, focus, and expectations around the ICFR process, the 

Board would appreciate feedback in that area. Our institution has committed 

significant time and resources in this area. 

6