OFFICE OF 

INSPECTOR GENERAL

Survey Report 

Survey of

Farm Credit System Institutions 

Regarding the Agency’s 

Examination Function

First Quarter 

Fiscal Year 2017

(Oct. 1 - Dec. 31, 2016)

Issued March 22, 2017

FARM CREDIT ADMINISTRATION
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Regarding the Agency’s Examination Function
 

First Quarter Fiscal Year 2017 Summary Report
 

(October 1 - December 31, 2016)
 

Introduction 

During the period October 1 – December 31, 2016, the Office of Examination identified eighteen 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 February 13, 2017. Seventeen 

of the eighteen institutions surveyed submitted completed surveys (94% 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 – First Quarter FY 2017 

Average numerical responses to survey statements 1–8 ranged from 1.6 to 2.0 for the first quarter. 

Average Numerical Response Range to Survey Statements 1–8 

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

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

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

Average Numerical Response for all Survey Statements 

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

1.8 1.7 1.9 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.) 
 

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First 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. 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: 1.8 Statement 

1 

1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 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: 

•	 Overall, very balanced review. Compliance with more minor issues at times overshadows core 

business issues. 

•	 Because of the running nature of our audit process, additional focus areas were added in mid 

review cycle that create challenges. 

•	 The most recent FCA examination of the institution focused on material safety and soundness 

issues, internal controls, portfolio management, and regulatory compliance. These are areas we 

would anticipate for review. 

•	 The primarily focus of the exam activities were on the deterioration in credit quality due to the 

decline in commodity prices and resulting lack of customer profitability – along with internal 

controls and standard of conduct controls. The questions related to this area of concern were 

appropriate and in-line with the risk in the portfolio. There was also recognition that the size of 

the earnings, capital and organizational capabilities (technology, robust portfolio management 

practices, etc.) are considerations in determining appropriate actions to manage through 

economic cycles. 

•	 As a result of the risk assessment, the examination focused primarily on board and management 

operations, financial reporting and disclosures, funding operations, and information technology. 

To complete the risk assessment, the examiners considered the institution's Strategic and 

Operational Business Plan, policies and procedures, previous examination findings and any recent 

changes. 

•	 We have a good diversified well run institution and as a board we are very involved. Management 

does a good job of providing the information needed to understand our risks. We like it when FCA 

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

Regarding the Examination Function 

focuses on credit and financial risks, but all the policies seems over kill to us. You have to have a 

policy for everything - seems burdensome to our operation. 

•	 There was a good mix of administrative and Information Security Controls examined. 

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 1.8 

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 appreciate that the examination team asks thoughtful questions and encourage discussion 

especially in the area of allowance and Capital to help establish a baseline of understanding. 

•	 In general, the "required actions" noted in our exam report that were directly tied to regulatory 

criteria as would be viewed as appropriate by our institution. 

•	 Appropriate laws and regulations were appropriately referenced during the exam. The chattel 

collateral management regulations were in the early stages of review and subsequent guidance 

has since been discussed and provided to the System. The FCA team has worked proactively with 

the System to come to a short-term position with the intent of addressing the regulation as soon 

as possible - first proactively seeking input from System representatives. 

•	 Throughout the report, FCA's examination conclusions and results were supported by FCA
	

regulations and best practices.
	

•	 The examiners were courteous and not outside the rules, regulations or other criteria. In fact we 

felt the last examination group used more common sense than previous reviews. 

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 

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: 

•	 Generally, yes. 

•	 Required and recommended actions noted in the exam report were reviewed by board and 

management and agreed to be appropriate processes or practices, and of benefit for the 

institution. In each case (required and recommended) actions are being taken as prescribed by 

FCA. 

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

Regarding the Examination Function 

•	 The recommendations and required actions were reasonable and consistent with the examination 

findings. 

•	 Management agreed to the one recommendation to expand the business continuity plan to
	

reflect updates in key contracts.
	

•	 Particularly this last examination was helpful in areas that needed corrections or improvements. 

•	 The Supervisory Letter prompted the board to merger with another institution for stronger
	

management, which was likely necessary in the near future.
	

•	 One recommendation in particular was not clear. Because we service ACAs, the recommendation 

for DLP was unclear as to the recommended action, or deliverable. 

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

Average Response: 1.8 Statement 

4 

1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr FY Average 

FY 2017 1.8 1.8 

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: 

•	 The examination team acted in a very professional manner. 

•	 FCA examiners were professional and courteous. A point to note was that the off-site review 

process included unscheduled calls which would get into detailed/specific questions with little 

opportunity for our staff to prepare or research responses. Having a question list provided in 

advance of a call would be beneficial to the discussion process. 

•	 The exam team was professional and cooperative, yet maintained appropriate independence in 

the process. 

•	 The examiners were very professional demonstrating good judgement and discretion. 

•	 The examination was somewhat unorganized. Part of the reason for this could be the turnover of 

the EIC near the start of the examination. 

•	 They have never been discourteous, but the last team displayed a "common sense" approach. 

What needed discussing was discussed and what was minor was left alone. We like the last 

examiner in charge. 

•	 The examiners conducted themselves professionally whenever I met with them. 

•	 Very professional. 

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

Regarding the Examination Function 

COMMUNICATIONS
 

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

clear, accurate, and timely. 

Average Response: 1.6 

Statement 

5 

FY 2017 

1st 

Qtr 

1.6 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr FY Average 

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: 

•	 Generally yes – although at times questions were not specific enough for us to determine if we 

had appropriately addressed the question/concern. 

•	 EIC ________, Supervisor ________, and staff were good at raising questions to ensure clarity and 

understanding of situations before making conclusions. We appreciate the opportunity to discuss 

the situations where Examiners had questions. 

•	 The institution was provided with adequate advance notice of the exam activity. The exam team 

was open and transparent with challenges and findings, and the final recommendations/findings 

were consistent with what was discussed during the exam process. 

•	 Communication between the FCA auditors and staff was effective. Management received an 

advance request list and the entrance meeting introductions and planning provided a good 

framework for the examination period. 

•	 Communication from the examiner in charge and his assistant is very good. 

•	 There was good and continuous feedback through the exam process. 

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: 1.8 Statement 

6 

1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.8 1.8 

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: 

•	 There have been instances where the institution has identified an issue and is implementing a 

solution and the examiners will take the issue and treat it as if it were a finding of theirs. 

•	 Exam communications, both verbal and written, during the exam process that management was 

able to communicate to the Board and Audit Committee, and the exam report findings that were 

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

Regarding the Examination Function 

communicated by FCA directly to the Board and Audit Committee were all viewed as adequate 

and appropriate. 

•	 In addition to the exam document, a formal on-site close out meeting with the Board of Directors 

provided an adequate opportunity for dialogue and clarifying questions regarding the results of 

the exam. 

•	 The FCA presentation to the board of directors was productive and provided a clear understanding 

of the audit process and examination conclusions. 

•	 We think so. 

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

management in formulating conclusions and recommendations. 

Average Response: 1.6 

Statement 

7 

1st 

Qtr 

2nd 

Qtr 

3rd 

Qtr 

4th 

Qtr 

FY 

Average 

FY 2017 1.6 1.6 

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: 

•	 We use the term "balance and perspective" a lot internally, and would complement FCA field staff 

with practicing this approach as well. 

•	 The FCA examination team was good at encouraging discussion and listening to detail and
	

explanation.
	

•	 In each case of finding, FCA examiners brought to our attention questions or observations that 

allowed for management response before FCA conclusions were made. We appreciated that 

opportunity. 

•	 The exam team consistently provided opportunities for dialogue to ensure a solid understanding 

of the institution's processes and viewpoints prior to determining their final position on various 

findings. 

•	 The exit meeting gave management and auditors the opportunity to review the draft report 

together and provide clarification when necessary. 

•	 The examiners did on the last review, not the previous. 

•	 Other than the DLP recommendation mentioned above, all other recommendations considered 

the feedback from mgt and BOD. 

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 

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 

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

Regarding the Examination Function 

Comments: 

•	 Agree based on change to new EIC. 

•	 I agree and appreciate the disclosure of focus areas for the coming year. The timing of the 

announcement can be burdensome if the institution is in the middle of the review when the new 

focus areas are released, especially when the new focus areas are a result of some issue or 

situation that has arisen somewhere else in the system. In these instances, the institution has little 

time to respond or prepare for the new focus area. 

•	 Yes, there was good dialogue during the course of the exam between the institution and FCA staff 

on the varied topics and issues that arose during the course of the exam. 

•	 Consistency across exam teams is always important and understandably an ongoing challenge. 

The current agricultural commodity cycle creates an even stronger need for consistency in 

philosophy to assure the impact to customers is appropriate and consistent with balancing credit 

risk and the reputation of the System. System representatives worked proactively with FCA over 

the past couple of years to develop a consistent approach to managing through the cycle - and we 

found the exam team not only be fully attuned of the approach, but also consistent and proactive 

with the desire to execute this approach. An area that was still under discussion and development 

was FCA's approach to chattel collateral valuation - which since has been further defined. 

•	 The memorandum issued on August 29, 2016 regarding the guidance on addressing personal and 

intangible property valuations may have the consequence of reducing the amount of collateral 

taken to secure a loan. There are times we take secondary collateral to supplement the primary 

source of loan repayment created by the growing crop or livestock that are liquidated through the 

course of normal operations. The additional collateral can maintain the soundness of the loan 

should the value of the primary source of repayment be insufficient as a result of adverse 

weather, lack of water, or low commodity prices. It wasn’t clear to us how the guidance in the IM 

would be enforced. The uncertainty creates the awkward choice between accepting regulatory 

risk (increased risk of a regulatory finding relating to how we’ve substantiated the value of the 

abundance of caution collateral), or maintaining the soundness of our loans by continuing to take 

the additional collateral. 

•	 The Office of Examination is always available to discuss laws, regulations, and other regulatory 

criteria used in their examinations. 

•	 Yes, we think so. 

•	 We believe we understand the expectations from FCA. 

GENERAL QUESTIONS 

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

Comments: 

•	 Examiners willingness to listen to any follow up information from the institution. 

•	 Honest/Factual/Constructive Feedback. 

•	 Exit conference with the full Board and CEO along with the Exit Conference Memo. 

•	 Good input from EIC on portfolio management and internal controls prior to onsite examination. 

•	 Discussions on specific issues and long-range institution performance. 

•	 The open dialogue on important or emerging issues. 

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

Regarding the Examination Function 

•	 Hearing from FCA on broader perspectives of system-wide business activity and practices is always 

beneficial. 

•	 The level of questions and extent of effort the exam team put into understanding our institution's 

approach to managing through the current industry cycle and then reconciling that with the 

philosophy developed in coordination with FCA. 

•	 The best practice and collaborative discussion in the boardroom by the exam team was helpful. 

We also appreciated the collaborative nature of the individuals involved with our exam. 

•	 The advance request list provided the scope of the examination and allowed us to use our
	

resources (i.e., time and staff) in an efficient manner.
	

•	 FCA's renewed focus on credit related topics was a positive change. 

•	 Discussing what the staff is doing right. We pay for 5 examinations a year which we believe is a lot 

but in today's environment necessary as we are told. We see all the spots that need fixing which 

most of which seem minor in nature and posing minimal risk. Our institution has good growth, 

earnings, and a 99.5% credit quality that is diverse. 

•	 Providing guidance re: Whistleblower procedures and bringing to light standards of conduct
	

issues/rules.
	

•	 Introduction with Examiners. 

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

Comments: 

•	 It seemed we had repetitive meetings/calls with examiners on the findings. Though we appreciate 

the communication and clarity we felt like the same findings were brought up numerous times 

through various meetings, emails, phone calls, and with our board at least twice through conference 

calls, actual attendance at the board meeting and through the well documented final report. 

•	 In the past we had some incorrect/partially factual feedback. 

•	 Exam Team very engaging and respective to Board's opinion. 

•	 The need to react to questions that are promulgated by emerging issues in other institutions. 

•	 As noted in response 4, the process of receiving a phone call from an FCA Examiner to address 

questions without review of the issue or preparation time for a response can be challenging. 

Providing questions in advance of a phone call would be beneficial. 

•	 Separate exam teams and process for ________ and ________. The strategic alliance between these 

two entities provides for consistent origination, monitoring and underwriting practices. This will 

change in 2017 as the FCA oversight of both institutions has been merged under one exam team. 

•	 The final IT examination letter (separately issued) indicated scores that were materially different than 

those communicated in our closing conference call. There was no explanation provided for the 

changed ratings. 

•	 We provide all requested documents through the secure portal in advance. However, FCA staff would 

frequently ask for additional copies once they were onsite. 

•	 The examiners were good and courteous. It just seems we are being reviewed to death. However as a 

board we know it is vital to have checks and balances and FCA is a good provider of that. When the 

final report has nothing major then an exit conference to the entire board is all that is needed. 

•	 A few of the suggestions seemed unnecessary. 

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

Regarding the Examination Function 

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

examination process not provided in the preceding responses. 

Comments: 

•	 It seemed we had repetitive meetings/calls with examiners on the findings. Though we appreciate 

the communication and clarity we felt like the same findings were brought up numerous times 

through various meetings, emails, phone calls, and with our board at least twice through 

conference calls, actual attendance at the board meeting and through the well documented final 

report. [same response to survey item 10] 

•	 The board felt the examination was very accurate. 

•	 In the past couple examinations, we have noted an increase in required actions and 

recommendations that go beyond the cited regulation and where the examination team provided 

specific direction on how to resolve the issue(s). Our institution has always been responsive to 

addressing regulatory issues identified by the examination process. We believe findings should be 

based on consistent regulatory guidance and that it is the Board and management's responsibility 

to use sound business judgment to determine how to best address issues identified in the 

examination. 

•	 No further comments beyond previously mentioned. 

•	 The examination result format has evolved in a positive way. We have seen other industries follow 

a process that allows for a process whereby Management has the opportunity to provide 

comments to the draft report of examination. The result is a final product that reflects 

management input, which can be more helpful to the directors, and results in a report that may 

stand on its own. 

•	 The Board was satisfied with the process and results of the examination. 

•	 I believe the merger will be beneficial to both ________ and ________, due to stronger
	

management and the state of the agriculture economy.
	

•	 The frank and open discussion/conversation with ________ was very helpful. 

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