Curriculum
Course: Course II: Writing Effectively
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Text lesson

FCA/OE Report Writing

This section and those immediately following focus on the role of writing in the Office of Examination (OE) and includes a video presentation developed and narrated by Marla Goodwin with the expert assistance of several active Examiners-in-Charge, senior examiners, and quality assurance examiners. As you may already know, Marla is the Staff Development Division’s (SDD) Program Manager from the Dallas office.

Marla Goodwin
Marla Goodwin

Marla went through the commissioning program in the early 90s and served as an EIC for a decade, before becoming a trainer/senior examiner in SDD.  She coordinates all commissioning program testing and training activities and has personally led or instructed 11 of the current 13 courses in the commissioning program training lineup.  Marla will discuss the statutory origins of examination reporting, the multiple purposes of exam reports, the common types of report documents, and vital importance of fully developed, reportable findings.

Also introduced in this section is the importance of deductive writing to communicating examination results. [Note that Deduction is covered thoroughly later on in this course.]

Via the presentation that follows, you will review more in-depth details about the process.

Presentation

Carefully review the presentation below. Core details on the above content are explained in further detail, along with relevant examples.

Access video version of the presentation. (Optional, voiced-over version of the above presentation)

Click here to open the video.
PRESENTATION TRANSCRIPT

Intro: Statutory Basis for Reporting

– As a federal agency, our examination and reporting activities are governed by federal statute. Both the Farm Credit Act and FCA regulations provide FCA its reporting authority and provide us with some guidance. Let’s start with the Farm Credit Act.
– It is important to know that the Farm Credit Act does NOT require FCA to provide institution boards of directors a Report of Examination.
– Instead, the Act requires only that FCA examine Farm Credit System institutions and report to Congress.
– Specifically, the Section 5.17(a)(3) of the Act requires FCA to make annual reports directly to Congress on the condition of the System and its institutions, based on examinations.
– Section 5.19(a) and (c) of the Act gives FCA the authority to examine and publish reports of examination, although it does not define a report of examination.
– Similarly, FCA Regulations do not define the purpose, form, or content of reports of examination. However, the regulations have several references to FCA reporting authority and confidentiality of reports of examination.

If the Act and the Regulations do not require FCA to report to System institutions or define what should be reported, then why do we issue FCA examination reports and other reporting documents?
According to the Act, FCA is responsible to Congress for ensuring the safety and soundness of the System and can require institutions to make changes FCA deems necessary to ensure the continued safety and soundness. We use Reports of Examination and other reporting documents to clearly communicate to institution’s boards of directors’ matters requiring attention or warranting change. In fact, that is a primary purpose of reporting.

 

Report Purpose: Persuading Board Action

Of course, to make meaningful arguments supporting the need for change or corrective actions, our reports must not simply list issues requiring the board’s attention, they must also provide a clear, concise summary of the institution’s condition and performance and compliance with laws and regulations. For the most part, we accomplish this through CAMELS-based reporting emphasizing our evaluation of the CAMELS areas (Capital, Assets, Management, Earnings, Liquidity and Sensitivity).

Report issuance is often, but not always, both the end of one examination cycle and the beginning of another. This is true when reports are issued in conjunction with Statutory Compliance Date or SCD examination activities. Therefore, a second purpose of a report is its vital role in the examination cycle. Let’s look at the Examination Cycle to better understand the role reporting plays in carrying out our statutory mandate.

 

Report Purpose: A Key Component of Examination Cycle

– Following the issuance of the SCD Report, the Examiner in Charge will create an oversight and examination plan for his/her assigned institution.
– The plan should include activities needed to ensure timely and accurate identification and reporting of CAMELS risk throughout the examination cycle.
– EIC’s modify the plan during the examination cycle to address changes in the institution’s risk profile as supported through oversight activities. For example, in practice, the EIC often drafts the initial plan prior to the board discussion; however, the board’s interactions during the meeting and their willingness and ability to make needed corrective actions may result in the EIC modifying the plan very early in the exam cycle.
– As necessary, we conduct specific interim examination activities and issue interim reports communicating our conclusions and areas or issues requiring the board’s attention. Relative to the graphic, interim reporting includes both written and verbal communication.
– As the SCD nears, we will conduct examination activities needed to accurately identify and report CAMELS risk, and the cycle repeats.

The Exam Cycle
Planning -> Monitoring and oversight -> Interim activities -> Interim reporting -> SCD activities -> SCD reporting -> Board discussion

 

Report Purpose: Reporting and Enforcement

As needed, reports also serve a third key purpose – the bridge between the examination function and the supervision function. Reporting documents establish the basis for any supervisory actions FCA may impose such as Written Agreements or even Cease & Desist Orders.

 

Types of Reporting Documents

Our 3 primary reporting documents are the SCD Reports of Examination, Activity Letters, and Financial Institution Rating System (FIRS) ratings letters.
The nature and depth of the report documents should reflect the degree of identified risks. Report documents must provide a clear, concise evaluation of the institution’s condition or results of examination activities. Let’s discuss each of the 3 report documents in more detail.

– The SCD Report can be issued either before or after the SCD, once all required oversight and examination activities are complete. The SCD Report includes a letter to the board chair signed by the division director or designee, an executive summary, conclusions on all CAMELS factors, and fully developed findings. Reports must not include unimportant information nor conclude on areas outside the scope of examination work completed.
– Activity Letter: Activity letters generally communicate examination results from interim examination work.
– FIRS Ratings Letters: FIRS ratings are communicated to the institution anytime the composite or any component rating changes. They are also reported when an SCD report is issued.

Of note, we also have the Internal Revenue Service (IRS) Express Determination letter, but it’s a standardized, template-based letter sent when very specific criteria are met. For that reason, we won’t go into further detail in this course.
Be sure to read OE Directives related to reporting examination results to ensure you are aware of all current reporting expectations, including those pertaining to documentation and the Quality Assurance process which are not covered in this course.

 

Importance of Developed Reportable Findings

Whether it is an SCD Report, Activity Letter, or FIRS Letter, we use a deductive writing style when communicating examination results. As our writing experts will cover in greater depth, this approach starts with the conclusion and is supported by either positive findings (meaning conditions are better than or at par with criteria) or negative findings (meaning conditions fail to meet criteria) or a combination of both. And, to be considered reportable and to support conclusions, findings, especially negative ones, must be fully developed. This means:

– the cause should be determined
– the effect or impact on condition and/or performance either currently or prospectively is identified

Identifying causes and effects clarifies inter-relationships between CAMELS factors and helps persuade the board to implement corrective actions.

– the examiner should have discussed the finding with management and recorded management’s response, and
– any corrective measure we are requiring from the board and management must be stated.

Recording the board and management’s response gives us insights into their willingness and ability to understand and take appropriate actions in response to our findings. It also helps ensure examiners have spoken to the board and/or management about each reportable finding we have.

An important note: a finding used to support a report conclusion may not have its specific cause, effect, or management response included in the report. This may be either to reduce redundancy with other findings or because the detail doesn’t materially add to the support of the conclusion in the bigger picture. Regardless, the finding cannot be credible in supporting a conclusion if all elements are not contained in the workpapers.

Condition + Criteria + Cause + Effect + Corrective action needed + Management response used to develop Reportable Findings.

 

Summary

We’ve covered a good deal of ground beginning with the statutory origins of our reporting; the multiple purposes of our reports, (including its role in our exam cycle); the common types of report documents; and the vital importance of fully developed reportable findings. With that as a backdrop, you will now learn more about effective report writing using the deductive style.

Final Recap: Report Writing

This section provided FCA’s official viewpoints regarding:

– The statutory origins of our reporting
– The multiple purposes of our reports
– How reporting ‘fits’ and is a vital aspect of the examination cycle
– The common types of report documents
– And how report construction is not possible without fully developed reportable findings.

Continue to the next module to learn more about effective report writing using the deductive style.

GREAT WORK! PROGRESS TO THE NEXT MODULE.

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