Farm Credit System Building Association Management Operations Policies and Practices

FARM CREDIT ADMINISTRATION

[NV 95-40]

Farm Credit System Building Association Management Operations

Policies and Practices

AGENCY: Farm Credit Administration.

ACTION: Policy statement.

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SUMMARY: On July 7, 1995, the Farm Credit Administration (FCA), by its

Board (Board), adopted a policy statement concerning general parameters

and policies for the operational practices of the Farm Credit System

Building Association (FCSBA) which are supplementary to the FCSBA

Bylaws. The FCSBA was established to provide the facilities and related

services for the FCA and its regional offices. The FCSBA is owned by

the banks of the Farm Credit System (Banks) and is funded by

assessments, commercial tenants, and other income. The FCSBA owns and

operates the FCA McLean, Virginia headquarters and holds the leases and

provides certain services and furnishings for FCA field offices. The

FCA Board has sole discretionary authority under section 5.16 of the

Farm Credit Act of 1971, as amended, to approve the plans and decisions

for such building and facilities. In order to carry out this authority

and to preserve the FCA's arm's-length relationship with the Banks, the

Articles of Association and Bylaws of the FCSBA grant the FCA Board the

responsibility to oversee the affairs of the FCSBA. The Chairman of the

FCA Board shall be responsible for coordinating the FCA Board's

involvement in and responsibilities for the operation of the FCSBA. The

FCSBA President reports to the FCA Board and is generally responsible

within the context of governing policies for all

[[Page 37444]]

activities, necessary to manage FCSBA support to the FCA, manage the

assets of the FCSBA, understand and consider the interests of the

Banks. Specific responsibilities include budget preparation and

execution, planning, financial reporting and control, preparation of

quarterly cashflow projections, supervision of inventory and supporting

schedules for all fixed assets.

EFFECTIVE DATE: July 7, 1995.

FOR FURTHER INFORMATION CONTACT: Floyd Fithian, Secretary to the Farm

Credit Administration Board, Farm Credit Administration, McLean,

Virginia 22102-5090, (703) 883-4000, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: The text of the Board's policy statement on

the Farm Credit System Building Association Management Operations

Policies and Procedures is set forth below in its entirety:

FCA Board Action on FCS Building Association Management Operations

Policies and Practices

NV 95-40

FCA-PS-68

Effective Date: July 7, 1995.

Effect on Previous Action: Supersedes Policy Statement NV 93-43.

Source of Authority: Farm Credit Act of 1971, as amended (Act) and

the FCS Building Association (FCSBA) Articles of Association and

Bylaws.

The FCA Board hereby adopts the following statement of policy:

The FCSBA was established to provide the facilities and related

services for the Farm Credit Administration (FCA) and its regional

offices. The FCSBA is owned by the banks of the Farm Credit System

(Banks) and is funded by assessments, commercial tenant, and other

income. The original ownership interest of each bank was based on the

bank's assets as a percentage of total Farm Credit System (FCS) assets

on June 30, 1981. The FCSBA owns and operates the FCA McLean, Virginia

headquarters and holds the leases and provides certain services and

furnishings for FCA field offices. The FCA Board has sole discretionary

authority under section 5.16 of the Act to approve the plans and

decisions for such building and facilities. In order to carry out this

authority and to preserve the FCA's arms-length relationship with the

Banks, the Articles of Association and Bylaws of the FCSBA grant the

FCA Board the responsibility to oversee the affairs of the FCSBA.

The purpose of this policy statement is to outline general

parameters and policies for various operational practices of the FCSBA

which are supplementary to the FCSBA Bylaws.

A. FCA Board Responsibilities

Board Responsibilities. As outlined further in this policy

statement, the FCA Board is responsible for items including, but not

limited to, approval of all budgets and subsequent changes in object

class limitations, signature authorities for financial expenditures,

and long term investment decisions. The FCA Board concurs in the

development of performance standards, goals and pay scales for the

FCSBA President as provided by the FCA Chairman. Additionally, the FCA

Board approves certain contracts for services depending upon the

purpose and cost.

Chairman's Responsibilities. The Chairman of the FCA Board shall be

responsible for coordinating the FCA Board's involvement in and

responsibilities for the operation of the FCSBA, including developing

performance standards and pay scales for the President of the FCSBA and

appraising the President's performance with the concurrence of other

FCA Board Members, reviewing periodic financial and operating reports,

providing procedures as necessary concerning for the FCA staff's

relationship with the FCSBA, and reviewing such other matters as the

Chairman may deem advisable for the purpose of bringing such matters to

the attention of the FCA Board. The Chairman may delegate these

responsibilities to one or more FCA staff as he or she deems advisable,

except those responsibilities related to pay and performance.

B. FCSBA President

General Signature Authority. As required by Article V, Section 2 of

the FCSBA Bylaws, in addition to member certificates, the FCA Board

authorizes the President to sign general correspondence and contracts

deemed necessary for the administration of Association activities.

Check signing and countersigning authorizations are outlined in

separate FCA Board Actions.

Duties. The FCSBA President reports to the FCA Board and is

generally responsible within the context of governing policies for all

activities, necessary to manage FCSBA support to FCA, manage the assets

of the FCSBA, understand and consider the interests of the Banks.

Specific responsibilities include budget preparation and execution;

planning; financial reporting and control; preparation of quarterly

cash flow projections; supervision of inventory and supporting

schedules for all fixed assets (furniture fixtures and equipment);

maintenance of management objectives schedules; supervision of the

telecommunications system; the purchase and contracting for all

supplies and services; records management; necessary correspondence;

public relations activities in consultation with the FCA Office of

Congressional and Public Affairs; personnel supervision and evaluation;

the leasing and management of all space in the Farm Credit Building;

site selection and lease negotiation for all FCA Field Offices;

strategic planning; investment management; preparation and

administration of all policies and operating procedures; engineering

oversight; construction management; and preparation of all monthly,

quarterly and annual reports required by the FCA Board. The FCSBA

President shall coordinate these activities with the FCA Liaison as

appropriate or required.

Standard Operating Procedures. In addition to those duties outlined

under Article V, Section 2, of the FCSBA Bylaws and this Policy

Statement, the President is authorized to issue Standard Operating

Procedures (SOPs), as he or she deems appropriate in an effort to carry

out the mission of the FCSBA provided that each SOP is reviewed by the

FCA Board in advance. The President shall maintain all SOPs in a manner

that reflects current and up-to-date policies and practices. SOPs will

be filed with the Secretary to the Board, the FCSBA and others as

requested.

Periodic Reports. The President shall render such periodic reports

and proposals to the FCA Board and Liaison as may be necessary to

facilitate on budgets, assessments, audits, finances, plans,

investments, reserve policy and accounting procedures that support the

needs of the FCA Board and the Banks as owners of the FCSBA. The

President shall normally report at an FCA Board meeting on a quarterly

basis. At a minimum, the report shall include:

(1) A cash statement of operations, an explanation of budget

variances, and a month-to-date cash reconciliation report.

(2) A summary of the status of reserve accounts and investments

including documentation as available demonstrating compliance with

investment policies.

(3) A comprehensive Management Objectives tracking report outlining

the status of issues and projects resulting from a combination of one

or more sources such as audit and examination recommendations, FCA

Board directives, as well as management initiatives.

[[Page 37445]]

(4) Other matters such as insurance, leasing and contract

performance issues which may be timely for the particular reporting

period.

Annual Report. The President shall prepare an annual report on the

operations of the FCSBA. The draft of the report shall be provided to

the FCA Board for its review within approximately 30 days of receiving

the final report from the independent auditors. After FCA Board review,

the report shall be provided to the Banks and may be provided to others

who have an interest in FCSBA affairs. Although other reports to the

Banks may be warranted from time to time, the Annual Report shall serve

as the primary vehicle for reporting information to the FCS. The report

shall include:

(1) A discussion of significant issues and accomplishments.

(2) Audited financial statements and reportable conditions.

(3) A discussion of the previous year's and current year's budget.

(4) A discussion of Basic and Supplemental services provided to FCA

by the FCSBA including an estimate of market and actual values of those

services.

(5) A discussion of non-budgeted expenditures which have been

reimbursed by the FCA.

C. FCA Liaison

Duties. The FCA Director of the Office of Resources Management (or

his/her designee) shall serve as the Agency's liaison with the FCSBA.

The FCA Liaison facilitates and coordinates the Agency's needs with the

FCSBA in such areas as office renovations, internal moves,

telecommunications services, and field office support. The FCA Liaison

provides an internal control function through the countersigning of

certain categories of checks as designated by the FCA Board.

Additionally, the FCA Liaison reviews FCSBA proposals which come before

the FCA Board and provides counsel regarding issues on which the FCA

Board must decide or provide direction. The FCA Liaison is also

responsible for assuring that FCA operations, as appropriate, comply

with FCSBA policies and practices as well as FCA guidance relating to

the FCSBA. Finally, the FCA Liaison shall review monthly cash

reconciliation reports as provided by the FCSBA President and report

irregularities as appropriate.

D. Annual Audit and Management Controls

Annual Audit and Management Controls Review. As provided by Article

IV, Section 9, of the FCSBA Bylaws, the FCSBA shall produce audited

financial statements on an annual basis. A review of material internal

control procedures shall be included in the audit process on a periodic

basis.

E. Financial Management

Budget Philosophy. It is FCA Board policy to ensure that every

effort is made to minimize operating expense without jeopardizing the

Banks' investment in the assets which are managed. Approved budgets are

planned and implemented in consideration of a series of policy

objectives as outlined in this statement and always in an effort to

balance income and expenses without a positive or negative cash flow.

Budget Development Time Frames. FCSBA budgets are prepared on a

calendar year basis. Each June, the FCSBA President shall provide the

proposed budget for the next calendar year to the FCA Board for its

review and comment. With FCA Board concurrence, the proposed budget may

be made available to the Banks for further comment. On or about

September 1, the FCSBA President shall provide the final budget

proposal to the FCA Board for approval.

Operating Revenues. The FCSBA receives annual operating revenues

from (1) Bank assessments, (2) office rental income from private

commercial tenants, (3) other income such as fees and vending charges,

(4) interest income from operating balances, and (5) reserve account

transfers as necessary.

Operating Expenses. Operating expenses are budgeted using the

appropriate object classifications as follows, which may be modified

with FCA Board approval:

FCA Field Office Rent

Taxes and Contract Services

Maintenance and Repair

Utilities

Salaries and Benefits

Professional and Consulting Fees

Property Management Fees

Other Expenses

As a part of the draft budget proposal to the FCA Board each June,

the FCSBA President shall provide an individual expense breakdown for

each item within the object class. This breakdown shall include the

actual expense from the previous year, the estimated expense for the

current year, and the projected expense for the proposed year.

Unanticipated and emergency expenses during the course of the year

as well as expenditures beyond amounts approved for object classes may

be funded out of the operating reserve subject to FCA Board approval.

Capital expenditures funded by transfers from the component reserve

account are shown separately with a breakdown of individual

expenditures.

Operating Reserves. In consideration of liquidity needs as well as

unanticipated expenses, each approved budget shall include the sum

equivalent to 15 percent of the annual operating expense as operating

reserves.

Component Reserve Account. To reserve for capital replacement items

and repairs to the McLean facility, the FCSBA shall maintain a

component reserve account which is separate from operating funds and

reserves. The funding for this account shall be initially based on the

Capital Reserve Study of August 1992, which is to be ``formally''

updated every 3 years by an independent engineering assessment. The

policy objective is to ensure adequate funding, on a net present value

basis, to cover up to a ten year capital repair and replacement program

to be ``informally'' updated, as necessary, with each approved budget.

Assessments. To ensure the maintenance of minimum ``cash on hand,''

FCSBA assessments are based on Bank assets as of June 30, and issued

quarterly consistent with the FCSBA Bylaws. After taking interest,

rental, and other revenue into consideration, budgeted annual

assessments must be sufficient to fund the operations of the FCSBA,

including the ability to hold operating reserves equal to 15 percent of

expenses as well as component reserves consistent with FCSBA policy.

Adjustments to assessments can occur subject to FCA Board approval

when total yearend ``cash and cash equivalents'' exceed or are below

operating and component reserve requirements. Adjustments are normally

considered for third quarter assessments and are based upon the

previous year's audited financial statements. Earnings, if any, are

distributed through this process in lieu of direct payment.

Investments. The FCSBA invests its funds in an effort to achieve

maximum yield consistent with liquidity needs and investment safety.

Operating reserves and other operating ``cash on hand'' may be invested

in short-term money market accounts, certificates of deposits of

federally insured institutions, and short-term instruments of the U.S.

Government or commercial paper rated P-1 or A-1 by Moodys and Standard

and Poors respectively. Operating reserves investment decisions are

made by the FCSBA President consistent with this policy.

Component reserves are invested solely in instruments issued by the

U.S. Government and agencies of the U.S.

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Government. The maturities and amounts of component reserve investments

shall be generally consistent with the anticipated liquidity needs of

the FCSBA capital replacement and repair program. Component reserve

investment decisions will be approved by the FCA Board.

Budgeting for Reimbursable Expenses. The FCA regularly reimburses

the FCSBA for telecommunications and other expenditures on a cost

recovery basis. Because there is no positive or negative financial

impact on the FCSBA, these transactions are handled on a ``net'' basis

and thus not included in the budget.

Budget Execution. The FCSBA President shall administer the annual

budget as approved by the FCA Board. Necessary expenditures during the

course of the year that would exceed the object class budget require

approval by the FCA Board. Exceptions to this policy are made in the

event of emergency or the funding of accrued employee benefits.

Expenditures in these cases will be brought to the FCA Board for

approval within 30 days of occurrence. In considering its approval, the

FCA Board has the option of either adjusting other object classes,

utilizing the operating reserve, or taking other action as it deems

appropriate.

F. Contract Management

General. In accordance with Article IV of the FCSBA Bylaws, it is

the policy of the FCA Board that all contracts issued on or on behalf

of the FCSBA be:

(1) When in excess of $15,000, competitively bid with a minimum of

three bids.

(2) When less than $15,000, and more than $2,500, obtained with a

minimum of three price quotes.

(3) Generally awarded to the lowest bidder meeting contract

specifications except in those instances where the differences in cost

are considered negligible relative to a particular benefit offered by a

higher bid.

(4) Reviewed and approved by the FCA Board when in excess of the

amount of $150,000, or for the purpose of outside auditors, property

managers, or special studies that were not approved during the budget

process.

(5) Retained in file a minimum of three years.

(6) When possible, bid in conjunction with the budget year.

Exceptions. Notwithstanding the above requirements, the FCA Board

has the authority to make exceptions as it deems appropriate to the

circumstances. Additionally, competitive bidding is not required if the

circumstances warrant immediate resolution or are vendor specific to

equipment in which case the FCSBA President will provide the Board with

a detailed report of the surrounding circumstances in 30 days.

Contract Timeframes. Recurring contracts are normally for annual

terms, however, when deemed cost effective, the FCSBA may allow terms

up to three years. Obtaining best and final offers from bidders is

encouraged.

Approval Authorization. The President is authorized to approve

contracts consistent with these guidelines and the FCSBA SOP. The

President may redelegate up to $50,000 of contracting authority to the

building property manager.

Contract Performance. The President shall insure that adequate

systems are in place to measure, administer, and report on the

performance of FCSBA contracts.

G. Asset Management

Personal Property. The FCSBA President shall insure that adequate

methodologies and systems are in place to ensure that FCSBA property is

effectively accounted for on a periodic basis.

H. The FCSBA as a System Institution

Examination. The FCSBA is examined as provided by the Act. The

scope of examination shall be generally consistent with the level of

risk deemed associated with the operating practices of FCSBA

management.

Assessments for Examination. The FCSBA will be charged annually for

assessments consistent with FCA regulation found in 12 CFR 607.4,

``Assessment of Other Institutions.''

Liquidation by System Request. Should the Boards of the Banks

determine, pursuant to Article IX of the FCSBA Articles of Association,

that the FCSBA should be dissolved and liquidated, the Boards, by

appropriate resolution, may request that the FCA Board appoint a

receiver to dissolve and liquidate the FCSBA in accordance with the Act

and the regulations promulgated thereunder.

I. FCSBA Services to the FCA

Basic Services. The FCSBA provides space to the FCA Headquarters in

McLean, Virginia, and leases space on behalf of FCA for its field

offices. Basic services provided to the FCA are similar to what is

typical of rented office space and include, but are not limited to,

such items as utilities, janitorial service, repairs for normal wear

and tear, parking and appropriate landscaping as well as amenities

which are available to all tenants and have the effect of maintaining

property values and/or enhancing rental income.

Supplemental Services. In addition to providing basic services, the

FCSBA will, on a case-by-case basis, provide certain supplemental

support services related to FCA's housing needs under the following

kinds of circumstances:

(1) The FCSBA can provide the service on better terms than the FCA.

(2) The service, if not provided by the FCSBA, could potentially

adversely effect the aesthetic or other value of property, systems,

building infrastructure, the health and safety of occupants, or the

occupancy level of commercial tenants.

(3) The capacity exists for the FCSBA to provide the service within

the context of its employee expertise and/or its overall

responsibilities to all tenants.

(4) By providing the service, an advantage inures to the benefit of

the FCS which would not otherwise occur.

(5) An FCA Board determination that the service will be of

particular benefit to the FCA, the FCS or the public.

As deemed necessary, the FCSBA President shall issue SOP(s)

prescribing operational or other details of FCSBA services provided to

the FCA.

Non-Reimbursable and Reimbursable Services. Whether or not the FCA

will reimburse the FCSBA for a supplemental service will generally be

determined as follows:

(1) Reimbursement is not required for support provided by the FCSBA

when resources are available within FCA Board approved budgets for the

FCSBA and one or more of the criteria for supplemental services

expenditures outlined above have been met.

(2) Unless otherwise determined by an FCA Board action,

supplemental support services requiring resources beyond that available

within the FCSBA budget will require reimbursement.

Reimbursements in excess of $10,000 which occur on an ongoing basis

will require a written Memorandum of Understanding outlining the terms

and conditions of the services provided and reimbursement. One time, or

minor recurring reimbursements may be handled by invoice. Reimbursable

expenses shall be determined on an actual cost basis or a recognized

methodology to achieve the goal of making the FCSBA ``whole'' on the

transaction.

Adopted this 7th day of July, 1995 by order of the Board.

Dated: July 13, 1995.

Floyd Fithian,

Secretary, Farm Credit Administration.

[FR Doc. 95-17781 Filed 7-19-95; 8:45 am]

BILLING CODE 6705-01-P