Audit Committee Charter

 Purpose

 The Audit Committee is a committee of the Board of Directors.  The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities relating to the quality of financial reporting and internal controls.  Consistent with this function, the Audit Committee should encourage continuous improvement of, and should foster adherence to, the association’s policies, procedures and practices at all levels.

 While the Audit Committee has the powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the association’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles.  This is the responsibility of management and the independent auditor.

 The primary duties and responsibilities of the Committee are to: 

* Recommend to the Board the employment of a qualified independent auditing and accounting firm to prepare an annual audit report.

* Oversee and appraise the quality of the audit effort of the Association’s internal audit function and those of its independent auditors;

* Maintain, by scheduling regular meetings, open lines of communications among the Board, its internal audit function and its independent auditors to exchange views and information as well as confirm their respective authority and responsibilities;

* Serve as an independent and objective party to review the financial information presented by management to shareholders, regulators, and the general public;

* Review the Farm Credit Administration examination process and results;

* Monitor the Association’s compliance with legal and regulatory requirements; and

* Determine the adequacy of the Association’s administrative, operating, and internal accounting controls and evaluate adherence thereto.

 The Audit Committee will fulfill these responsibilities by carrying out the activities and processes enumerated in the following sections of this Charter.  In doing so, the Committee has full access to all books, records, facilities and personnel of the Association and the power to retain and compensate outside counsel or other experts considered necessary in discharging its oversight role. 

Composition

 The Committee shall be comprised of one ex-officio (non-voting) member and seven voting members.  The seven voting members as determined by the Board should each be free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee.  The Chairman of the Board will serve as the ex-officio member.  The Vice-chairman of the Board will serve as one of the seven voting members. 

Term of Membership

 The Chairman of the Board shall be responsible for appointing the Chairman and members of the Committee at the annual organizational meeting of the Board.  Committee members will serve three-year staggered terms.  After being off the Committee for a year a Board member once again will be eligible for appointment to the Committee.  Vacancies on the Committee will be filled in accordance with the Association policy on Board Committees.

Meetings 

The Committee shall meet at least four times annually, or more frequently as circumstances dictate.  Separate executive sessions should be held at least annually with management, the director of the internal auditing department, and the independent auditor to discuss any matters that the Committee or any of these groups believe should be discussed.

Duties and Responsibilities

 The Committee with assistance from management and the internal auditor shall: 

* Review the adequacy of this Charter on an annual basis.

* Recommend to the full Board the appointment, compensation, retention and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the coming year;

* Ensure that an audit is conducted in compliance with statutory requirements;

* Review and approve any other services to provided by the independent auditor;

* Review and approve the audit plan of the independent auditor;

* Review the appointment and replacement of the director of the internal audit department, and establish his or her’s compensation, including incentive compensation.

* Review and approve the audit plan of the internal audit function;

* Evaluate the effectiveness of both the internal and external audit effort through regular meetings with each respective group;

* Discuss with the independent auditor the matters to be discussed by Statement of Auditing Standards No. 61;

* Periodically consult with the independent auditor in executive session to discuss internal controls and the fullness and accuracy of the association’s financial statements;

* Review annually with management, the external auditor and internal auditor compliance with the association’s Code of Ethics;

* Determine that no management restrictions are being placed upon either the internal or external auditors;

* Evaluate the adequacy and effectiveness of the Association’s administrative, operating and accounting policies through active communications with operating management, internal audit, and the independent auditor;

* Evaluate the adequacy of the Association’s internal control system over financial reporting by review of written reports from and consultation with the internal and external auditors and monitor management’s response and actions to correct any noted deficiencies;

* Review the Association’s annual and quarterly financial statements and any other significant financial information including any certification, report, opinion, or review rendered by the independent auditors;

* Review all regulatory reports submitted to the Association and monitor management’s response to them;

* Require periodic reports from management, the independent auditor and internal audit function on any significant proposed regulatory, accounting or reporting issue to assess the potential impact upon the Association’s financial reporting process;

* Review and approve all significant accounting changes; and

* Perform any other activities consistent with this Charter, the association’s by-laws, and as the Committee or the Board deems necessary or appropriate.

 The Audit Committee may at times handle duties and responsibilities of the Committee in concert with the Board at Board meetings.