Testimony of

Jerold L. Harris, President

Accompanied by

David D. Janish, Vice President-Information Services

Farm Credit Bank of Wichita, Kansas

to the

Senate Agriculture, Nutrition and Forestry Committee

The Honorable Richard G. Lugar, Chairman

July 22, 1998

Mr. Chairman, members of the Committee, my name is Jerold Harris. I am the President of the Farm Credit Bank of Wichita, Kansas. With me today is Dave Janish, my Vice President of Information Services, who will assist me in addressing your questions.

First, I would like to express my appreciation for this opportunity to discuss the importance of the Year 2000 issue. Your leadership in evaluating this area and your recognition of the need for the entire agricultural industry to properly address it is appropriate and timely.

I will share with this Committee how the Farm Credit Bank of Wichita is addressing Y2K and try to respond to your questions. I suspect the model we are using is typical of how other Farm Credit institutions are responding to Y2K.

I can assure you that we take Y2K very seriously. However, we have known about this potential problem for quite awhile and began an in-depth evaluation of its impact on the Farm Credit Bank of Wichita approximately two years ago.

Our regulator, the Farm Credit Administration, also has been aware of this issue for quite some time and has made certain that Farm Credit System institutions are aware of the scope of the problem. FCA has provided much useful information to assist us and has provided guidance on the type of plan needed, the types of evaluation and testing that need to be accomplished, and key time frames by which various activities need to be completed. FCA guided us to develop a plan that contains five distinct phases. These phases are awareness, assessment, renovation, validation and implementation. They have asked us to report quarterly our progress in each of these phases and, in a few moments, I will discuss some of those results. Before I do that, I would like to give you an overview of how we have used this process to manage our Y2K effort.

Our approach can best be described as follows: First, we developed an awareness of the Y2K problem with our Board of Directors, staff and Farm Credit associations. This was done both in writing and face-to-face meetings. Second, we developed a formal plan to assess the scope of the problem. Following our review, we concluded that some aspects of our business would be at greater risk than others and determined that we needed to formalize our efforts to manage this risk. We categorized each of our business functions, ranking them by the extent to which their critical nature might impact our business. For example, those with the most impact were labeled "Mission Critical" and get first priority. In our business, about 20 percent of our business functions were ranked as Mission Critical.

Our Board then reviewed and adopted this very comprehensive plan. We then allocated the capital and human resources needed to address areas where concerns were identified. This was followed with the development of specific action plans with stated timeframes for renovation and validation testing. We openly shared our plan with our Farm Credit associations and provided direction for them to begin their own evaluation of Y2K at their businesses.

Included in our overall evaluations was an assessment of the Y2K compliance of our vendors and suppliers, our customers and our business partners. One concern is that businesses rely on each other for many services and, to some extent, our processes may even be integrated. As a result, we are requesting a Y2K certification from those parties who can have an impact on our critical business functions. This certification outlines how they are addressing their own Y2K issues, and includes verification that the service they provide to us is Y2K compliant.

Finally, we have established ongoing reporting to our Board of Directors and to our associations to insure maximum communication and understanding. To date, we have fully completed the awareness and assessment phases. We have completed approximately 60 percent of our renovation phase, which is the rewriting of computer software, coding, adjustments to reports and changes in processing. Our validation or testing phase has just begun. Preliminary tests have gone well and we will complete the testing phase on or before December 31, 1998.

We continue to work closely with Farm Credit associations in the four states we serve to insure they fully appreciate the pervasive nature of this problem and are working with them as a team to correct deficiencies in hardware, software or processes that could threaten our business.

Mr. Janish has an assistant vice president on his staff whose highest priority is to head up our Y2K Project Team. This project team is made up of a group of department heads and functional leaders to insure our comprehensive program is carried out in all of the many disciplines within our organization. While we have great confidence in our internal project team, we believe an external review is a necessary component of a sound and comprehensive program. To that end, we have hired PricewaterhouseCoopers to evaluate the adequacy of our plan, our testing and our results. In addition, the Farm Credit Administration (FCA) has a team of examiners in our Bank reviewing, among other things, our Y2K compliance project and progress. While this is FCA's regular annual examination of our Bank, I can assure you that Y2K will get a fair share of their attention, and we look forward to receiving their report.

I am happy to report that to date, we have not found Y2K problems that we believe are insurmountable. We have been very diligent about staying current on technology at our Bank. The bulk of our hardware and software systems are new within the last couple of years, and much of that technology was already Y2K compliant, or easier to bring into compliance. We have our share of technology solutions that still need work, but we believe solutions are within our reach. We anticipate being fully compliant by early 1999, having completed all five phases of our plan.

We are not naive. We presume there will always be the unexpected, and we need to be flexible enough when the time comes to quickly react to any unanticipated problems. This is why we are developing extensive contingency plans. We believe we will be able to respond to undiscovered problems or externally related malfunctions as necessary. Our contingency plans will be in place by December 31, 1998. We have a good comfort level that our evaluation has appropriately identified problems to be corrected and tested.

We have no control over broader Y2K potential problems. The whole business community relies on telecommunications, transportation and other infrastructure systems. Our efforts are appropriately focused on those areas in which we have control. This includes things like our level of preparedness, the attention we have given to our computer systems, our internal processes, and our customer communications. We believe that Congress should provide overall leadership to those areas outside the control of private businesses.

Mr. Chairman, we know Congress is working hard to deal with these issues, and we appreciate your leadership in assuring basic services are not interrupted.

At the Farm Credit Bank of Wichita, we believe we are doing all we can to insure that January 1, 2000 is a day of new opportunity. We intend to start the new millennium on a positive note, not battling a crisis. We know you have the same goal. Together we can make it happen.

Mr. Chairman, thank you again for the opportunity to address this important Committee. Mr. Janish and I would be happy to try to answer any questions you have.