NCUA Report - April 2012

Region I Report
SUPERVISORY COMMITTEE:
AN OVERVIEW OF RESPONSIBILITIES

Credit union supervisory committee members are aware of the committee’s role in safeguarding member assets and resolving member complaints. These volunteers understand the need for an annual audit and a biennial verification of member accounts. However, and especially for new committee members, Region I will review some of the wrinkles that come up as this vital committee does its work.

A qualified external party will complete the annual audits of most credit unions. The depth and structure of the audit needs to at least be consistent with NCUA’s Rules and Regulations (Section 715.5). A credit union’s audit requirement varies according to asset size (see table below).

The supervisory committee should retain responsibility for reviewing, choosing, and engaging the firm or individual that will perform the audit work. The supervisory committee chair should also sign the engagement paperwork. For committee members, avoiding conflicts of interest, both real and perceived, is paramount.

It is common for credit unions to opt for an “audit per the Supervisory Committee Guide” as outlined in NCUA’s rules (Section 715.7). In these cases, it is important to review the prospective firm’s engagement proposal to ensure it addresses all the requirements of Appendix A in the Supervisory Committee Guide. The supervisory committee should always review the final audit report and be aware of any concerns raised in the audit.

The verification process of member accounts varies widely from credit union to credit union. Some credit unions opt to have a third party complete this process, while others will complete it at the supervisory committee level.

REGION I

Supervisory committees involved with this latter method should be mindful not to rely solely on staff to complete this process. The committee needs to shoulder this responsibility to ensure accurate results.

In a controlled verification (also known as a 100 percent verification), all member accounts need to be included. The supervisory committee should determine if their credit union has accounts that do not receive statements, which is a common practice. These accounts need to be verified through alternative methods. The Supervisory Committee Guide provides details on completing alternative verification methods.

A controlled verification needs to include accounts closed since the last verification. Closed accounts should be verified regularly (typically monthly) or would need to be included in the biennial controlled verification process.

The statement or insert sent to the members should be clear and identifiable as a request for verification by the supervisory committee. The return address for the verification should be controlled by the supervisory committee.

The foregoing is a brief introduction to the elements of an audit and verification of member accounts. The most valuable resource for any new committee member is the experience of his or hers fellow members. As noted, the Supervisory Committee Guide is a handy tool for understanding and performing your duties. Next time, Region I will take you on a tour of internal controls, which are critical for many reasons, least of which is preventing or uncovering fraud.

AUDIT REQUIREMENT FOR CREDIT UNIONS BY ASSET SIZE AND CHARTER
Type of
Charter
Asset Size
Minimum Audit Required to Fulfill
Supervisory Committee Audit Responsibility
Part 715
Section