NCUA Issues Final Rule On Annual Supervisory Committee Audits, Verifications And Due Date
NCUA has issued a final rule, modifying 12 CFR part 715, which deals with Supervisory Committee audits. The new rule, which becomes effective in 90 days, replaces the existing Supervisory Committee Audit Guide with a simpler appendix to part 715. The rule also eliminates the existing (1) Balance only Audit and (2) Report on Examination of Internal Controls Over Call Reporting. NCUA noted that these types of audits are less comprehensive and are rarely used in practice. The new 715 appendix, Supervisory Committee Audit - Minimum Procedures, defines certain audit terms and prescribes the minimum procedures which credit union auditors must perform:
Reviewing Board of Directors minutes to determine whether any material changes to the credit union’s activities or conditions are relevant to the areas to be reviewed in the audit;
Test and confirm asset and liability accounts, at a minimum:
Loans
Cash on deposit
Investments
Shares
Borrowings
Test material equity, income, and expense accounts;
Test for unrecorded liabilities;
Review key internal controls including at a minimum:
Bank reconciliations procedures
Cash controls
Dormant account controls
Wire and ACH transfer controls
Loan approval and disbursement procedures
Controls over accounts of employees and officials
Other real estate owned
Foreclosed and repossessed assets
Test mathematical accuracy of the allowance for loan and lease loss account and ensure the methodology is properly applied;
Test loan delinquency and charge-offs.
NCUA has also eliminated the 120-day requirement for completion of audits by outside, compensated persons, opting instead for a “target date” requirement that the audit is completed annually. Federal and State chartered credit unions with assets over $500 million are still required to have a Financial Statement Opinion audit, in accordance with generally accepted auditing standards, performed by a Certified Public Accountant. Credit unions with assets less than $500 million can choose the opinion audit or the new Supervisory Committee audit. NCUA feels that this gives credit unions more flexibility.