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, replacing 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 condition that 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 be 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.