Supervisory Committee 101

Report
Supervisory Committee Duties and
Responsibilities
Ashley M. Mobley
C.U.C.E, B.S.A.C.S., A.A.P.
Assistant Vice President
Credit Union Auditing & Compliance Experts
Overview
Appointment
and
Membership
Officers of
the
Supervisory
Committee
Powers of the
Supervisory
Committee
Duties of the
Supervisory
Committee
How is the Supervisory Committee
appointed?
• By the Board of Directors
• From among the Credit Union membership
Specs
• 3-5 members, determined by the Board of Directors
• 1-3 year terms (all terms must be same number of years, and terms should be staggered with one
position up for appointment each year)
Notable
• Only 1 member of the Supervisory Committee may be a Director of the Credit Union, other
than a compensated officer
• Members of the Credit Committee, as well as Credit Union employees are prohibited from being
appointed to the Supervisory Committee
• State Chartered Credit Union Supervisory Committee members are elected by the members of
the Credit Union
Organization of a Credit Union
Basic Organization Structure
Who should be considered to be a member of the
Supervisory Committee?
Familiar with
Accounting/Auditing
Principles
BONDABLE
Willing to commit
required time
Willing to attend
applicable training
Officers of the Supervisory Committee
Supervisory
Committee
Members Elect
Chairperson
Secretary
Note: They can be
the same
individual
Meetings
Monthly or quarterly meetings
should be completed (based on
size/complexity of your Credit
Union)
Minutes should be approved at
the next meeting
The Secretary must maintain
records of all actions taken by
the Supervisory Committee
The minutes should document
significant discussions and
summarize procedures
performed
Attendance at Board Meetings
At least 1
Supervisory
Committee
representative should
attend each meeting
of the Board of
Directors
Attendance is only
permitted with the
permission of the
Board of Directors
If permission for
attendance is not
granted, the Board of
Directors must
publish minutes and
the minutes must be
available to the
Supervisory
Committee for its
review.
Why call a special meeting?
Federal
Credit Union
Act
Any practice
considered
unsafe or
unauthorized
Rules and
Regulations
You may call a
special meeting
(by a majority
vote) to consider
any violations of
the:
Bylaws
Charter
Oversight Powers
By unanimous vote,
the Supervisory
Committee may
suspend a member of
the Board of
Directors, an
executive officer, or
a Credit Committee
member. If
suspension takes
place, the following
actions must be
taken:
• The Supervisory Committee should
call a special meeting of the
members to act on the suspension
• The special meeting must be take
place within 7 to 14 days of the
suspension
• The suspended party must be given
an opportunity to present a defense
Expulsion of Supervisory Committee
Members
Failure to
perform duties
as required
Failure to
attend
meetings
Dishonesty
The Board of
Directors may suspend
or remove
Supervisory
Committee members
for the following
possible reasons:
Conviction of
a felony
Responsibilities of the Committee
The Supervisory Committee has two basic
responsibilities:
• Ensure that the Board of Directors and Management
have met required financial reporting objectives
• Ensure that the Board of Directors and Management
have established practices and procedures sufficient
to safeguard members’ assets
Supervisory Committees are also known as…
The GUARDIAN of member funds.
The WATCHDOG of the Credit
Union
The Audit Committee
Specific Responsibilities of the Supervisory Committee
Determine whether:
1. Internal controls are established and effectively maintained
in order to achieve the Credit Union’s financial reporting
objectives which must be sufficient to satisfy the requirements
of the Supervisory Committee audit, verification of members’
accounts, and its additional responsibilities.
2. The Credit Union’s accounting records and financial reports
are promptly prepared and accurately reflect operations and
results.
Specific Responsibilities of the Supervisory Committee
Cont.
Determine whether:
3. The relevant plans, policies, and control procedures
established by the Board of Directors are properly
administered.
4. Policies and control procedures are sufficient to safeguard
against error, conflict of interest, self-dealing, and fraud.
Mandates of the Supervisory Committee
1. Ensure the Credit Union
adheres to the measurement
and filing requirements for
reports filed with the NCUA
Board under §741.6 of the
NCUA Rules and Regulations
2. Perform or obtain a
Supervisory Committee audit,
as prescribed in §715.4 of the
NCUA Rules and Regulations
3. Verify, or cause the
verification, of members’
accounts as prescribed under
§715.8 of the NCUA Rules
and Regulations
4. Act to avoid imposition of
sanctions for failure to comply
with the requirements of this
part, as prescribed in §715.11
and §715.12 of the NCUA
Rules and Regulations
What must we do?
 At least once every calendar year, complete (or have
completed) the Supervisory Committee audit, and provide a
report on the audit to the Board of Directors
 At least every 2 years, you must conduct (or have conducted)
a verification of members’ accounts
 Continuously monitor to ensure the Board of Directors is
safeguarding assets, and that Management complies with the
policies and plans set forth by the Board of Directors
 Report to members at the annual meeting
Other Things to Do
 Continuously review and
 Meet with the examiners
monitor internal control
policies and procedures
 Select and cooperate with
external auditors, if
applicable
 Review examination and
audit findings and ensure
corrective action was taken
and documented
and auditors as necessary
 Research member
complaints
 Complete other
recommended procedures
Types of Audits
 Annual Supervisory Committee

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
audit
Quarterly, or interim, audits
ACH (Automated Clearing House)
Audits
OFAC (Office of Foreign Asset
Control) scrubs
BSA (Bank Secrecy Act) Audits
Account Verifications
IS & T (Information Systems &
Technology) Audits
Compliance Reviews
Internal Control Reviews
Options for Fulfilling § 715.4(a)
$500 Million or Greater
in Assets
• Financial Statement audit per GAAS by independent, State-licensed person.
Less than $500 Million in
Assets, but Greater than
$10 Million in Assets
• Financial Statement audit performed in accordance with GAAS by an independent, State-licensed person.
• Balance Sheet Audit performed by an independent, State-licensed person.
• Report on Examination of Internal Control over Call Reporting performed by an independent, State-licensed
person.
• Audit per Supervisory Committee Guide performed by the Supervisory Committee, its internal auditor, or
any other qualified person (such as a league auditor)
Less than $10 Million in
Assets
• Balance Sheet Audit performed by an independent, State-licensed person.
• Report on Examination of Internal Control over Call Reporting performed by an independent, State-licensed
person.
• Audit per Supervisory Committee Guide performed by the Supervisory Committee, its internal auditor, or
any other qualified person (such as a league auditor)
Federal Charter
Options for Fulfilling § 715.4(a)
$500 Million
or Greater in
Assets
• Financial Statement audit per GAAS by independent, State-licensed person.
Less than
$500 Million
in Assets
• Financial Statement audit performed in accordance with GAAS by an independent, Statelicensed person.
• Balance Sheet Audit performed by an independent, State-licensed person.
• Report on Examination of Internal Control over Call Reporting performed by an
independent, State-licensed person.
• Audit per Supervisory Committee Guide performed by the Supervisory Committee, its
internal auditor, or any other qualified person (such as a league auditor)
State Charter
Interim Audit Procedures
Supervisory Committee members are
called upon to perform an everincreasing number of procedures on
a year-round basis. Today, the sheer
volume and the technical expertise
required to complete the work keeps
many Supervisory Committees from
performing interim procedures.
Interim Audit Procedures
Some of the more commonly completed interim procedures include the
following:

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Review account activity on the Credit Union’s employees.
Review and test a sample of reconciliations for Federal Reserve, correspondent bank, On-Us, and Corporate Credit Union
accounts.
Review activity on suspense and clearing accounts related to the accounts listed above.
Confirm a sample of new loans, new deposit accounts, and/or closed accounts since the last quarterly interim or annual
audit.
Review for compliance with the Credit Union’s loan policy a sample of new loans granted since the last quarterly interim
or annual audit.
Review a selection of file maintenance reports for randomly selected days.
Review procedures for handling negative balance accounts, including timeliness of collection or subsequent write-off.
Review a sample of loan exception reports, including paid ahead loans, non-amortizing loans, open-end loans with
balances greater than established credit limits, closed end loans with balances greater than original loan amount, and/or
loans by interest rate.
Test classification of delinquent status on a sample of loans classified as delinquent since the last quarterly interim or
annual audit, including a review for compliance with the Credit Union’s collection policy.
Review a sample of delinquent loans and document collection efforts relative to the collection policy.

Review for compliance with the Credit Union’s charge-off policy a sample of loans charged-off since the last quarterly
interim or annual audit.

Review corporate expenses and charge card accounts, including compliance with the Credit Union’s written policies.

Confirm activity on dormant or inactive accounts removed from the dormant report since the last annual or interim audit.
ACH Audit
Per 2009 NACHA Operating Rules, “Each
participating DFI, and any third-party service
provider that provides ACH services to the
Participating DFI, shall, in accordance with
standard auditing procedures, conduct an
internal or external audit of compliance with
provisions of the ACH rules in accordance
with the requirements of this Appendix 8.”
ACH Audit
 Must be performed by December 1 each year in order to be
recognized by NACHA.
 Credit Union must retain documentation supporting the
completion of an audit for 6 years.
 The retained documentation must be provided to the
National Association upon request.
 Audit provisions in Appendix 8 do not prescribe a specific
methodology to be used for the completion of an audit, but
identify key rule provisions that should be examined during
the audit process.
OFAC Audit
OFAC audit procedures, or
“scrubs”, are required
quarterly at a minimum. In
some cases, the Credit Union’s
data processor performs this
scrub automatically.
Bank Secrecy Act Compliance Audit
§ 748.2 (c)(2) of the NCUA
Rules and Regulations:
A BSA compliance program must
“provide for independent testing for
compliance to be conducted by Credit
Union personnel or outside parties”.
Bank Secrecy Act Compliance Audit
Per CUNA’s BSA Compliance
Guide, an effective audit program
should be conducted at least
annually; however, a credit union
may perform a BSA audit on an 18month schedule dependent upon
assessed risk and examiner approval.
Verification of Accounts
What does “verifying member accounts” mean?
• Requesting members to respond to you if the activity or balances on their
statements are not accurate (this is required every 2 years)
What is the purpose of an account verification?
• To detect errors, and it is also a good control to prevent fraud
Why must we verify closed accounts?
• To detect errors, and guard against fraud
How do we verify closed accounts?
• By requesting verification that the members closed their accounts, as the
Credit Union’s records reflect (this should be done quarterly)
Review of Internal Controls
Internal Controls include
the staff structure,
operating procedures, and
other measures within the
Credit Union to:
Internal Controls
minimize the possibility
that errors or fraud
remain undetected for any
length of time. Examples
of Internal Controls
include:
•
•
•
•
Safeguard assets
Check the accuracy and reliability of accounting data
Promote efficiency
Encourage compliance with policies set forth by the
Board of Directors
• Passwords on the computer system
• Separation/segregation of duties
Reporting the Audit Findings
The audit findings
should be reported
in writing to the
Supervisory
Committee by the
audit firm
The auditors should
meet, in person,
with the Supervisory
Committee as
necessary
The Supervisory
Committee should
research each item
and recommend any
changes necessary to
correct the issue
The Supervisory
Committee must
then report these
finding to the Board
of Directors
Be an Active Supervisory Committee
 The Supervisory Committee should be granted access to all
of the Credit Union’s records without exception
 The Supervisory Committee should adequately document all
reviews performed
 ALL CREDIT UNION INFORMATION MUST BE KEPT
CONFIDENTIAL
Questions?
Thank You!

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