WEBVTT

NOTE
This file was generated by Descript 

00:00:00.460 --> 00:00:02.359
Samantha: Hello, this is Samantha Shares.

00:00:02.930 --> 00:00:07.519
This episode covers Supervisory Committee
Audits and Verifications; Proposed Rule.

00:00:08.100 --> 00:00:10.590
The following is an audio
version of that document.

00:00:11.210 --> 00:00:14.369
This podcast is educational
and is not legal advice.

00:00:14.920 --> 00:00:18.969
We are sponsored by Credit Union
Exam Solutions Incorporated, whose

00:00:18.969 --> 00:00:22.079
team has over two hundred and
forty years of National Credit

00:00:22.079 --> 00:00:23.959
Union Administration experience.

00:00:24.579 --> 00:00:28.329
We assist our clients with N C
U A so they save time and money.

00:00:28.700 --> 00:00:32.790
If you are worried about a recent,
upcoming, or in process N C U A

00:00:32.790 --> 00:00:37.020
examination, reach out to learn how they
can assist at Mark Treichel dot com.

00:00:37.590 --> 00:00:41.799
Also check out our other podcast called
With Flying Colors where we provide tips

00:00:41.799 --> 00:00:44.369
on how to achieve success with N C U A.

00:00:44.880 --> 00:00:45.869
And now the document.

00:00:46.662 --> 00:00:50.242
The N C U A Board is proposing to
amend its regulations governing

00:00:50.242 --> 00:00:54.062
supervisory committee audits to
eliminate unnecessary, redundant,

00:00:54.172 --> 00:00:56.062
and overly prescriptive provisions.

00:00:56.622 --> 00:01:00.502
The purpose of this action is to
reduce regulatory burden, increase

00:01:00.562 --> 00:01:04.742
operational flexibility for credit
unions, and streamline requirements

00:01:04.742 --> 00:01:08.002
that have become outdated or
duplicative of other authorities.

00:01:08.542 --> 00:01:11.742
The goal of the proposal is to
simplify compliance for credit

00:01:11.742 --> 00:01:15.282
unions without compromising the
integrity of the audit process.

00:01:15.960 --> 00:01:17.460
Supplementary information.

00:01:17.920 --> 00:01:18.670
Introduction.

00:01:19.200 --> 00:01:19.840
Background.

00:01:20.360 --> 00:01:24.630
The Board proposes amendments to part
seven fifteen, which governs supervisory

00:01:24.630 --> 00:01:28.450
committee audits and verifications
for federally insured credit unions.

00:01:29.060 --> 00:01:32.970
The primary purpose of these rules is
to ensure that federally insured credit

00:01:32.970 --> 00:01:37.330
unions meet required financial reporting
objectives and establish practices

00:01:37.370 --> 00:01:41.580
and procedures sufficient to safeguard
member assets from error, conflicts

00:01:41.580 --> 00:01:43.770
of interest, self-dealing, and fraud.

00:01:44.571 --> 00:01:47.491
The proposal would partially
or fully eliminate several

00:01:47.491 --> 00:01:48.931
sections of the current rule.

00:01:49.491 --> 00:01:53.421
Section seven fifteen point two defines
key terms used throughout the part,

00:01:53.711 --> 00:01:58.691
including financial statements, financial
statement audit, G A A P, G A A S,

00:01:58.811 --> 00:02:01.141
compensated person, and working papers.

00:02:01.811 --> 00:02:05.201
This section distinguishes a formal
financial statement audit from the

00:02:05.201 --> 00:02:09.231
broader supervisory committee audit
responsibilities, which may be met

00:02:09.231 --> 00:02:11.131
through several types of engagements.

00:02:11.793 --> 00:02:15.093
Section seven fifteen point
eight sets forth the requirement

00:02:15.093 --> 00:02:16.563
to verify member accounts.

00:02:17.253 --> 00:02:20.853
This requirement comes from the Federal
Credit Union Act and obligates the

00:02:20.853 --> 00:02:25.073
supervisory committee to verify member
accounts at least once every two years.

00:02:25.603 --> 00:02:28.853
Verification may be done through a
full ninety nine percent controlled

00:02:28.853 --> 00:02:33.293
verification, a statistical sampling
method, or a non-statistical

00:02:33.293 --> 00:02:36.453
method consistent with auditing
standards when performed by a

00:02:36.453 --> 00:02:38.483
state-licensed independent person.

00:02:39.179 --> 00:02:42.279
Section seven fifteen point
nine governs engagements with

00:02:42.319 --> 00:02:44.139
outside compensated persons.

00:02:44.709 --> 00:02:48.299
To ensure independence, the auditor
may not be related by blood or

00:02:48.299 --> 00:02:52.019
marriage to any management employee
or official of the credit union.

00:02:52.599 --> 00:02:56.029
Engagements must be formalized through
an engagement letter contracted

00:02:56.029 --> 00:02:58.019
directly with the supervisory committee.

00:02:58.469 --> 00:03:02.319
The letter must specify the terms and
objectives, the basis of accounting,

00:03:02.369 --> 00:03:06.899
the compensation, the expected delivery
date of the audit report, and confirm

00:03:06.899 --> 00:03:11.399
that regulators will have unconditional
access to the working papers, which must

00:03:11.399 --> 00:03:13.319
be retained for at least three years.

00:03:13.986 --> 00:03:17.626
Section seven fifteen point ten
outlines the responsibilities for

00:03:17.626 --> 00:03:19.686
the audit report and working papers.

00:03:20.246 --> 00:03:23.636
Upon receiving the written audit
report, the supervisory committee

00:03:23.636 --> 00:03:26.856
must submit it to the board of
directors and provide a summary of

00:03:26.856 --> 00:03:28.776
the audit at the next annual meeting.

00:03:29.346 --> 00:03:32.856
If a member requests it, the full
audit report must be made available.

00:03:33.426 --> 00:03:37.166
The supervisory committee is responsible
for maintaining the original working

00:03:37.166 --> 00:03:42.276
papers and providing the N C U A with
unconditional access to them upon request.

00:03:42.964 --> 00:03:47.134
Section seven fifteen point twelve
provides the statutory remedies available

00:03:47.134 --> 00:03:51.634
to the N C U A Board when a federal
credit union fails to obtain a required

00:03:51.634 --> 00:03:56.414
supervisory committee audit or when an
audit is incomplete or unsatisfactory.

00:03:56.964 --> 00:04:01.214
The Board may compel an audit performed
by an independent, state-licensed person.

00:04:01.764 --> 00:04:05.164
It may also compel a full financial
statement audit if the credit

00:04:05.164 --> 00:04:08.704
union has serious and persistent
recordkeeping deficiencies.

00:04:09.424 --> 00:04:13.704
Section seven forty one point two zero
two extends these supervisory committee

00:04:13.744 --> 00:04:17.914
audit and verification requirements to
all federally insured credit unions,

00:04:18.094 --> 00:04:20.264
including state-chartered credit unions.

00:04:20.977 --> 00:04:21.897
Legal authority.

00:04:22.467 --> 00:04:26.247
The Federal Credit Union Act sets
forth provisions governing auditing

00:04:26.247 --> 00:04:27.527
and accounting requirements.

00:04:28.127 --> 00:04:31.617
Section one fifteen requires an
annual audit and requires the

00:04:31.617 --> 00:04:35.087
supervisory committee to submit a
report of that audit to the board of

00:04:35.087 --> 00:04:39.097
directors and to provide a summary to
members at the next annual meeting.

00:04:39.577 --> 00:04:43.417
Section two zero two authorizes the
Board to prescribe audit standards,

00:04:43.677 --> 00:04:47.067
including requiring an outside
independent audit when a federally

00:04:47.067 --> 00:04:50.947
insured credit union has not conducted
a required supervisory committee

00:04:50.947 --> 00:04:55.357
audit or has experienced persistent
or serious recordkeeping deficiencies.

00:04:55.947 --> 00:05:00.417
The Act also requires credit unions with
ten million dollars or more in assets

00:05:00.417 --> 00:05:04.647
to use accounting principles consistent
with G A A P when filing reports.

00:05:05.147 --> 00:05:08.977
Credit unions with five hundred
million dollars or more in assets must

00:05:08.977 --> 00:05:13.537
obtain an annual independent financial
statement audit performed under G A A S.

00:05:14.231 --> 00:05:15.131
Proposed rule.

00:05:15.801 --> 00:05:19.481
The Board proposes several amendments
to part seven fifteen to reduce

00:05:19.481 --> 00:05:23.171
burden, eliminate redundancies,
and increase flexibility.

00:05:23.881 --> 00:05:28.441
The Board proposes changes to definitions,
verification procedures, engagement

00:05:28.441 --> 00:05:32.461
letter requirements, audit report
handling, and statutory remedies.

00:05:33.195 --> 00:05:37.405
The Board proposes to amend the definition
of internal control in section seven

00:05:37.405 --> 00:05:42.075
fifteen point two by removing overly
prescriptive language describing specific

00:05:42.075 --> 00:05:44.465
components of internal control structures.

00:05:44.915 --> 00:05:47.685
The current definition
references a particular framework

00:05:47.685 --> 00:05:49.195
that may evolve over time.

00:05:49.735 --> 00:05:53.365
Removing this language would allow
credit unions and auditors to apply

00:05:53.365 --> 00:05:55.525
current industry-accepted frameworks.

00:05:56.005 --> 00:06:00.115
The Board also proposes to remove the
sentence defining reliable financial

00:06:00.115 --> 00:06:04.845
reporting solely by reference to call
report preparation, as this is too narrow.

00:06:05.597 --> 00:06:09.587
The Board proposes to amend section
seven fifteen point eight by removing

00:06:09.587 --> 00:06:11.097
the phrase “of the treasurer.”

00:06:11.857 --> 00:06:15.107
Under the Federal Credit Union
Act, the treasurer must maintain

00:06:15.107 --> 00:06:18.577
the records of the credit union,
but the supervisory committee is

00:06:18.577 --> 00:06:22.427
responsible for verifying member
accounts against credit union records.

00:06:23.097 --> 00:06:26.077
This change simplifies and
clarifies the requirement.

00:06:26.796 --> 00:06:30.846
The Board proposes to amend section
seven fifteen point nine by removing

00:06:30.846 --> 00:06:34.156
a sentence that details how the
engagement letter must be signed.

00:06:34.666 --> 00:06:37.506
The Board finds that such
detail is unnecessary.

00:06:37.886 --> 00:06:40.806
The provision will remain clear
that the supervisory committee

00:06:40.806 --> 00:06:44.216
must contract directly with any
compensated outside auditor.

00:06:44.756 --> 00:06:49.486
Removing this detail reduces regulatory
burden without reducing audit integrity.

00:06:50.227 --> 00:06:54.397
The Board proposes to amend section
seven fifteen point ten by removing

00:06:54.397 --> 00:06:58.417
the sentence requiring the supervisory
committee to provide the N C U A with

00:06:58.417 --> 00:07:00.757
a copy of audit reports upon request.

00:07:01.357 --> 00:07:06.017
This requirement is redundant because the
N C U A already possesses broad statutory

00:07:06.017 --> 00:07:10.297
authority to access all records of any
federally insured credit union during

00:07:10.297 --> 00:07:12.667
examination and supervision activities.

00:07:13.412 --> 00:07:18.132
The Board also proposes to amend section
seven fifteen point twelve by removing two

00:07:18.132 --> 00:07:22.472
sentences describing the objective of a
financial statement audit compelled by the

00:07:22.472 --> 00:07:27.082
N C U A and stating that adverse opinions
or disclaimers should be the exception.

00:07:27.622 --> 00:07:30.912
These sentences duplicate
expectations already provided under

00:07:30.912 --> 00:07:34.952
G A A S and may cause confusion
if auditing standards change.

00:07:35.735 --> 00:07:37.215
Regulatory procedures.

00:07:37.805 --> 00:07:41.335
The Providing Accountability Through
Transparency Act of twenty twenty three

00:07:41.335 --> 00:07:45.815
requires each proposed rule to include the
internet address of a summary of no more

00:07:45.815 --> 00:07:50.755
than one hundred words, presented in plain
language, posted on Regulations dot gov.

00:07:51.515 --> 00:07:55.215
The summary explains that the Board
is proposing to amend its regulations

00:07:55.215 --> 00:07:59.335
governing supervisory committee audits
to eliminate unnecessary and overly

00:07:59.335 --> 00:08:03.395
prescriptive provisions and to streamline
compliance without compromising

00:08:03.395 --> 00:08:05.285
the integrity of the audit process.

00:08:06.014 --> 00:08:10.254
Under Executive Orders twelve eight
six six and thirteen five six three,

00:08:10.634 --> 00:08:14.314
the proposed rule is not considered
a significant regulatory action.

00:08:14.784 --> 00:08:18.904
Under Executive Order fourteen one
nine two, the rule is expected to be

00:08:18.904 --> 00:08:22.734
deregulatory because it eliminates
requirements and reduces burden.

00:08:23.452 --> 00:08:27.602
Under the Regulatory Flexibility Act,
the Board certifies that the proposed

00:08:27.602 --> 00:08:31.222
rule would not have a significant
economic impact on a substantial

00:08:31.222 --> 00:08:32.992
number of small credit unions.

00:08:33.552 --> 00:08:37.672
The amendments clarify or eliminate
prescriptive requirements but do not

00:08:37.672 --> 00:08:39.962
materially change audit obligations.

00:08:40.639 --> 00:08:45.069
The N C U A has determined that the
proposed rule does not create or revise

00:08:45.069 --> 00:08:48.779
information collection requirements
under the Paperwork Reduction Act.

00:08:49.518 --> 00:08:52.908
The Board also determined that the
proposal does not have federalism

00:08:52.908 --> 00:08:56.248
implications under Executive
Order thirteen one three two.

00:08:56.798 --> 00:09:00.078
The requirements continue to
apply uniformly to all federally

00:09:00.078 --> 00:09:03.868
insured credit unions, including
state-chartered institutions.

00:09:04.556 --> 00:09:07.666
The N C U A has determined
that this proposed rule would

00:09:07.666 --> 00:09:09.256
not affect family well-being.

00:09:10.053 --> 00:09:14.713
For the reasons stated in the preamble,
the N C U A Board proposes to amend title

00:09:14.713 --> 00:09:18.813
twelve, Code of Federal Regulations,
part seven fifteen as follows.

00:09:19.283 --> 00:09:20.453
Part seven fifteen.

00:09:20.883 --> 00:09:23.423
Supervisory Committee
Audits and Verifications.

00:09:23.863 --> 00:09:27.443
First, the authority citation for
part seven fifteen continues to

00:09:27.443 --> 00:09:30.903
read as the statutory provisions
governing supervisory committee

00:09:30.903 --> 00:09:34.933
responsibilities and audit requirements
in the Federal Credit Union Act.

00:09:35.571 --> 00:09:40.001
Section seven fifteen point two paragraph
h would be revised to define internal

00:09:40.001 --> 00:09:44.201
control as the process established
by the board of directors, officers,

00:09:44.261 --> 00:09:47.891
and employees, designed to provide
reasonable assurance of reliable

00:09:47.891 --> 00:09:51.461
financial reporting and safeguarding
of assets against unauthorized

00:09:51.461 --> 00:09:53.571
acquisition, use, or disposition.

00:09:54.201 --> 00:09:58.031
Internal control over safeguarding
of assets refers to the prevention

00:09:58.161 --> 00:10:02.791
or timely detection of unauthorized
access, use, or disposition of assets

00:10:02.981 --> 00:10:06.601
which could result in a loss that is
material to the financial statements.

00:10:07.253 --> 00:10:10.503
Section seven fifteen point eight
would be amended by removing

00:10:10.503 --> 00:10:11.973
the words “of the treasurer.”

00:10:12.688 --> 00:10:17.198
Section seven fifteen point nine paragraph
b would be revised to require that the

00:10:17.198 --> 00:10:21.648
engagement of a compensated auditor be
evidenced by an engagement letter, and

00:10:21.648 --> 00:10:25.468
that the engagement must be contracted
directly with the supervisory committee.

00:10:26.111 --> 00:10:30.241
Section seven fifteen point ten paragraph
a would be revised to require the

00:10:30.241 --> 00:10:34.591
supervisory committee, upon completion
or receipt of the written audit report,

00:10:34.951 --> 00:10:38.811
to verify that the audit was performed
and reported according to the engagement

00:10:38.811 --> 00:10:43.301
letter, to submit the report to the board
of directors, and to provide a summary

00:10:43.301 --> 00:10:47.331
of the results orally or in writing to
the members at the next annual meeting.

00:10:47.921 --> 00:10:51.651
If a member requests it, the full
audit report must be made available.

00:10:52.371 --> 00:10:56.441
Section seven fifteen point twelve
paragraph b would be revised to state

00:10:56.441 --> 00:11:00.831
that the N C U A Board may compel a
federal credit union to obtain a financial

00:11:00.831 --> 00:11:05.241
statement audit performed under G A A S
by an independent person licensed in the

00:11:05.241 --> 00:11:09.521
state or jurisdiction in which the credit
union is principally located when the

00:11:09.521 --> 00:11:13.991
credit union has experienced serious and
persistent recordkeeping deficiencies.

00:11:14.715 --> 00:11:16.145
This concludes the document.

00:11:16.685 --> 00:11:21.395
If your credit union could use assistance
with your exam, reach out to Mark Treichel

00:11:21.395 --> 00:11:23.385
on LinkedIn or at Mark Treichel dot com.

00:11:23.955 --> 00:11:26.615
This is Samantha Shares, and
we thank you for listening.