Samantha: Hello, this is Samantha Shares.
This episode covers Supervisory Committee Audits and Verifications; Proposed Rule.
The following is an audio version of that document.
This podcast is educational and is not legal advice.
We are sponsored by Credit Union Exam Solutions Incorporated, whose
team has over two hundred and forty years of National Credit
Union Administration experience.
We assist our clients with N C U A so they save time and money.
If you are worried about a recent, upcoming, or in process N C U A
examination, reach out to learn how they can assist at Mark Treichel dot com.
Also check out our other podcast called With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the document.
The N C U A Board is proposing to amend its regulations governing
supervisory committee audits to eliminate unnecessary, redundant,
and overly prescriptive provisions.
The purpose of this action is to reduce regulatory burden, increase
operational flexibility for credit unions, and streamline requirements
that have become outdated or duplicative of other authorities.
The goal of the proposal is to simplify compliance for credit
unions without compromising the integrity of the audit process.
Supplementary information.
Introduction.
Background.
The Board proposes amendments to part seven fifteen, which governs supervisory
committee audits and verifications for federally insured credit unions.
The primary purpose of these rules is to ensure that federally insured credit
unions meet required financial reporting objectives and establish practices
and procedures sufficient to safeguard member assets from error, conflicts
of interest, self-dealing, and fraud.
The proposal would partially or fully eliminate several
sections of the current rule.
Section seven fifteen point two defines key terms used throughout the part,
including financial statements, financial statement audit, G A A P, G A A S,
compensated person, and working papers.
This section distinguishes a formal financial statement audit from the
broader supervisory committee audit responsibilities, which may be met
through several types of engagements.
Section seven fifteen point eight sets forth the requirement
to verify member accounts.
This requirement comes from the Federal Credit Union Act and obligates the
supervisory committee to verify member accounts at least once every two years.
Verification may be done through a full ninety nine percent controlled
verification, a statistical sampling method, or a non-statistical
method consistent with auditing standards when performed by a
state-licensed independent person.
Section seven fifteen point nine governs engagements with
outside compensated persons.
To ensure independence, the auditor may not be related by blood or
marriage to any management employee or official of the credit union.
Engagements must be formalized through an engagement letter contracted
directly with the supervisory committee.
The letter must specify the terms and objectives, the basis of accounting,
the compensation, the expected delivery date of the audit report, and confirm
that regulators will have unconditional access to the working papers, which must
be retained for at least three years.
Section seven fifteen point ten outlines the responsibilities for
the audit report and working papers.
Upon receiving the written audit report, the supervisory committee
must submit it to the board of directors and provide a summary of
the audit at the next annual meeting.
If a member requests it, the full audit report must be made available.
The supervisory committee is responsible for maintaining the original working
papers and providing the N C U A with unconditional access to them upon request.
Section seven fifteen point twelve provides the statutory remedies available
to the N C U A Board when a federal credit union fails to obtain a required
supervisory committee audit or when an audit is incomplete or unsatisfactory.
The Board may compel an audit performed by an independent, state-licensed person.
It may also compel a full financial statement audit if the credit
union has serious and persistent recordkeeping deficiencies.
Section seven forty one point two zero two extends these supervisory committee
audit and verification requirements to all federally insured credit unions,
including state-chartered credit unions.
Legal authority.
The Federal Credit Union Act sets forth provisions governing auditing
and accounting requirements.
Section one fifteen requires an annual audit and requires the
supervisory committee to submit a report of that audit to the board of
directors and to provide a summary to members at the next annual meeting.
Section two zero two authorizes the Board to prescribe audit standards,
including requiring an outside independent audit when a federally
insured credit union has not conducted a required supervisory committee
audit or has experienced persistent or serious recordkeeping deficiencies.
The Act also requires credit unions with ten million dollars or more in assets
to use accounting principles consistent with G A A P when filing reports.
Credit unions with five hundred million dollars or more in assets must
obtain an annual independent financial statement audit performed under G A A S.
Proposed rule.
The Board proposes several amendments to part seven fifteen to reduce
burden, eliminate redundancies, and increase flexibility.
The Board proposes changes to definitions, verification procedures, engagement
letter requirements, audit report handling, and statutory remedies.
The Board proposes to amend the definition of internal control in section seven
fifteen point two by removing overly prescriptive language describing specific
components of internal control structures.
The current definition references a particular framework
that may evolve over time.
Removing this language would allow credit unions and auditors to apply
current industry-accepted frameworks.
The Board also proposes to remove the sentence defining reliable financial
reporting solely by reference to call report preparation, as this is too narrow.
The Board proposes to amend section seven fifteen point eight by removing
the phrase âof the treasurer.â
Under the Federal Credit Union Act, the treasurer must maintain
the records of the credit union, but the supervisory committee is
responsible for verifying member accounts against credit union records.
This change simplifies and clarifies the requirement.
The Board proposes to amend section seven fifteen point nine by removing
a sentence that details how the engagement letter must be signed.
The Board finds that such detail is unnecessary.
The provision will remain clear that the supervisory committee
must contract directly with any compensated outside auditor.
Removing this detail reduces regulatory burden without reducing audit integrity.
The Board proposes to amend section seven fifteen point ten by removing
the sentence requiring the supervisory committee to provide the N C U A with
a copy of audit reports upon request.
This requirement is redundant because the N C U A already possesses broad statutory
authority to access all records of any federally insured credit union during
examination and supervision activities.
The Board also proposes to amend section seven fifteen point twelve by removing two
sentences describing the objective of a financial statement audit compelled by the
N C U A and stating that adverse opinions or disclaimers should be the exception.
These sentences duplicate expectations already provided under
G A A S and may cause confusion if auditing standards change.
Regulatory procedures.
The Providing Accountability Through Transparency Act of twenty twenty three
requires each proposed rule to include the internet address of a summary of no more
than one hundred words, presented in plain language, posted on Regulations dot gov.
The summary explains that the Board is proposing to amend its regulations
governing supervisory committee audits to eliminate unnecessary and overly
prescriptive provisions and to streamline compliance without compromising
the integrity of the audit process.
Under Executive Orders twelve eight six six and thirteen five six three,
the proposed rule is not considered a significant regulatory action.
Under Executive Order fourteen one nine two, the rule is expected to be
deregulatory because it eliminates requirements and reduces burden.
Under the Regulatory Flexibility Act, the Board certifies that the proposed
rule would not have a significant economic impact on a substantial
number of small credit unions.
The amendments clarify or eliminate prescriptive requirements but do not
materially change audit obligations.
The N C U A has determined that the proposed rule does not create or revise
information collection requirements under the Paperwork Reduction Act.
The Board also determined that the proposal does not have federalism
implications under Executive Order thirteen one three two.
The requirements continue to apply uniformly to all federally
insured credit unions, including state-chartered institutions.
The N C U A has determined that this proposed rule would
not affect family well-being.
For the reasons stated in the preamble, the N C U A Board proposes to amend title
twelve, Code of Federal Regulations, part seven fifteen as follows.
Part seven fifteen.
Supervisory Committee Audits and Verifications.
First, the authority citation for part seven fifteen continues to
read as the statutory provisions governing supervisory committee
responsibilities and audit requirements in the Federal Credit Union Act.
Section seven fifteen point two paragraph h would be revised to define internal
control as the process established by the board of directors, officers,
and employees, designed to provide reasonable assurance of reliable
financial reporting and safeguarding of assets against unauthorized
acquisition, use, or disposition.
Internal control over safeguarding of assets refers to the prevention
or timely detection of unauthorized access, use, or disposition of assets
which could result in a loss that is material to the financial statements.
Section seven fifteen point eight would be amended by removing
the words âof the treasurer.â
Section seven fifteen point nine paragraph b would be revised to require that the
engagement of a compensated auditor be evidenced by an engagement letter, and
that the engagement must be contracted directly with the supervisory committee.
Section seven fifteen point ten paragraph a would be revised to require the
supervisory committee, upon completion or receipt of the written audit report,
to verify that the audit was performed and reported according to the engagement
letter, to submit the report to the board of directors, and to provide a summary
of the results orally or in writing to the members at the next annual meeting.
If a member requests it, the full audit report must be made available.
Section seven fifteen point twelve paragraph b would be revised to state
that the N C U A Board may compel a federal credit union to obtain a financial
statement audit performed under G A A S by an independent person licensed in the
state or jurisdiction in which the credit union is principally located when the
credit union has experienced serious and persistent recordkeeping deficiencies.
This concludes the document.
If your credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and we thank you for listening.