1. 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

2. Overview Appointment and Membership
Officers of the Supervisory Committee
Powers of the Supervisory Committee
Duties of the Supervisory Committee

3. 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

4. Organization of a Credit Union
Basic Organization Structure

5. Who should be considered to be a member of the Supervisory Committee?
Familiar with Accounting/Auditing Principles
Willing to commit required time
Willing to attend applicable training
BONDABLE

6. Officers of the Supervisory Committee
Supervisory Committee Members Elect
Chairperson
Secretary
Note: They can be the same individual

7. Minutes should be approved at the next meeting
Meetings
Monthly or quarterly meetings should be completed (based on size/complexity of your Credit Union)
The Secretary must maintain records of all actions taken by the Supervisory Committee
The minutes should document significant discussions and summarize procedures performed
Minutes should be approved at the next meeting

8. 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.

9. Why call a special meeting?
You may call a special meeting (by a majority vote) to consider any violations of the:
Federal Credit Union Act
Rules and Regulations
Charter
Bylaws
Any practice considered unsafe or unauthorized

10. 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

11. Expulsion of Supervisory Committee Members
The Board of Directors may suspend or remove Supervisory Committee members for the following possible reasons:
Failure to attend meetings
Failure to perform duties as required
Dishonesty
Conviction of a felony

12. 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

13. Supervisory Committees are also known as…
The GUARDIAN of member funds.
The WATCHDOG of the Credit Union
The Audit Committee

14. 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.

15. 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.

16. 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 § and § of the NCUA Rules and Regulations

17. 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

18. Other Things to Do
Continuously review and 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
Meet with the examiners and auditors as necessary
Research member complaints
Complete other recommended procedures

19. Types of Audits Annual Supervisory Committee 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

20. 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
Federal Charter

21. 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, 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)
State Charter

22. Interim Audit Procedures
Supervisory Committee members are called upon to perform an ever-increasing 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.

23. Interim Audit Procedures
Some of the more commonly completed interim procedures include the following:
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.

24. 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.”

25. 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.

26. 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.

27. Bank Secrecy Act Compliance Audit
§ (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”.

28. 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 18-month schedule dependent upon assessed risk and examiner approval.

29. 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)

30. Review of Internal Controls
Internal Controls include the staff structure, operating procedures, and other measures within the Credit Union to:
Safeguard assets
Check the accuracy and reliability of accounting data
Promote efficiency
Encourage compliance with policies set forth by the Board of Directors
Internal Controls minimize the possibility that errors or fraud remain undetected for any length of time. Examples of Internal Controls include:
Passwords on the computer system
Separation/segregation of duties

31. 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

32. 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

33. Questions?
Thank You!