BY THE COMPTROLLER GENERAL 

Report To The Congress 

OF THE UNITED STATES 

Reviews Of The Audits Of The National Credit 

Union Administration Central Liquidity Facility’s 

Financial Statements For The Fiscal Years Ended 

September 30,1982 And 1981 

GAO reviewed the independent certified 

public accountant’s audits of the National 

Credit Union Administration Central Liquidity Facility’s (CLF’s) financial statements for 

the fiscal years ended September 30,1982 

and 1981. GAO found nothing which would 

indicate that the independent certified public 

accountant’s opinion on the financial statements is inappropriate or cannot be relied 

on. GAO therefore concurs with the opinion. 

In the opinion of CLF’s independent certified 

p 

i 

blic accountant,CLF’s financial stateents present fairly the financial position of 

CLF at September 30, 1982 and 1981, and 

the results of its operations and the changes 

in its financial position for the years then 

ended, in conformity with generally accepted 

accounting principles consistently applied. 

811111

122554 

GAOIAFMD-83-100 

SEPTEMBER 30,1983 
. ‘* 

. 

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COMFTROLLER GENERAL OF THE UNITED STATES 

WASHlNGTON,O.C. 20648 

B-202052 

To the President of the Senate and the 

Speaker of the House of Representatives 

This report presents the results of our reviews of Price 

Waterhouse's audits of the balance sheets of the National Credit 

Union Administration Central Liquidity Facility (CLF) as of September 30, 1982 and 1981, and the related statements of operations and 

retained earnings and changes in financial position for the years 

then ended. Our reviews were made pursuant to the provisions of 

the National Credit Union Central Liquidity Facility Act (12 

U.S.C. 1795h), which requires the Comptroller General to audit CLF 

under such rules and regulations as the Comptroller General may 

prescribe. 

In order to avoid unnecessary duplication and expense and to 

make the most efficient use of our available resources, we are relying on the work and report of CLF's independent certified public 

accountant. We made inquiries, examined Price Waterhouse's workpapers I and performed analytical procedures to determine the quality of the auditor's work and the extent to which we could rely on 

it. We reviewed the adequacy of the auditor's work on internal 

controls and compliance with laws and regulations. 

In the opinion of Price Waterhouse, CLF's financial statements 

present fairly the financial position of CLF at September 30, 1982 

and 1981, and the results of its operations and the changes in its 

financial position for the years then ended, in conformity with 

generally accepted accounting principles consistently applied. 

During our reviews, we found nothing which would indicate that 

Price Waterhouse's opinion on CLF's fiscal years 1982 and 1981 financial statements is inappropriate or cannot be relied on. The 

auditor's work did not disclose any material internal control weaknesses or noncompliance with laws and regulations. We concur with 

and transmit to the Congress Price Waterhouse's opinion on CLF's 

financial statements. The opinion and financial statements are 

included as appendix I. 

We are sending copies of this report to the Director, Office 

of Management and Rudget, and to the National Credit Union Administration's board of directors. 

(?fiitdd& 

Comptroller 

of the United States 

. 
. 

. 
APPENDIX I APPENDIX I 

1801 K STREET. NW 

WASHINGTON DC 20006 

202 296 0800 

November 5, 1982 

To the Board of the National Credit 

Union Administration and 

the National Credit Union AdminIstration 

Central Liquidity Facility 

In our opini.on, the accompanying balance sheets and the 

related statements of operations and retaIned earnings and of 

changes in financial position present fairly the financial position 

of the National Credit Union Administration Central Li.quidity 

Facility at September 30, 1982 and 1981, and the results of Cts 

operati.ons and the changes in its financial position for the years 

then ended, in conformity with generally accepted accounting principles consistently applied. Our examFnati.ons of these statements 

were made in accordance with generally accepted auditing standards 

and accordingly included such tests of the accounting records and 

such ‘other aud1ting procedures as we considered necessary in the 

circumstances. 

1 
APPENDIX I APPENDIX I 

National Credit Unlon Adminlrtration 

Central Liquidity Facility 

BALANCE SHEETS 

(Expressed in thousands of dollars) 

(Noles 1 and 2) 

September 30 

1982 1981 

Cash ............................................................................................ s 46 $ 6 

Investments (Note 5) ................................................................................. 89,244 79,112 

Loans to members less allowance for loan losses 

of 31.149 at September 30. 1982 (Notes 2 and 4) ......................................... 129,330 101.025 

Accrued interest receivable ......................................................................... 2.690 4.737 

Other assets (Note 6) ................................................................................ 132 1,036 

Total assets ............................................................................... 8221.442 $185.916 

Llabllltler and Equlty 

Liabilities 

Notes payable (Note 7) ........................................................................... 8 130.066 $101.273 

Member deposits (Note 8) ....................................................................... 16.845 14.131 

Accrued interest payable ......................................................................... 1,995 2.810 

Accounts payable and other liabilities .......................................................... 188 166 

Total Liabilities ........................................................................ $149,094 $118.380 

Equity 

Capital stock - required (Note 8) . . . . . . . 72.139 67,342 

Retained earnings . . . . . . . . . . . . . . . _, . . . 209 194 

Total equity ,,,.,,,,,,,.,,,.,....,,,,,.....,,,.........,,,,,................................ 8 72,348 $ 67.536 

Commttments and Contingencies (Notes 4. 10. and 12) 

Total ltabtlittes and equity . . . . . . . . . . . . $221.442 $185.916 

. 

2 
APPENDIX I APPENDIX I 

National Credit Union Adminhtration 

CentraJ Liquid&y Facilty . 

STATEMENTS OF DPERATIONS AND RETAINED EARNINGS 

(Expressed in thousands of dollars) 

(Notes 1 and 2) 

Year ended September 30 

1988 1981 

interest on loans to members 

income from investments 

.................................................................... (10.653 $10.250 

........................................................ . ........... 12,036 11.105 

Total income ............. .‘. ............................................................... $22.689 $21.355 

bP= 

Personnel servtces ................................................................................. 

Personnel benefits ................................................................................. 

Employee travel ................................................................................... 

Shtpping and deltvery ............................................................................ 

Rent, communications and utiltties ............................................................. 

Prtnttng and reproduction ........................................................................ 

Other servtces ...................................................................................... 

Supplies and matertals ............................................................................ 

Depreciation and amortization .................................................................. 

Provision for loan losses (Note 2) .............................................................. 

383 405 

38 35 

28 35 

6 3 

93 105 

24 18 

425 327 

7 6 

267 263 

1.149 

Other, princtpally write-off of organization costs (Note 6) ................................. 646 

Total operating expenses ............ .................................................. 8 3,066 % 1.197 

Intaeot: 

Federal Ftnancing Bank ...................................................................... 810.180 $10.682 

Member deposits ................................................................................ 1,572 1.138 

Total expenses ............................................................................ $14.818 $13.017 

Income before income taxes ... .................................................................. 7,871 8,338 

Income taxes (Note 10) ..... ..... ............ ............ .......... ..................... ..... 3 46 

Net income ................................ .. ....................................................... 7,868 8,292 

Dtvidends to members (Note 8) ................ .................... .............................. 7.853 8,196 

Addition to retained earninqs .. ............ ... .................................................. 15 96 

Retained earnings at begin&g of period ........................................................ 194 98 

Retained earninqs at end of period ................................................................ 8 209 % 194 
APPENDIX I APPENDIX I 

National Cred!t Union Admhhtmtlon 

Central liquidity Facility 

STATEMENTS OF CHANGES IN FINANCIAL POSITION 

(Expressed in thousands of dollars) 

Year ended September 30 

1982 1981 

Financial resource@ were provided by: 

Operations 

Net income ...................................................................................... 8 7,868 % 8.292 

Add items not affecting cash and Investments during the year: 

Depreciation and amortization ............................................................ 267 263 

Provision for loan losses .................................................................... 1,149 

Other, prtnctpally wrtte-off of organizatton costs ....................................... 646 

. 

s 9,930 $ 8,555 

Issuance of requtred capital stock ............................................................... 10,428 23,073 

Addition to member deposits .................................................................... 40.226 25,700 

Rorrowlngs ......................................................................................... 132.766 133,206 

Loan repayments .................................................................................. 52.304 52.022 

Other, net ........................................................................... .:. ............. 1.245 (697) 

Total financial resources provided ..................................................... $246,899 $241.859 

Flnencial reeourcem were uwd for: 

Redemption of required capital stock .......................................................... S 5,631 $ 3.877 

Withdrawal of member deposits ................................................................ 

37,512 16.961 

Dividends ........................................................................................... 7,353 8.196 

Borrowings repayments .......................................................................... 103.973 121.865 

Loan disbursements ............................................................................... 81.758 67.580 

Total ftnancial resources used .......................................................... 8236,727 $218.479 

Increase in cash and investments .................................................................. S 10.172 323,380 

. 

4 
APPENDIX I APPENDIX I 

National Credit Union Administration 

Central Liquidity Facility 

NOTES TO FINANCIAL STATEMENTS 

September 30, 1982 and 1981 

Note 1 - Organization and Purpose 

The Natlonal Credit Union Adminislralion Central Liquidity 

FacMy (“the CLF”) was created by the Nattonal Credit Union 

Central Llquldlty Faclllty Act (“the Act”). The CLF IS designated 

as a mlxed-ownershlp government corporation under the 

Government Corporation Control Act. It exists within the 

Natlonal Credit Umon Admmislratlon and IS managed by the 

National Credit Union Administratlon Board. The CLF became 

operational on October 1, 1979. 

The purpose of the CLF IS to Improve general financial 

stabMy by meeting the liquidity needs of credit unions. 

Note 2 - Significant Accounting Policies 

BwL~ of Accountlna 

The CLF maintains its accounting records on the accrual 

basis of accounting. 

Allowance for Loan Looeee 

Loans to members are made on both a short-term and longterm basis. The CLF obtains a security interest in the assets of 

the borrower on all loans. 

The CLF evaluates the collectibility of its loans to members 

through examination of the financial condition of the mdivldual 

borrowing credit unions and the credit union industry in 

general Atter giving consideration to security interests, 

guarantees, pledged collateral and the state of the credit 

umon Industry environment, an allowance for loan IoSseS in the 

amount of $1 ,149,OOO was established as of September 30, 

1982 (no allowance was constdered necessary at September 

30, 1981) 

Inveotmmtr 

All of the CLF’s Investments are short-term with no maturltles 

In excess of one year These Investments are recorded at 

cost, which approximates market value 

Note 4 - Loans to Members 

Loans were made only to member credit unions. These loans 

carry interest rates which ranged from 8.69% to 12.81% at 

September 30. 1982 (9.95% to 19 75% at September 30. 

1981). The loans mature as follows (dollars In thousands) 

Maturing In 

fiocal year 

1982 

1983 

1984 

1985 

1986 

Less allowance for 

loan losses (Note 2) 

September 30 

1982 1981 

$- $ 13,122 

52,916 3.600 

77,563 78.613 

- 4,700 

- 990 

130,479 101.025 

(1.149) - 

$129,330 3101.025 

-- 

The CLF may also provide members with 90day loan 

commitments. At September 30, 1982 there were approximately $26,600,000 in outstanding commitments ($500.000 

at September 30. 1981). 

Note 5 - Investments 

Funds not currently required for operations were Invested as 

follows (dollars in thousands) 

September 30 

1982 1981 

-- 

Time deposits $77,000 $63,000 

Certiflctes of deposit - 9.998 

Deposits with members 9.644 6,114 

Overnight securities 2.600 - 

- - 

$89,244 $79.112 

-- 

Note 6 - Other Assets 

The composition of other assets was as follows (dollars 

in thousands): 

September 30 

1982 1981 

Organization costs (net of $409 

Furniture and Offfcc Equlpmsnt 

Slgnlflcant purchases of furniture and office equipment are 

recorded at cost 

Note 3 - Government Regulations 

in accumulated amortization) 

Fixed assets (net of $6 

in accumulated depreciation) 

Other accounts receivable 

Prepaid expenses 

Deferred income taxes 

- 

- 

- 

$ 888 

22 

15 

% 12 45 

120 66 

-- 

$132 $1.036 The CLF was created by the Act and IS subject lo various 

Federal laws and regulations The CLF’s operating budget 

requires Congressional approval and the CLF may not make 

loans ro members for the purpose of expanding credit union 

loan portlollos The CLF’s Investments are reslrlcted lo 

obligations of the Unlted Stales Government and Its agencies. 

deposits in federally insured financial mStWf~onS and shares 

and deposits In credit unions Borrowing IS lImIted to the lesser 

of $600 million or twelve times equity and capllal SubSCrIPtiOnS 

on-call For fiscal year 1982. gross lending acflvlty was 

limited to $4 4 billIon At September 30. 1982 and 1981. the 

CLF was In compliance with these limitations 

83 

As of September 30. 1981 It was thzf the CLF to 

amortize organization costs over 5 years and depreciate flxed 

assets over lives ranging from 3 to 10 years During the 1982 

fiscal year. the CLF continued to record amorfizatlon and 

depreclatlon (amounting to %267.000 as of September 30. 

1982) of orgamzatlon costs and flxed assets At 

September 30. 1982 however. these assets were deemed to 

have no further future value Accordingly. their remalnlng 

unamortized book value of $646,000 was wrltten’off and IS 

presented separately as a charge to Income In the statement 

of operations and retained earnings 

5 
APPENDIX I APPENDIX I 

Note 7 - Notes Payable 

Subsfanlrally all of the CLF’s borrowrngs have been from the 

Federal Flnancrng Bank The Interest rates on these 

obllgatrons are frxed and range from 7 4% to 11 8% at 

September 30 1982 (9 5% to 16 6% at September 30, 1981) 

Interest IS generqlly payable upon maturity These notes 

mature as lollows (dollars In thousands) 

September 30. 

Maturtng In 

flocal yeu 1982 1981 

1982 - % 13,370 

1983 $ 78.466 3.600 

1984 51.600 78.613 

1985 - 4,700 

1986 - 990 

$130,066 $101,273 

The Secretary of the Treasury is authorrzed by the Act lo 

lend up to $500 mrllron to the CLF In the event that the Board 

certrfies to the Secretary that the CLF does not have sufficient 

funds to meet the lrqurdity needs of credit unions. This authority 

to lend IS lrmrted to such extent and in such amounts as are 

provrded In advance by Congressonal Approprratrons Acts On 

December 23, 1981 Presrdent Reagan signed PL 97-101 which 

provided $100 mlllton of permanent rndefrnite borrowrng authority 

which may be provided by the Secretary of the Treasury 

to the CLF to meet emergency lrqurdrty needs of credit 

unions 

Note 8 - Capital Stock and Member 

Deposits 

The requrred caprtal stock account represents subscrrptrons 

remrtted to the CLF by member credrf unions. Regular 

members’ requrred subscrlptron equal one-half Of 

one percent of therr pard-rn and unimpaired capital and 

surplus, one-half of which amount IS requrred to be remitted 

to the CLF Agent members’ requrred subscriptron 

equal one-half of one percent of the paid-in and unrmparred 

caprtal and surplus of all of the credit untons served by 

the agent member, one-half of which amount IS requrred 

lo be remrlted to the CLF In both cases the remaining onehalf of the subscrtptron IS requrred to be held tn liquid 

assets by the member credrt unrons subject to call by the 

Natronal Credrt Union Adminrstration Board These unremitted 

subscrtptrons are not reflected In the CLF’s financral 

statements Subscrrptrons are adlusted annually to reflect 

changes in the member credit unions’ pard-In and unrmpatred 

caprtal and surplus Drvrdends are declared and paid on 

requrred capttal stock 

Member deposits represent amounts remitted by members 

over and above the amount required for membership Interest 

IS paid on member deposits al a rate equrvalenl to the 

drvrdend rate pard on required capital stock 

Note 9 - Services Provided by the National 

Credit Union Admlnistration 

The Natronal Credrt Unwon AdminIstratIon provides the CLF with 

miscellaneous services and supplres In addttron the 

employees of the CLF are pard by the Natronal Credo! Union 

Admrnrstratron The CLF retmburses the Nallonal Credrt Union 

Admrnrstratlon on a monthly basrs for these Items Total 

reimbursements amounted to approximately $513,000 as 

of Seplember 30, 1982 ($545,000 as of September 30. 1981) 

Note 10 - Income Taxes 

Legislation has been proposed in Congress that would exempt 

the CLF from Federal. State. munrcrpal and local taxatron. 

except taxes on real property. At the dn, , of these financial 

statements, however, the Congress has not acted on the 

proposal Further, the CLF has received an opinion by external 

legal counsel that a court, having the appropriate jurisdiction 

and authority, would determine the CLF to be exempt from 

income taxation both under the Internal Revenue Code and the 

laws of the District of Columbia. 

The Department of the Treasury, however, has indicated that 

specific legrslatron is required for the CLF to become exempt 

from Federal income tax. Additionally, In July 1982 the Internal 

Revenue Service disallowed the CLF’s claim for refund of 

approximately $162,000 of Federal income taxes paid for the 

1981 and 1980 fiscal years, finding that the CLF IS not exempt 

from Federal income tax. 

The CLF is appealing ths decision by the I.R S. However, 

until the aforementioned legislation is passed or until the CLF 

receives a favorable resolution of their appeal, provision for 

Income taxes will be made by a charge to income In the 

financial statements 

Taxable Income differs from net income as shown In the 

statement of operations and retained earnings prrmarily by the 

amount of drvrdends paid to members, which are deducted 

as an exdense for tax purposes, and by the write-off of 

other assets, principally organization costs, which must be 

amortized for tax purposes over the ensuing two taxable 

years (see Note 6) 

Note 11 - Pension Plan 

The employees of the CLF are participants in the Civil Service 

Retirement Plan The Plan IS a contrrbutory defined benefit 

pension plan coverrng substantially all of the employees of the 

CLF Pension expense for the years ended September 30. 

1982 and 1981 was approximately $24.400 and $26.900. 

respectrvely 

Note 12 - Lease 

The CLF leases offrce space ]orntly with the Natronal Credit 

Union Admrnrstratron under a non-cancellable operating lease 

exptrrng In 1994 Under the terms of thus lease, the CLF and 

the National Credit Union Admrnrstratron are jointly and 

severally liable for future mrnrmum lease payments as of 

September 30. 1982 as follows (dollars In thousands) 

You ended 

September 30 

1983 

1984 

1985 

1986 

1987 

Thereafter 

% 886 

886 

964 

980 

980 

7.128 

$11.824 

The CLF’s portron of these lease payments (rent expense) 

for the years ended September 30, 1982 and 1981 was 

$36.400 and $38.400, respectrvely 

(916572) 

6 
r t 
AN EQUAL OPPORTUNITY EMPLOYER 

UNITED STATES 

GENERAL ACCOUNTING OFFICE 

WASHINGTON. DC. 20548 

WWCIAL BUSINESS 

PENALTY FOR PRIVATE USE.SWI 

POSTAGE AND YEES PAID 

U. 9. GENERAL ACCOUNTING OPFICE 

THIRD CLASS