United States Government Accountability Office

Washington, DC 20548 

November 30, 2006 

The Honorable William M. Thomas 

Chairman, Committee on Ways and Means 

House of Representatives 

Subject: Corporate Governance: NCUA’s Controls and Related Procedures for Board 

Independence and Objectivity Are Similar to Other Financial Regulators, but 

Opportunities Exist to Enhance Its Governance Structure 

Dear Mr. Chairman: 

During recent congressional hearings and in public speeches, statements made by the 

National Credit Union Administration’s (NCUA) Chairman and another board member 

raised congressional interest in the ability of NCUA to collect and objectively analyze 

data on credit union membership and executive compensation. More generally, these 

statements also raised issues about the agency’s overall vigilance as a regulator and the 

independence and objectivity of NCUA’s board and senior staff from the industry being 

regulated. 

As a result, you asked us to expand upon our current work looking at the tax-exempt 

status of credit unions to include a review of governance policies and procedures for 

NCUA’s board of directors and senior staff and more specifically how the policies and 

procedures address independence and objectivity issues.1

 This correspondence (1) 

compares controls and related procedures applicable to NCUA that help ensure the 

independence and objectivity of its board members with those of other federal financial 

regulatory agencies and relevant recommended management practices identified in 

academic and industry literature and (2) describes NCUA’s use of Schedule C staff 

compared with that of other federal financial regulatory agencies.2

To address our objectives, we reviewed statutory criteria for the selection of board 

members and commissioners at NCUA and six other federal financial regulatory 

agencies: the Commodity Futures Trading Commission (CFTC), Farm Credit 

Administration (FCA), Federal Deposit Insurance Corporation (FDIC), Federal Housing 

Finance Board (FHFB), the Board of Governors of the Federal Reserve System (Federal 

Reserve), and the Securities and Exchange Commission (SEC). We selected these six 

agencies for our comparison because they are all financial regulators with either a board

 1

See GAO, Credit Unions: Greater Transparency Needed on Who Credit Unions Serve and on Senior 

Executive Compensation Arrangements, GAO-07-29 (Washington, D.C.: Nov. 30, 2006). 

2

Schedule C appointees, frequently called political appointees, generally are noncompetitive and 

noncareer; that is, they are appointed without regard to the rules for competition that govern career 

appointees. Schedule C appointments are not subject to Senate confirmation. 

 GAO-07-72R NCUA Board Independence and Objectivity 
of directors or a commission as their governing structure, similar to NCUA. For each of 

the agencies, we analyzed and compared the statutory criteria for qualifications of board 

or commission membership, the backgrounds and experience of board members and 

commissioners, statutory requirements for board structure and composition, agency 

guidance and other related documents, and the agencies’ use of Schedule C staff. We 

interviewed officials from the staff and board of NCUA, as well as officials from other 

federal financial regulatory agencies. We also analyzed academic and industry literature 

on recommended management practices as the literature relates to board composition, 

structure, and independence issues. We conducted our work in Washington, D.C., from 

June 2006 through November 2006, in accordance with generally accepted government 

auditing standards. 

Results in Brief 

Similar to the other regulators, NCUA is subject to statutory criteria and federal 

standards on the independence and objectivity of board members, but five of the six 

other regulators have additional controls and procedures relating to independence. 

More specifically, the primary criteria and standards addressing independence and 

objectivity of board members that we identified at NCUA and the other six regulators are 

based on (1) statutory criteria for individual qualifications and the composition of the 

boards and commissions we reviewed, and (2) rules promulgated by the Office of 

Government Ethics (OGE) setting forth ethical standards for employees in the executive 

branch.3

 For example, the OGE regulations address ethics and financial conflicts of 

interest matters that apply to all federal employees, and the Federal Credit Union Act 

(FCUA), like the enabling legislation of five of the six other regulators, addresses board 

independence through such provisions as fixed term limits for board members and 

apportionment of political party representation.

4

 Unlike NCUA, five of the six other 

regulators have additional controls and procedures that address independence, including 

agency-specific rules that address conflicts of interest and independence, or the 

recognition of the importance of independence in the agency’s mission statement or 

values written in their strategic plans. The qualifications for NCUA board membership, 

as written in FCUA, are similar to the qualifications for board members or 

commissioners at four of the six other agencies we reviewed in that they seek to ensure 

that nominees are suited by education or experience for the positions they are to serve. 

In addition, we compared the professional backgrounds and qualifications of current and 

prior NCUA board members and found them to be similar. Our review of available 

literature indicated that NCUA’s board follows several recommended management 

practices for independence, many of which are included in FCUA. However, there is one 

notable exception. While NCUA’s enabling legislation limits the NCUA board to three 

 3

Executive branch employees are subject to OGE’s Standards of Ethical Conduct for Employees of the 

Executive Branch. The Standards includes rules governing gifts from outside sources, gifts between 

employees, conflicting financial interests, impartiality in performing official duties, seeking other 

employment, misuse of position, and outside activities. See 5 C.F.R. Part 2635 (2006). 

4

The Federal Reserve Act does not contain a restriction on party affiliations of the Board of Governors. 12 

U.S.C. § 241. 

Page 2 GAO-07-72R NCUA Board Independence and Objectivity 
members, some academic and industry sources suggest there should be a minimum of 

five members on a board of directors to help maintain independence, retain needed 

expertise, and enable continuity of leadership. Further, some of NCUA’s board members 

told us that having a three-member board sometimes made communicating among the 

members complicated because of the Government in the Sunshine Act, which largely 

limits nonpublic meetings of the majority of the board (in this case, two board 

members).5

 Additionally, we recommended in 1991 that NCUA’s board be expanded to 

five members, in part, to achieve a broader perspective on financial market regulatory 

and insurance issues.6

NCUA’s use of Schedule C positions generally was similar to the practices at five 

regulators that we contacted that had Schedule C staff. The selection of Schedule C staff 

rests with the NCUA Chairman or individual board member, subject to White House 

approval, and does not require input from NCUA career staff. We reviewed the 

backgrounds of the seven NCUA Schedule C appointees and identified four who were 

formerly affiliated with the same credit union industry trade group (three were former 

employees and one held key positions in various committees of the trade group). Of the 

four NCUA Schedule C appointees with prior ties to the trade group, two are senior 

policy advisors to NCUA board members, one is the Director of Public Affairs and 

Congressional Relations, and one is a staff assistant to a board member. NCUA officials 

told us that Schedule C appointees that have trade group experience are viewed as 

beneficial to board members in discharging their regulatory responsibilities. In 

particular, the officials explained that the senior policy advisors that have come from 

credit union industry trade groups have brought an in-depth understanding of credit 

union issues as well as industry contacts. 

This correspondence includes a recommendation that the NCUA Chairman consider 

adopting practices that the other financial regulators use to enhance NCUA controls for 

independence and objectivity. Further, consistent with our 1991 report, we believe that 

consideration should be given to exploring the potential benefits and costs associated 

with increasing the number of NCUA board members. 

We provided a draft of this report to the Chairman, NCUA, and the heads or designees of 

CFTC, FCA, FDIC, FHFB, the Federal Reserve, and SEC for their review and comment. 

NCUA provided written comments which are discussed at the end of this 

correspondence and are reprinted in enclosure 1. NCUA, FCA, FDIC, and the Federal 

 5

The Government in the Sunshine Act, 5 U.S.C. §552b, declares that the public is entitled to the fullest

practicable information on the decision making processes of the federal government. The act applies to

agencies headed by a collegial body of two or more individual members appointed by the President and

confirmed by the Senate. Accordingly, the act requires those agencies to open their meetings to public

observation, except in instances where the agencies find that disclosure of information discussed at the 

meetings could be detrimental to the public interest. Agencies must maintain a complete transcript, 

electronic recording, or minutes (as specified in the act) of meetings closed to the public, in accordance

with the act. These records are publicly available, unless the agency determines under exemptions 

provided in the act that the information should not be disclosed. 

6

GAO, Credit Unions: Reforms for Ensuring Future Soundness, GAO/GGD-91-85 (Washington, D.C.: Jul.

10, 1991), 197.

Page 3 GAO-07-72R NCUA Board Independence and Objectivity 
Reserve provided technical comments that we incorporated into the report, as 

appropriate. With respect to our recommendations, NCUA stated it was not opposed to 

adopting agency-specific ethics guidelines or including independence and objectivity as 

part of its values and mission in future versions of its strategic plan. In this regard, 

NCUA stated that it explicitly included the concept of independence and objectivity in its 

2007 Annual Performance Budget. NCUA also stated that it did not agree that Congress 

should increase the size of the NCUA board. NCUA stated that in its view, the costs and 

reduced efficiencies outweigh any potential benefits. Specifically, NCUA estimated that 

the cost of salaries, benefits, and other expenses for two additional board members and 

their staff would be at least $1.1 million annually. Moreover, NCUA stated that 

increasing the size of the board would make agency processes more time-consuming and 

less efficient. While we acknowledge there would be some financial and potential 

efficiency costs associated with increasing the board size at NCUA, we continue to 

believe it would be worthwhile to review the potential benefits an expanded board may 

provide. NCUA has sometimes experienced lengthy board vacancies, which resulted at 

times in a board of less than three active members, potentially offsetting the full benefits 

of a multimember board structure. The benefits of a larger board could include, among 

other things, continuity of expertise and decision making on the board, improved 

communication among board members, and greater parity with the other regulatory 

agencies. Consistent with the literature on corporate governance practices, we believe 

the size of the board should be periodically reviewed to ensure that the agency has the 

most appropriate board size for its current resources and responsibilities. 

Background 

NCUA is an independent agency of the executive branch and has oversight authority for 

federally chartered credit unions. FCUA requires federal credit unions to obtain federal 

share (deposit) insurance from the National Credit Union Share Insurance Fund. This 

fund, administered by NCUA, also provides share insurance to most state-chartered 

credit unions, and NCUA shares oversight responsibilities for safety and soundness 

issues with state regulators in these cases. As of December 2005, there were 958 

employees at NCUA and the agency oversaw nearly 8,700 federally insured credit 

unions—about 5,400 federally chartered and 3,300 state-chartered—with about $679 

billion in total assets.7 

 

FCUA was amended in 1978 to create a three-member board of directors to manage 

NCUA.8

 According to NCUA representatives, the change in leadership structure from a 

single administrator was in response to the more complex and increasing responsibilities 

of NCUA and to make NCUA’s governing structure more like those of other federal 

 7

According to NCUA’s Web site, there are currently fewer than 500 non-federally insured state-chartered 

credit unions. Non-federally insured credit unions are not subject to NCUA regulation. 

8

Pub. L. No. 95-630 (Nov. 10, 1978). 

Page 4 GAO-07-72R NCUA Board Independence and Objectivity 
regulators of financial institutions.

9

 FCUA specifies that the President, with the advice 

and consent of the Senate, appoint each of the NCUA board members to 6-year staggered 

terms. In appointing the members of the board, the President also designates the 

chairman. Additionally, the act specifies that not more than two members of the board 

be members of the same political party. Further, FCUA specifies that members shall be 

chosen to represent the public interest and consideration be given to individuals with 

education, training, or experience relating to a broad range of financial services, financial 

services regulation, or financial policy. Finally, according to the act, not more than one 

board member may be appointed who, at the time of appointment, was or had recently 

been involved with any insured credit union as a committee member, director, officer, 

employee, or other institution-affiliated party. 

Controls Addressing NCUA Board Member Independence Generally Are Similar 

to Those of the Other Federal Financial Regulators, with Some Notable 

Exceptions

As is the case with the other regulators we reviewed, provisions in NCUA’s enabling 

legislation and OGE’s rules on independence guide NCUA independence and objectivity 

standards. NCUA’s current board members have professional experience and knowledge 

that were generally similar to the experience and knowledge of past NCUA board 

members. NCUA follows several of the recommended management practices for board 

independence that we identified in our review of relevant literature and research, 

although some sources, including GAO, recommended a larger board size. 

Controls over Board Independence and Objectivity at NCUA and the Other Regulators 

Primarily Are Based on the Agency’s Enabling Legislation and Executive Branch Ethics 

Rules 

Standards and regulations addressing the independence and objectivity of NCUA board 

members generally are similar to those at other financial regulatory agencies, but NCUA 

officials stated they have no additional policies or controls outside of what is provided in 

law. Most of the policies applicable to NCUA and these other agencies that address 

board member independence are established in law specific to the agencies, specifically 

each agency’s enabling legislation. Table 1 shows the controls in place at NCUA and the

six other agencies we reviewed. For example, FCUA addresses independence of NCUA’s 

board members from political pressures by creating fixed term limits for board members 

and limiting the number of board members who are members of the same political party. 

In the enabling legislation of the other agencies we reviewed, all six include fixed term 

limits, and five of the six limit the number of board members or commissioners who are 

members of the same political party. NCUA and the six other agencies identified OGE’s 

rules for ethical conduct as another authority for addressing board independence and 

objectivity. In addition to the controls listed in table 1, FCUA addresses the 

 9

In support of this statement, NCUA representatives referred to a report by the Senate Committee on 

Banking, Housing and Urban Affairs issued in connection with a bill from the previous Congress that

contained language replacing an administrator with a board. See S. Rep. No. 94-751.

Page 5 GAO-07-72R NCUA Board Independence and Objectivity 
independence of NCUA’s board members from professional associations by limiting the 

number of board members who have recent credit union experience. 

Table 1: Comparison of Agency Controls and Procedures Addressing Board Member Independence and

Objectivity 

Control NCUA CFTC FCA FDIC FHFB 

Federal 

Reserve SEC 

Board members / commissioners 

serve a fixed term • • • • • • • 

Have political party affiliation rules • • • • • • 

Undergo White House nomination and 

Senate confirmation process • • • • • • • 

Subject to OGE ethical standards and 

federal ethics rules • • • • • • • 

Source: GAO.

According to officials at NCUA and the six other financial regulatory agencies, they 

relied on OGE rules and ethics guidance on financial and personal conflicts of interest to 

address board member independence. Among other things, OGE’s Standards of Ethical 

Conduct for Employees of the Executive Branch prohibit federal employees from having 

financial and personal conflicts of interest that conflict with their official duties. OGE 

also prohibits federal employees from accepting gifts worth more than $20 that are 

presented to the employees because of their position or by prohibited sources, which for 

NCUA would be a regulated credit union or its representatives. During our interviews, 

NCUA officials focused on the importance of identifying potential financial conflicts of 

interest; as required by the Ethics in Government Act, NCUA requires board members to 

file a financial disclosure statement annually with the agency-designated ethics officer. 10

 

NCUA’s ethics officer serves as the primary contact for board members for guidance on 

ethics matters, and frequently interacts with board members. The officer also reviews 

gifts and invitations sent to board members for any possible conflicts or to determine 

prohibitions. When financial conflicts of interest arise, board members either must 

recuse themselves from any matter involving their financial interest or divest the asset. 

When we spoke with officials at the six other agencies, they all pointed to the same OGE 

financial disclosure policy as their primary tool for monitoring and enforcing 

independence from financial conflicts of interest. 

According to NCUA officials, NCUA exclusively relies on standards contained in FCUA 

and OGE ethics rules to monitor board member independence, while officials from five 

of the six other agencies we reviewed stated their agencies are subject to some 

additional rules, some of which are designed to maintain independence from the industry 

they regulate. For example, SEC had established a “Canons of Ethics,” which the agency 

uses in addition to OGE’s guidance. FHFB has adopted written standards of conduct 

addressing, among other things, relationships and communications between FHFB 

directors and employees and entities subject to FHFB supervision. CFTC, FCA, and the 

Federal Reserve also have additional rules for their board members and agency 

employees regarding asset holdings specific to the industries they regulate. 

 10See 5 U.S.C. Appendix - Ethics § 101.

Page 6 GAO-07-72R NCUA Board Independence and Objectivity 
In its 2006-2011 strategic plan, NCUA did not include the terms “independence” or 

“objectivity” either as a value or as part of its mission statement, but two of the six other 

financial regulatory agencies included independence in their strategic plans as part of 

mission and value statements. Generally, agencies write and adopt value and mission 

statements in their strategic plans to guide the organization with clear goals and 

operating principles. FHFB listed independence as its first value, stating that “the 

Finance Board is the arm’s length regulator of the FHLBanks [Federal Home Loan 

Banks] and OF [Office of Finance].”11 In another example, the Federal Reserve included 

“independence of views” as one of its guiding values. 

NCUA board members said NCUA has no controls or procedures in place that directly 

addressed objectivity. Although NCUA has no official guidance, the board members 

stated that when considering issues related to objectivity, they rely on OGE’s rules and 

guidance, NCUA’s strategic plan, and FCUA to guide their regulatory policy decisions. 

Specifically, one board member stated that objectivity, as well as independence, had 

been a central theme of the White House interviews during the nomination process, and 

that although NCUA has no written guidance for objectivity, the obligation to be 

objective was well understood among board members. 

NCUA Board Member Qualifications and Professional Backgrounds Generally Are 

Similar to Those for Other Financial Regulators 

The professional qualifications of board members at NCUA and at four of the six other 

financial regulatory agencies are determined statutorily, but are broadly similar. NCUA 

and the other agencies have no authority in deciding who constitutes the board of 

directors or commission, as this authority rests solely with the President and the Senate. 

FCUA specifies that when appointing NCUA board members, the President shall give 

consideration to individuals who have education, training, or experience relating to 

financial services, financial services regulation, or financial policy. These qualifications 

are similar to those at four of the six other financial regulatory agencies we reviewed. 

Table 2 presents board member qualifications and restrictions as stated in each agency’s 

enabling legislation. For example, both NCUA and FCA list experience with and 

knowledge of financial regulation as one possible qualification for board membership. 

NCUA’s statute also states that no more than one member of the board may have recent 

involvement with an insured credit union as a committee member, director, officer, 

employee, or other institution-affiliated party, although including an individual with 

recent credit union experience on NCUA’s board is not a requirement. FDIC’s statute 

requires that one of the three appointed members must have state bank supervisory 

experience. Of the six other agencies, the Federal Reserve and SEC did not have specific 

language regarding prior professional experience. 

 11FHLBanks are the 12 Federal Home Loan Banks that, along with the Office of Finance, constitute the 

Federal Home Loan Bank System.

Page 7 GAO-07-72R NCUA Board Independence and Objectivity 
Table 2: Statutory Appointment Considerations for Board or Commission Members, Including Professional 

Experience, by Selected Agencies 

Regulator (number

of board members) 

Considerations regarding education, knowledge, professional experience, and public 

interest served, or other qualifications

NCUA (3) • In considering an appointment to the NCUA board, the President shall consider 

individuals who are specially qualified to serve on the board by virtue of their education, 

training, or experience relating to a broad range of financial services, financial services 

regulation, or financial policy. 

• Not more than one member of the board may be, or have recently been, involved with 

any insured credit unions as a committee member, director, officer, employee, or other 

institution-affiliated party. 

CFTC (5) • The President shall select for nomination persons who have demonstrated knowledge 

in futures trading or its regulation, or the production, merchandising, processing, or 

distribution of one or more of the commodities or other goods and articles, services, 

rights, and interests covered by the Commodity Exchange Act. 

• In nominating persons for appointment, the President shall seek to ensure that the 

demonstrated knowledge of the commissioners is balanced with respect to the areas 

listed above. 

FCA (3) • The board shall consist of three members, who shall be citizens of the United States 

and broadly representative of the public interest. 

• The President shall appoint members of the board who are experienced or

knowledgeable in agricultural economics and financial reporting and disclosure; 

experienced or knowledgeable in the regulation of financial entities; or have a strong 

financial, legal, or regulatory background. 

FDIC (5) • Three members shall be appointed by the President, from among individuals who are 

citizens of the United States, one of whom shall have state bank supervisory 

experience. 

• One shall be the Comptroller of the Currency. 

• One shall be the Director of the Office of Thrift Supervision. 

FHFB (5) • The appointed directors shall be among persons with extensive experience or training 

in housing finance or with a commitment to providing specialized housing credit. 

• Not more than one appointed director shall be from any single district of the Federal

Home Loan Bank System. 

• At least one director shall be chosen from an organization with more than a 2-year 

history of representing consumer and community interests on banking services, credit 

needs, housing, or financial consumer protection. 

• One director shall be the Secretary of Housing and Urban Development. 

Federal Reserve (7) • In selecting members of the board, not more than one shall be selected from any one 

Federal Reserve district. 

• The President shall have due regard to a fair representation of the financial,

agricultural, industrial, and commercial interests, and geographical divisions of the 

country. 

SEC (5) None.a

Sources: Commodity Exchange Act, 7 U.S.C § 2a(2); Farm Credit Act, 12 U.S.C. §2242; Federal Deposit Insurance Act, 12 U.S.C. § 1812; Federal Home Loan Bank Act, 12

U.S.C. § 1422a; Federal Reserve Act, 12 U.S.C. § 241; Federal Credit Union Act, 12 U.S.C. § 1752a; Securities Exchange Act, 15 U.S.C. § 78d. 

a

The Securities Exchange Act and the Federal Reserve Act do not specify professional background or knowledge 

requirements for SEC commissioners and Federal Reserve governors. 

We also reviewed the professional experience of NCUA’s current board members and 

compared their experience with that of the 14 former NCUA board members. The 

current board members fulfill FCUA’s guidelines for experience. Specifically, one 

member has recent credit union experience, one has financial policy experience, and the 

third has financial services experience. We also found that current and past board 

members had similar professional experiences and qualifications. For example, current 

board members previously worked as lawyers, state senators, and non-credit union 

Page 8 GAO-07-72R NCUA Board Independence and Objectivity 
bankers. Of NCUA’s 14 prior board members, 3 had been lawyers, 3 had been state or 

federal legislators, and 3 had been non-credit union bankers. 

NCUA Board Follows Several Recommended Practices for Independence, but Its Size 

Does Not Reflect Recommended Practices and May Hinder Communication among 

Board Members 

Our review of available literature indicated NCUA’s board follows several recommended 

management practice standards, many of which are written into law. We reviewed 

literature specific to recommended management practices for independence at federal 

regulatory agencies and were able to identify some management practices applicable to 

NCUA.12 Practices and policies for independence at federal regulatory agencies build 

upon the following characteristics and structures: 

• a multimember commission helps ensure consistency and continuity of decision 

making over time and would be less likely to be influenced by the views of any one 

individual; 

• separation of regulatory and operations functions; 

• freedom from direct political pressure; 

• fair and transparent procedures; and 

• an arm’s length relationship with regulated firms, consumers, and other private 

interests. 

FCUA provides for the multimember board by requiring a three-member board of 

directors, and addresses freedom from direct political pressure by having board 

members serve fixed terms and limiting the number of members who may be members 

of the same political party. As provided for in the statute, NCUA Delegations of 

Authority separate the regulatory and operations functions by making the board 

responsible for regulatory policy functions and field examiners and staff responsible for 

operational functions. Further, the Government in the Sunshine Act helps ensure 

transparency by requiring that complete transcripts, electronic recordings, or minutes 

(as specified in the act) of board meetings closed to the public be made publicly 

available, unless the agency determines under exemptions provided in the act that such 

information should not be disclosed. NCUA also allows for and encourages public 

comment on credit union policy decisions before they are finalized. NCUA board 

members stated that their relationships with member credit unions and trade groups are 

important for understanding the issues affecting the credit union industry, but that 

NCUA gathers information from all sources before making any policy decisions and 

weighs the information from NCUA examiners and career staff more heavily than 

information from other sources. 

 12Warrick Smith, “Utility Regulators – The Independence Debate,” The World Bank Group, Public Policy for the 

Private Sector, Note no. 127 (October 1997). Marc Quintyn and Michael W. Taylor, “Regulatory and Supervisory 

Independence and Financial Stability,” CESifo Economics Studies, 49 (February 2003). Federal Communication

Commission, Connecting the Globe: A Regulator’s Guide to Building a Global Information Community

(Washington, D.C.: June 1999).

Page 9 GAO-07-72R NCUA Board Independence and Objectivity 
We also reviewed literature on corporate governance that related to recommended 

management practices for board structure and size, which generally suggests boards of 

directors have a minimum of five members.13 Corporate governance literature typically is 

targeted to publicly traded corporations or nonprofit organizations and not federal 

regulatory agencies, but we identified some elements of the recommended management 

practices that are applicable to NCUA. Among the sources we reviewed, several stated 

that board size is not one-size-fits-all and should be based on the needs and complexity 

of the organization, and some also suggest a minimum of five members on a board of 

directors would be needed to maintain independence and retain needed expertise. 

Furthermore, a board that is too small may allow for one member to exert greater 

influence over the other members. The literature also suggests the size of the board 

should be reevaluated periodically to ensure that it remains appropriate for the 

organization. Situations that could potentially detract from a larger board’s effectiveness 

include increased difficulties in reaching consensus on issues and the ability of the board 

to act expeditiously on matters needing its attention.

Although FCUA provides for a multimember board, the board has not always 

experienced continuity in full membership. Figure 1 shows the periods during which the 

NCUA board had fewer than three active members. When a board has a vacancy, it 

could potentially offset the benefits of a multimember board structure, such as a 

diversity of perspectives, experience, and political party representation among board 

members. Since 1990, there have been two periods of 12 or more consecutive months 

when NCUA’s board had two active members, and in a recent 45-day period, NCUA has 

had one active board member. 

Figure 1: NCUA Board Membership Vacancies, 1979-2006

According to two of the three NCUA board members, communication among the board 

members is sometimes complicated by the small size of the board and Government in the 

Sunshine Act disclosure provisions that require that a meeting involving deliberation 

regarding official agency business be made public if it is attended by a majority of board 

members (for NCUA, two members). Because any discussion among NCUA board 

members would involve a minimum of two people, members are not allowed to discuss 

 13Holly J. Gregory, Comparison of Corporate Governance Guidelines and Codes of Best Practice (New

York: Weil, Gotshal & Manges, LLP: January 2006).

Page 10 GAO-07-72R NCUA Board Independence and Objectivity 
and deliberate official agency business outside of monthly board meetings unless they 

release a transcript of the discussion. To comply with such rigorous disclosure 

requirements, NCUA board members instead communicate with each other through their 

senior policy advisors, which one board member mentioned was “particularly 

challenging.” One board member noted that the three-member board structure makes it 

easier to schedule meetings. However, with five or more members, a board gains the 

ability to create subcommittees and distribute tasks among these subcommittees and, for 

agencies covered by the Government in the Sunshine Act, allows for flexibility in 

communicating among members. Officials at FDIC and the Federal Reserve noted that 

their boards have subcommittees that work independently and report to the full board. 

Of the six other federal financial regulatory agencies we reviewed, only FCA has fewer 

than five members. 

Although FDIC had a three-member board in 1979, Congress expanded it to five 

members in 1989 in response to the increased responsibilities FDIC assumed from 

absorbing the Federal Savings and Loan Insurance Corporation. NCUA also has had an 

increase in responsibility, particularly in the last decade. Over this time, the credit union 

industry has changed substantially, and credit unions now compete more directly with 

similarly sized banks and thrifts. For example, recent charter conversions have greatly 

increased the number of federal credit unions that have geographic-based fields of 

membership (community charter credit unions). The movement away from the more 

traditional occupation- or employer-based fields of membership (single- and multiplebond credit unions) has resulted in credit unions being in more direct competition with 

banks for members in those geographic areas included in the credit union’s field of 

membership. Additionally, the overall number of federally chartered credit unions has 

declined, but larger credit unions, in terms of total assets, have emerged. The larger 

credit unions offer products traditionally associated with banks and thrifts such as real 

estate and business loans, which has further blurred the distinctions between credit 

unions and banks. 

In 1991, we recommended that NCUA’s board size be increased, in part to bring to the 

board a broader perspective on financial market regulatory and insurance issues.14 We 

made this recommendation to reflect changes in credit union activities, such as the 

introduction of real estate lending and the increase in membership and assets held at 

credit unions.15 In its comments on our 1991 report, NCUA disagreed with our 

recommendation, stating that it would be difficult to hold board meetings with all 

members present and that frequent vacancies among the appointed membership would 

mean the agency could face disproportionate influence from the ex officio members. 

 14GAO/GGD-91-85, 197. 

15NCUA’s oversight responsibilities, in terms of total credit union assets and insured share deposits, have 

continued to increase substantially. As of December 2005, federally insured credit unions held $678.7

billion in assets and had $515.6 billion in insured share deposits compared to $195.3 billion in assets and 

$178 billion in insured share deposits in June 1990. 

Page 11 GAO-07-72R NCUA Board Independence and Objectivity 
NCUA’s Use of Schedule C Appointees Was Similar to That of the Other Federal 

Financial Regulators 

The use of Schedule C appointees at NCUA generally was similar to that of the other 

federal regulators that we reviewed that had Schedule C appointees.16 NCUA’s Schedule 

C appointees are subject to the previously mentioned OGE ethics and conflict of interest 

regulations that focus primarily on ethics and independence matters. Of NCUA’s seven 

Schedule C appointees, four had been previously affiliated with one specific credit union 

trade group. NCUA officials noted that the industry knowledge that the Schedule C 

appointees gained from their trade group experiences have been beneficial to board 

members. 

Schedule C appointments generally are made without regard to the rules for competition 

that govern career appointments. Schedule C appointees receive noncompetitive 

appointments to positions graded GS-15 and below that involve determining policy or 

other key close, confidential relationship with the agency head or other key appointed 

officials of the agency. Agency heads or key appointed officials may dismiss Schedule C 

appointees at any time, and such appointees generally leave their positions at the end of 

an administration. The Office of Personnel Management (OPM) reviews and authorizes 

agency applications for use of Schedule C positions. However, OPM does not review the 

qualifications of a Schedule C appointee, and final authority rests with the appointing 

officials. 

Similar to board or commission members at four of the other five regulators with 

Schedule C positions, NCUA board members have the authority to select Schedule C 

personal staff, while the chair has additional authority to select individuals for positions 

allocated to staff offices. NCUA and three agencies allot Schedule C positions to head 

similar staff offices. For example, NCUA, CFTC, FCA and FDIC each have a Schedule C 

appointee as the director of their respective public or external affairs offices. Table 3 

presents information on the Schedule C positions at the financial regulators. 

 16The Federal Reserve did not have Schedule C positions.

Page 12 GAO-07-72R NCUA Board Independence and Objectivity 
Table 3: Allotment of Schedule C Appointees at Financial Regulators, as of September 15, 2006 

Financial regulatory 

agency (total agency 

employees)a

Positions allocated to the chair 

and board (number of 

appointments if greater than 

one) 

Positions allocated to program 

offices Total

b

NCUA (958) • Chief of staff to the chair 

• Staff assistant to the board 

members (2) 

• Senior policy advisor to the 

board members (2) 

• Director, Office of Public and 

Congressional Affairs 

• Associate Director of 

External Affairs

7c

CFTC (485) • Chief of staff 

• Administrative assistant to 

chief of staff 

• Administrative assistant to the

commissioner (2) 

• Special assistant to the 

commissioner (2) 

• Attorney advisor 

• Chief Economist 

• Director, Office of External 

Affairs 

• General Counsel 

10 

FCA (254) • Chief of staff 

• Executive assistant to board 

member (2) 

• Director, Office of 

Congressional and Public 

Affairs 

4 

FDIC (4514) • Chief of staff • Director, Office of Public 

Affairs and Deputy Chief of 

Staff 

2 

FHFB (147) • Staff assistant to chair 

• Counsel to chair 

• Special assistant to board 

member (2) 

N/A 4

Federal Reserve 

(1,858) 

N/AdN/A N/A

SEC (3,865) • Chief of staff 

• Senior advisor to the chair 

• Confidential assistant to the 

chair 

• Confidential assistant to the 

commissioners (4) 

• Speechwriter 

• Director, Legislative Affairs 

• Legislative affairs specialist 

(2) 

• Investor advocate 

• Confidential assistants to the 

division directors (4) 

16 

Source: GAO. a

Figures refer to either total staff members, full time equivalents, or average number of personnel. Employee figures 

are from most recent information available at the time of our review. 

b

Number reflects positions filled at the time of our review. 

c

OPM has authorized a total of nine NCUA Schedule C appointments. At the time of our review, the Public Affairs 

Specialist (Media Manager) position was not filled. Additionally, while the NCUA chairman is authorized a Schedule 

C staff assistant position, an NCUA career employee currently holds the position. 

d

Not Applicable. The Federal Reserve did not have any Schedule C appointees. 

According to NCUA officials, the decision to select Schedule C staff rests with the 

individual board member, subject to White House approval, and requires no input from 

NCUA career staff. Board members told us that Schedule C staff generally have been 

identified through personal or White House referrals. Board members supervise and 

evaluate Schedule C staff. In addition, all of the board members stressed the importance 

of having staff who would complement the board member’s knowledge, skill, and 

abilities through knowledge of the credit union industry or politics. 

Page 13 GAO-07-72R NCUA Board Independence and Objectivity 
NCUA’s Schedule C staff are subject to the OGE ethics rules. As mentioned previously, 

OGE’s Standards of Ethical Conduct for Employees of the Executive Branch focuses 

primarily on ethics and conflict of interest rules and disclosure.17 Similar to board 

members, Schedule C staff complete financial disclosure reports, receive ethics training, 

and seek advice and guidance from NCUA’s ethics officer on matters involving potential 

conflicts of interest. 

We reviewed the backgrounds of NCUA’s seven Schedule C appointees and identified 

four Schedule C appointees who have been associated with the same credit union 

industry trade group. Of these four Schedule C appointees, two are Senior Policy 

Advisors, one is the Director of Public Affairs and Congressional Relations, and one is a 

staff assistant to a board member. NCUA officials told us that Schedule C appointees 

that have trade group experience are viewed as beneficial to board members in 

discharging their regulatory responsibilities. The officials explained that in particular, 

the senior policy advisors that have come from credit union industry trade groups have 

brought an in-depth understanding of credit union issues as well as industry contacts. A 

board member further added that it is difficult to attract and retain staff from outside of 

the Washington, D.C., area. We reviewed available Schedule C background information 

at four other agencies and found a few examples of trade group experience.18 For 

instance, out of the four Schedule C appointees at FCA, two appointees had prior trade 

group experience but came from different trade groups. 

Conclusions 

NCUA has a number of controls and procedures in place that address independence and 

objectivity of board members that are similar to those at the six other financial 

regulatory agencies we reviewed. Generally, the primary controls for addressing 

independence and objectivity at all of the agencies are based on the statutory criteria for 

individual qualifications and composition of the boards and commissions as well as rules 

promulgated by the Office of Government Ethics. For example, to address political 

independence of board members and commissioners, NCUA and the six other agencies 

have multimember boards or commissions and the board/commission members are 

subject to Senate confirmation and have fixed term limits. Additionally, NCUA and five 

of the other agencies have restrictions on the number of board or commission members 

 17OGE’s Standards of Ethical Conduct for Employees of the Executive Branch contains provisions 

addressing impartiality in performing official duties. Under 5 C.F.R. § 2635.502, unless they receive prior 

authorization, employees should not participate in a particular matter involving specific parties that they 

know is likely to affect the financial interests of a member of their household, or in which they know a 

person with whom they have a covered relationship is or represents a party, if they determine that a 

reasonable person with knowledge of the relevant facts would question their impartiality in the matter. 

Under 5 C.F.R. § 2635.503, employees who have received an extraordinary severance or other payment

from a former employer prior to entering government service are subject, in the absence of a waiver, to a 

2-year period of disqualification from participation in particular matters in which that former employer is 

or represents a party. 

18Of the six other agencies we reviewed, four provided information on the professional backgrounds of 

their Schedule C appointees, one did not provide information, and one did not have any Schedule C 

appointees. 

Page 14 GAO-07-72R NCUA Board Independence and Objectivity 
that can be of the same political party. Moreover, NCUA’s board and staff, like other 

federal employees, are required to adhere to the Office of Government Ethics’ Standards 

of Ethical Conduct for Employees of the Executive Branch, which sets standards for 

maintaining impartiality as well as avoiding conflicts of interest. 

However, opportunities exist for NCUA and policy makers to address, at least in part, 

perception issues regarding its impartiality as a regulator. In particular, NCUA could 

consider adopting, with appropriate modifications, one or more of the additional 

practices identified by officials of five of the six other financial regulators that address 

regulatory independence and objectivity. For example, NCUA could adopt additional 

independence and objectivity guidance similar to FHFB’s Standards of Conduct that 

required FHFB employees, including its board, to maintain an arm’s length relationship 

with the regulated industry. Similarly, NCUA could consider including independence and 

objectivity as core values in the agency’s strategic plan, similar to FHFB and the Federal 

Reserve. By adopting one or more of the practices that the other regulators use, NCUA 

would reinforce the message that independence and objectivity are enduring and 

achievable values and goals for all staff, whether they are board members, career staff, 

or Schedule C appointees. 

Finally, consistent with our 1991 report, we continue to believe that consideration should 

be given to exploring the potential benefits and costs associated with increasing the 

number of NCUA board members. We made this recommendation, in part, as a 

reflection of the increasing involvement of credit unions in activities traditionally 

associated with banks and thrifts. These changes are more evident today as credit 

unions have expanded their fields of membership and compete more directly with 

similarly sized banks and thrifts. Further, NCUA has sometimes experienced board 

vacancies, which resulted at times in a board of fewer than three active members, 

potentially offsetting the full benefits of a multimember board structure. Additionally, 

some NCUA board members have noted that the public meeting restrictions of the 

Government in Sunshine Act effectively at times constrain communication and 

collaboration between board members, since any meeting involving two of the board 

members to deliberate official agency business must be public. As we noted in 1991, a 

larger board would help provide a broader perspective on financial market regulatory 

and insurance issues. A larger board also could offer opportunities to enhance 

continuity of expertise and decision making on the board, improve communication 

between board members, and achieve greater parity with the other regulatory agencies. 

As part of these deliberations, it would be important to consider the potential costs of an 

expanded board, including the potential for greater difficulties in reaching consensus on 

issues or the board’s ability to act expeditiously on matters needing its attention. 

Page 15 GAO-07-72R NCUA Board Independence and Objectivity 
Recommendations for Executive Action

To address perception issues regarding NCUA’s independence from and objectivity 

about the industry being regulated, we recommend that the Chairman of NCUA consider

adopting practices that other financial regulators use to enhance their independence and 

objectivity. These practices include drafting agency-specific rules to maintain an arm’s 

length relationship with the regulated industry and including independence and 

objectivity as core values in the agency’s strategic plan. 

Agency Comments and Our Evaluation 

We provided a draft of this report to the Chairman, NCUA, and the heads or designees of 

CFTC, FCA, FDIC, FHFB, the Federal Reserve, and SEC for their review and comment. 

NCUA provided written comments that are reprinted in enclosure 1. NCUA, FCA, FDIC, 

and the Federal Reserve provided technical comments that we incorporated into the 

report, as appropriate. 

In its response, NCUA stated it was not opposed to our recommendation to consider 

adopting agency-specific ethics guidance. NCUA further indicated that it will consider 

including the concepts of independence and objectivity as part of its values and mission 

in its future strategic plans and in its 2007 Annual Performance Budget. NCUA indicated 

that adopting agency-specific ethics standards may not in practice result in more 

rigorous standards than those imposed by the Office of Government Ethics rules. NCUA 

stated that the general OGE rules prohibiting participation in any matter that would have 

a direct and predictable effect on an employee’s financial interest would prohibit the 

conduct proscribed by the agency-specific rules, and are sufficient to assure 

independence and objectivity of NCUA board members and staff. Our recommendation 

is not limited to adopting agency-specific ethics standards, and the report points out 

practices of the other regulators, such as adopting rules that require an arm’s length 

relationship with the regulated industry that could enhance NCUA’s controls for 

independence and objectivity and help address perception issues associated with its 

impartiality as a regulator. 

NCUA also stated in its comment letter that our characterization of the Government in 

the Sunshine Act as prohibiting any discussions between two NCUA board members 

unless a transcript is produced and released was not accurate. We changed the report 

text to clarify that because of the current size of the board, the Government in the 

Sunshine Act effectively prohibits deliberations of official agency business between any 

of the NCUA board members outside of board meetings unless they release a transcript 

of the discussion in accordance with the act’s open meeting procedures. 

NCUA also stated that it did not agree that Congress should increase the size of the 

NCUA board. NCUA stated in its view the costs and anticipated reduced efficiencies 

involved would outweigh any potential benefits, estimating the cost of additional board 

members and their staff to be at least $1.1 million annually. NCUA also stated that the 

increasing size and complexity of the credit union industry was being addressed through 

its focus on maintaining an adequate expert field staff, and that the three-member board 

Page 16 GAO-07-72R NCUA Board Independence and Objectivity 
was more than adequate to perform the board’s role in establishing safety and soundness 

regulations and policy. While we acknowledge there would be some financial and 

potential efficiency costs associated with increasing the board size at NCUA, we 

continue to believe it would be worthwhile to review the potential benefits an expanded 

board may provide. We note that other financial regulatory agencies with broadly similar 

duties have operated for many years with boards having five or more members. As we 

noted in our report, vacancies on NCUA’s board have sometimes been lengthy, leading 

the board to operate with two or fewer members, potentially offsetting the benefits of its 

multimember board structure, such as diversity of perspectives, experience, and political 

party representation among board members. Additionally, the benefits of a larger board 

could include, among other things, enhanced continuity of expertise and decision making

on the board, improved communication among board members, and greater parity with 

the other regulatory agencies. We agree that maintaining an adequate field staff is 

essential to protecting the safety and soundness of the credit union industry, but believe 

that it is the responsibility of a balanced board to bring a diversity of perspectives and 

experience to board deliberations and to provide a broader perspective on financial 

market regulatory and insurance issues. Although Congress did not adopt our 1991 

recommendation to expand NCUA’s board, we believe that, consistent with the literature 

on corporate governance practices, the size of the board should be periodically reviewed 

to ensure that the agency has the most appropriate board size for its current resources 

and responsibilities. 

- - - - - 

As we agreed with your office, unless you publicly announce the contents of this report 

earlier, we plan no further distribution of it until 30 days from the date of this letter. At 

that time, we will send copies of the report to the Ranking Member, House Committee on

Ways and Means; other interested congressional committees and subcommittees; the 

Chairman, NCUA; and the Chairmen of CFTC, FCA, FDIC, FHFB, the Federal Reserve, 

and SEC. We will make copies available to others upon request. In addition, the report 

will be available at no charge on the GAO Web site at http://www.gao.gov. 

Page 17 GAO-07-72R NCUA Board Independence and Objectivity 
If you have any questions concerning this report, please contact me at (202) 512-8678. 

Contact points for our Office of Congressional Relations and Public Affairs may be found 

on the last page of this report. Key contributors to this assignment were Harry Medina, 

Assistant Director; Janet Fong; Danielle Novak; Barbara Roesmann; and Paul G. 

Thompson.

Sincerely yours, 

Yvonne D. Jones 

Director, Financial Markets 

 and Community Investment 

Page 18 GAO-07-72R NCUA Board Independence and Objectivity 
Enclosure I 

Comments from the National Credit Union Administration 

Page 19 GAO-07-72R NCUA Board Independence and Objectivity 
Enclosure I 

Page 20 GAO-07-72R NCUA Board Independence and Objectivity 
Enclosure I 

Page 21 GAO-07-72R NCUA Board Independence and Objectivity 
Enclosure I 

(250302)

Page 22 GAO-07-72R NCUA Board Independence and Objectivity 
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