Source: https://www.docslides.com/faustina-dinatale/highly-effective-supervisory-committees
Timestamp: 2020-07-13 13:33:16
Document Index: 52381632

Matched Legal Cases: ['art 715', 'art 715', 'art 715', 'art 715', 'art 741', 'art 748', 'art 748', 'arts 741', 'art 740', 'art 748', 'art 717']

Highly Effective Supervisory Committees - Description
Dean Rohne, CPA, CIA. Course Objectives. Function and Duties Overview. Governance Issues. Fraud/Risk Awareness. NCUA Examination Trend Awareness. Summary. 2. Function. The Supervisory Committee Must –. ID: 671798 Download Presentation
credit audit risk committee audit credit committee risk ncua internal board management policy fraud compliance financial policies union supervisory control reporting duties
Download Presentation - The PPT/PDF document "Highly Effective Supervisory Committees" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
HIGHLY EFFECTIVE How to become
EFFECTIVE TEACHERS AND LEADERS UNIT
Safety and Health Programs and Committees Presented by : ETT
Presentations text content in Highly Effective Supervisory Committees
Course ObjectivesFunction and Duties Overview
Fraud/Risk Awareness
NCUA Examination Trend AwarenessSummary
The Supervisory Committee Must –
Operate Within the Bylaws and Overview Credit Union Operations
The Board Establishes Strategic Direction, PolicyManagement Establishes Procedures, Controls & Quality Assessments
and SupervisionEmployees Interact with Members and Complete Day to Day OperationsInternal Audit and Supervisory Committee Evaluates the Process via External Audit
Sources – Supervisory Committee
The Federal Credit Union Act – Section 115,
The Federal Credit Union Act – Section 202,Credit Union By-Laws – Article IX,NCUA Rules and Regulations – Part 715
www.ncua.gov/guidesmanuals/supervisory_comm/supervisory.pdf
The Guide is written for credit unions with non-complex structures and non-audit professionalsUse the Guide to gain an understanding of the credit union’s audit scope
secretaryConduct an annual audit and special audits as needed and report
results to the board or directorsConduct a verification of members’ accounts at
least once every two years
member and NCUA inquiries
Report to the membership at the annual meeting
Overview internal audit effectivenessParticipate in and ensure Bank Secrecy Act (BSA) compliance
NCUA Rules and Regulation – Part 715.3 Specifics
the primary objectives the Supervisory Committee must determine:Internal controls are established and effectively maintained sufficient to satisfy management objectives
Audits, verification of members’ accounts, are evaluated for financial reporting and disclosureAccounting records are timely and accurate
, policies and control objectives are properly
Policies and controls are sufficient to safeguard against error, conflict of interest, self-dealing and
Ensure that the credit union adheres to the
filing requirements for reports filed with the NCUA (Form 5300)
To achieve its objectives the Supervisory Committee must determine: (Continued)
As the Supervisory Committee is a volunteer group with
limited time, resources and skills, it is dependent on them to –
Establish an Effective Audit
Comprehensive Audit Plans and ProceduresEnsure IndependenceEmploy Qualified Audit
Select and engage an external auditor
Determine the scope of the audit	Opinion
or Non-Opinion
Establish an Internal Audit
Determine Internal Audit Authority
Ensure IndependenceGather support for all Levels of the Credit Union
Determine Internal Audit ResponsibilitiesEstablish Lines of CommunicationAssess
Training Required for ALL – Staff and Officials
Policy requires board of director approval (board)
SAR Reporting required to the boardAnnual independent assessment of BSA program internal control effectiveness
Applicable Laws and RegulationsBoard of DirectorsBoard PoliciesSupervisory Committee
Good Governance RequiresDefined Roles for Board and Management
Compliance with NCUA Rules and Regulations
Active Risk Assessment and Communication
Effective AuditsManagement Integrity and Attestation
Performance Evaluation ProcessQualified and Attentive ParticipationPromoting Financial TransparencyFinancial Training (Now NCUA Mandated)
Dishonesty/Fraud policy statementDocument accounting policies and procedures
The Board is Ultimately Responsible for ensuring the Credit Union:
Is capably managed by capable CEO and staff
Operates using sound business practices for the good of the membership
Complies with all applicable laws and regulationsAchieves goals stated in strategic plan
Fulfills its purpose of making low-cost loans and encouraging thriftProvides adequate financial reserves to cover delinquent loans and other financial risksProtects against unauthorized or illegal acts through safe operating procedures
Develop 1 page financial report
Produce timely and accurate reports
CEO and CFO should certify reports
Review methods of recording financial transactions annually – do they appear appropriateAlways side on disclosing more than needed – don’t cover up bad results
Use your web-site to publish information
Incorporate non-financial (members, # served)
Provide monthly reports to:Department heads
Board or Oversight Committee
Provide details or explanation on high risk accounts
Have a process for asking questions - how are ?? resolved
SARBANES OXLEY ACTPassed in 2002
Auditor RelationshipsApplies to Publicly traded Co’s registered with the SEC – Does not directly apply to Credit Unions
SARBANES OXLEY ACT (Continued)
SOA AND NCUA – LETTER 03-FCU-07, OCTOBER 2003
Credit Unions should address the points in 03-FCU-07 in their corporate governance policies
Active Audit Committees
Financial Reporting Assurances (Sign-Offs)
Board ResponsibilitiesDisclosure of Corrections/MisstatementsDiscourage Related Party Transactions
Establish and Enforce a Code of EthicsInternal Control Reporting
SOA - BEST PRACTICE Recommendations
expertise on the Board and committees,
Renew ethics, fraud and conflict of interest policies regularly,
Establish whistle blower provisions, Establish charters for all committees,
Establish a governance policy (qualifications, responsibilities, access, continuing education)
Areas of Committee Overview
Document internal controls and test controls
Avoid employee loans (except in normal course of business)
Support compensation based on independent market data
Directors and Officers insuranceHire qualified and experienced individuals Do what fits your credit union – several small high impact improvements are better than an extensive plan that isn’t followed
Under the COSO* Internal Control-Integrated Framework, a widely-used framework in the United States, internal control is broadly defined as:
A process, produced by a credit union’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Reliability of financial reporting; Compliance with laws and regulations.
* Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO has established a common internal control model against which companies and organizations may assess their control systems.
FINANCIAL INSTITUTION CHARACTERISTICS BY ASSET SIZE
- $500 Million> $500 Million
“Hands On” CEO is responsible for system
, accounting, operations, and strategic planning.
Limited resources, knowledge, or time – will borrow ideas, policies, and practices from other entities
Outsourced IT functions for network admin and data processing support
Complete lack of segregation of duties due to staff limitations
Significant lack of compensating controls
Hands On” CEO
accounting manager is typically the IT manager
Limited resources or knowledge-will tend to borrow ideas, policies or practices from other entities versus self creating
Varying lack of Segregation of duties due to staff limitations
Organization will have begun development of a middle management team
Varying lack of Compensating Controls
CEO functions as an “inquiry” only on the system / on review
IT Department staffed by generalists (1-2 people) with an emphasis on the Core Data Processing system.
Network functions may still be outsourced.
Implementation of intended security features at the network and data processing system
Will have a CFO – but that individual may not perform like a CFO
Middle Management positions may be staffed-ongoing training may be inadequate
Lack of depth of management team will create segregation of duties issues upon turnover of personnel
Knowledgeable/Specialized
Resources by Network Administrator, Core System, Security Administration
Active Enforcement of intended security features at the network and data processing system
Dedicated CFO that is knowledgeable of job responsibilities and accountabilities
Middle management positions will be staffed and generally have access to appropriate ongoing training
Lack of depth of management team will create segregation of duties upon turnover of personnel.
CONTRASTING CONTROL ENVIORNMENTS
Teller activity should be balanced and posted daily.
Check signers are authorized by the BOD.Bank reconciliation is done by manager or someone else who acts as a teller or signs checks and records these transactions.Supervisors handle cash and generate transactions on the front line
Medium to Large Credit Unions
Some Segregation of Duties
Bank reconciliation may be done by someone who does not directly handle credit union funds or record them
Periodic surprise cash count and reviews of activities are made by supervisors.
Officer and Director LiabilityInsured by D&O Policy
Reviewed Annually…Ask for copy!
Directors are indemnified when their actions are prudent and carried out in good faith and with reasonable care.
Powers The Supervisory Committee Does Not Have
Interfere With Credit Union Operations
To Establish Policy and Procedures
To Become involved in Personnel MattersTo Act on Your Own Aside From the CommitteeTo Attend Board Meetings Uninvited
To Have a Paid Staff, Financial Officer, Board Chair or Credit Committee Member Participate on the Committee
SAS 99 auditor’s responsibility for fraud detection
Auditors have a responsibility to plan and perform the audit to obtain
about whether the financial statements are free of material misstatement, whether caused by error or fraud
SAS 99 management’s responsibility with respect to fraud
Management continues to be responsible for designing and implementing company internal controls to prevent, deter, and detect fraud.
Why Fraud Occurs:
Three conditions generally are present when fraud occurs:
-- reason to commit fraud.
Opportunity -- absence of controls, ineffective controls, ability of management to override controls.
Rationalize/attitude
-- individual possesses a character or set of ethical values that allows them to commit fraud.
EMBEZZLEMENT FORMULA
OPPURTUNITY(The Control Environment)
+RATIONALIZATION=EMBEZZLEMENT
How Fraud is Discovered
Setting the tone at the
top. KEY!!!
Looking at fraud occurrences over the years, this was a major factor.
Hiring and promoting ethical employees.
Providing ethics training.
Set policies to detect fraud.
Disciplining and prosecuting violators
Supervisory Committee oversight to ensure compliance with above.
Transaction (Operating or Fraud) RiskCompliance RiskStrategic RiskReputation Risk
Authorize risk containment controls
Approve budget/funding for ongoing risk management
skills training or hiring
Participate in centralized oversight and monitoring
Participate in strategic and reputation risk management processes
Risk ManagementThe Supervisory Committee’s Role
Determine that compliance is occurring by either:
Outside Contract ReviewHelping to prevent embarrassment or lawsuits
Top 10 Reasons Directors get SUED!
Approving self-serving, improvident or excessive loans
Failing to comply with regulatory directives
Failing to supervise management properly
Failing to authorize and conduct periodic audits
Failing to assess internal control effectivenessAuthorizing improper payments or expensesImproperly maintaining and monitoring liquidity reserve requirements
Failing to attend meetings on regular basis
Extending too much investment in a limited area
Failing to exercise independent judgment
What to Expect from NCUA Exams
NCUA has taken a lot of criticism by outside parties
Class action lawsuit by a group of credit unions as a result of the corporate losses and the overall effect to the share insurance fund and assessments. (ALCOA Tennessee FCU)
Office of Inspector General (OIG) of NCUA Reports (
www.ncua.gov.oig):OIG Capping Report on Material Loss Reviews
– November 23, 2010OIG Semiannual Report to Congress – September 30, 2010 & March 31, 2011
Credit Union Failures: Lessons Learned
NCUA OIG Reports Reasons for Recent Failures:
Poor Strategic Planning and Decision Making
Inadequate Internal Controls and Policies
FraudLack of Follow-Up on Exceptions Noted in Outside ReportsOther Related Causes – Inadequate capital, excessive growth, concentration issues associated with deteriorating economicsAggressive underwriting decisions and practices
Weak oversight of third party vendors
Current Examination TrendsSignificant increases in number of Documents of Resolutions (DOR)
Increase in length and bullet points in DOR
Increases in number of net-worth restoration plans NWRP – (pursuant to 702.206 Rules and Regulations “RR”)
Future Exams Will Be “EVEN MORE”Risk Focused
Anything that potentially could cause risks will be reviewed
NCUA Letter 11-CU-03 addressed some of these areas
– concerns with real estate values, loan delinquencies, and underwritingInterest Rate Risk
– as a result of increase in long term assets (New – R + R section 741.B)Concentration Risk – Do not put all your eggs in one basket
Federal Examiners Will Be Looking For…..
Additional Items in these Areas:
Internal Control TestingRegulatory Compliance
If your examiner has not asked before, expect them to ask for any and all outside reports that you have received. This effort is a result of OIG report findings.
Third Party Reporting - NCUA Required
Expect them to ask for your:
Audit reports and Workpapers - RR Part 715
Verification of Members Accounts and Workpapers – RR Part 715
Third Party Validation of Assumptions on Asset Liability Models – RR Part 741 / Letter CU -03-11BSA Examination Reporting and Testing -RR Part 748.2SAS-70 Reports on Critical Vendors and How Client Control Considerations are being addressed by the Credit Union - RR Part 748
Investment Shock Reports - RR Parts 741 and 703Website Compliance Review – RR Part 740Disaster Recovery Tests – RR Part 748Red Flag Compliance Review - RR Part 717 Appendix J
Third Party Reporting – Other Requirements
ACH, ATM-TG-3, and PCI Compliance Reports (even though they are not necessarily required to be filed with outside third parties)
ACH- Risk Assessment (new in 2010)
Market Value Analysis on Mortgage Loan Portfolio
FHA – Title II – Lender – Annual LAAS FilingAbandoned Property Reporting and any related state audit reports
Third Party Reporting – Best PracticesPenetration Testing / Internal Vulnerability Assessment
Information Security Risk ReviewAbandoned Property Reporting and any related state audit reports
VISA Instant Card Issue Self Audit Form
You will be asked to provide the following policies and how monitoring for compliance is performed in some of the following areas. A lot of these requests may be new.
Security Policies & Procedures – RR 748
Appraisal Policy (NCUA Guidelines 12-2-2010) – RR 722
Vendor Due Diligence Policy – RR 748
Loan Participation Policy – RR 701.22Allowance for Loan Loss Policy – to comply with new NCUA requirements (July 2011 Board Review Date) & FASB audit disclosure requirements. – RR 702
TDR and Loan Modification Policy – Letter 09-CU-19
Charge-Off Policy – RR 741.201 C 5
Identity Theft Detection Prevention Policy – RR 717 Appendix F-I
Member Business Loan Policy – Risk Policy - RR 723General Authority and Duties of Directors Policy – RR 701.4Ethics Policy – Article XIX Section 4 of by-laws / RR 703.17IRR Policy – RR 741.B
Other new requests that examiners are frequently asking to see or requesting that Credit Unions implement:
Quarterly Independent Review of Employees and Officials Accounts (Supervisory Committee review)
Loan Due Date Change Reporting Monitoring
Wire Transfer Control Testing
Documentation of Board Financial Literacy TrainingControl and Monitoring of Dormant Account ActivitySigned Fraud / Internet Use and Ethics Policy Statements (annual update)
Credit Unions Face Compliance Tidal Wave
will only increase this focus
Regulatory Compliance RequirementsThat Examiners Will Be Looking For
Have mortgage loan originators properly registered in compliance with NCUA Safe Act Regulations?
Does the Credit Union have written policies and procedures that address requirements if they originate mortgage loans?
Regulatory Compliance RequirementsThat Examiners Will Be Looking For (Continued)
Change in rating agencies
Appraisals – compliance with new NCUA letter to Credit Unions –
December 2, 2010Debit Interchange Fees
Executive Compensation DisclosuresHome Mortgage Disclosure Act (HDMA) updated12 new data collection requirements
The Safe Act and Dodd-Frank Act are just two of the many compliance areas coming into focus this year.
If you do not conduct a periodic compliance review, you could be quickly out of compliance and subject to fines and penalties.
How can the supervisory committee’s responsibilities best be met?
Participation on Committee by Individuals with Adequate Expertise
Significant individual contribution of timeHire and supervise internal auditor
Hire and manage external auditor
BE AWARE OF AND RESPOND TO CREDIT UNION MARKET PLACE ISSUES
New Delivery Methods for Services and ProductsNew or Expanded Fields of Membership
Continual Expansion of Electronic Information SystemsChanging Regulatory Focus
Understand National TrendsRelated to Audit Committees for Public Companies and the Public Company Accounting Oversight Board (PCAOB) as these trends could filter down.
Piling It On by Sarah Johnson
While it is rare to see companies give audit committees primary responsibility for overseeing their overall risks, a new Securities and Exchange Commission rule requiring companies to explain their board’s role in overseeing risk has prompted some companies “to delegate this role to the audit committee in order to avoid embarrassing disclosure that they didn't have a risk oversight in place” says Frederick Lipman, a partner at Blank Rome and president of the Association of Audit Committee Members.
This change doesn’t sit well with more-traditionally minded audit committee members, who believe oversight of enterprise risk management should rest with the full board. Some audit committee, for example, have been asked to weigh in on corporate pay practices, following new SEC rules asking for explicit discussion about the risks that compensation structures might incentivize.
Audit committees may, in fact, see their mandates increase even further, thanks to a proposed rule from the Public Accounting Oversight Board (PCAOB). In practice, corporate finance executives play a significant role in communications with the audit firm – a habit the new rule would curb. To emphasize independence and encourage a culture in which auditors answer to audit committees rather than management, the proposal would have auditors indicate whether two-way communication is occurring between them and the audit-committee members, and access how well management communicates accounting issues to audit-committee members.
This is from the October 2010 issue of CFO Magazine.
SARAH JOHNSON (SARAH
JOHNSON@CFO.COM
) IS A SENIOR EDITOR FOR REGULATION AT CFO.
Dean Rohne, CPA, CIA Principal, LarsonAllen drohne@larsonallen.com800/657-4477
www.larsonallen.com/credituions