Policies and Internal Controls

Policies

Credit unions create and implement suitable credit loss policies and procedures for the allowance account. At a minimum, these policies should:

• Describe the CECL methodology consistent with GAAP, including portfolio segmentation, credit impairment measurement, and qualitative adjustments

• Identify the roles and responsibilities of credit union personnel regarding the periodic ACLLL account evaluation and financial reporting

• Establish internal controls to ensure processes work as intended and the appropriate staff monitor and adhere to controls and fulfill their responsibilities

• Document any supplemental policies, such as a collections policy, charge-off policy, etc.

For more information, see NCUA Letter to Credit Unions 03-CU-01, Loan Charge-off Guidance, which addresses the systematic charge-off of uncollectible loans.

Internal Controls

Prudent credit unions implement controls with respect to the ACLLL account. This includes measuring each reporting period to:

• Validate the reliability and integrity of data used in the methodology

• Verify layering has not occurred

• Record charges for loan losses in accordance with GAAP

• Inform the board of the results of the periodic evaluation and any subsequent entries made to the ACLLL account

• Validate the CECL process through an independent party (either knowledgeable internal personnel or an external auditor)

• Maintain adequate documentation for decisions, assumptions, inputs, and results for determining the value of the ACLLL account

Layering is the inappropriate practice of recording more than one amount for the same probable loan loss in the ACLLL account.

Last updated on June 05, 2023