Once all examination scope steps are completed, the examiner will evaluate all information gathered to assign a final assessment of risk for each of the seven risk categories (low, moderate, or high risk). The final risk rating and direction of risk (increasing, decreasing, or unchanged) should be supported by sufficient comments and documented in the Final Risk Assessment tab in the Scope Module.
Level of Risk
Information obtained during the examination will dictate the level that is ultimately assigned to each risk area; therefore, the final risk assessment will not necessarily match the preliminary risk assessment. For example, an examiner may have assigned a moderate risk level to transaction risk in the preliminary risk assessment, but after reviewing the credit union’s system of internal controls during the examination, may find that transaction risk is actually low. The final risk assessment then would assign a low risk rating to transaction risk.
Examiners need to provide an explanation of why they have assigned the risk level in the final risk assessment. Using the transaction risk example above, the examiner might explain that the credit union has a very active supervisory committee that performs the credit union’s bank reconciliations, reviews file maintenance reports, and performs other internal control functions. As a result, a low risk rating is appropriate.
Examiners should aim to provide a strong, comprehensive administrative record, so detailed explanations of the risk level assignments are encouraged. The final risk assessment will weigh into the final CAMELS rating assigned to the credit union at the conclusion of the examination process.
Examiners should use the risk indicators linked below for guidance in the assignment of risk level. After conducting the examination, the examiner begins the planning cycle again by suggesting future review areas on the Final Risk Assessment tab of the Scope Module.
Direction of Risk
As part of the final risk assessment, examiners will also indicate the anticipated direction (increasing, decreasing, or unchanged) of each of the seven risk areas over the next examination cycle. While the risk level assignment provides a snapshot of the credit union’s condition on the final day of the examination, the direction of risk assignment is forward-looking.
Examiners should consider the following when assigning a direction of risk:
- Management’s ability to monitor and control identified risks,
- Management’s willingness to monitor and control identified risks, and
- Anticipated changes in management, services, economic environment, field of membership, etc.
In addition to assigning a direction, examiners are expected to explain why they expect the risk to change direction (or remain unchanged) over the next examination cycle. Using the transaction risk example above, if the examiner assigns an “unchanged” direction for transaction risk, he or she may explain that they foresee no change in the activity and functions of the supervisory committee over the next examination cycle. If the examiner assigns an “increasing” direction for transaction risk, they may explain that it is because the examiner has learned that members of the supervisory committee will be leaving the committee in the next few months.
The direction of risk assignment weighs into the CAMELS rating that the examiner assigns at the conclusion of the examination process.
Last updated October 11, 2016