Risk-Focused Examinations

The NCUA implemented the RFE program in an effort to better allocate agency resources and assist in meeting the agency’s strategic goals. Under this approach, the agency's resources are focused on the credit unions that pose the greatest risk to the NCUSIF. In addition, examiners are able to allocate time and apply the most scrutiny to activities posing the highest risk.

An RFE allows the examiner to identify the areas of a credit union's operations that pose the greatest risk to the NCUSIF. Examiners use a combination of procedures required by the agency NCUA Instruction 5000.20, Examination Scope and their own professional judgment to determine the scope of the exam.

The NCUA developed and implemented the RFE program in 2002 to focus exam staff attention and resources on areas of elevated risk. Over time, the RFE program has evolved to address new and emerging risks in the industry and to respond to the NCUA’s annual supervisory focus.

A comprehensive RFE scope includes required, baseline, and optional/expanded review areas, as well as the sound, reasoned judgment of exam staff in determining which baseline and optional/expanded review areas are relevant and necessary.

  • Required—Examiners must complete the required review areas at every RFE unless the credit union does not offer the product or service covered by the review. For each required review area, exam staff must complete any associated questionnaire.
  • Baseline—exam staff must be familiar with the full scope of baseline review areas for each type of supervised credit union and use their own judgment and understanding of the risks of each credit union to determine which baseline review areas to include in the scope of an examination. Exam staff do not have to review every baseline area in every examination of every credit union. Rather, they should allocate their time and resources appropriately to the credit unions and credit union operations that pose the greatest risk. However, exam staff must document their reason for opting out of a baseline review area.
  • Optional/Expanded—Examiners may identify additional areas of review using their own professional judgment and taking into consideration the risk profile of the credit union. Examiners will document their reason for expanding the scope beyond the required and baseline reviews in the Exam Scope.

Part 204 of the FCU Act gives the NCUA the authority to conduct examinations of any insured credit union. Specifically, the act states:

"The [NCUA] Board shall appoint examiners who shall have power, on its behalf, to examine any insured credit union, any credit union making application for insurance of its member accounts, or any closed insured credit union whenever in the judgment of the Board an examination is necessary to determine the condition of any such credit union for insurance purposes. Each examiner shall have power to make a thorough examination of all of the affairs of the credit union and shall make a full and detailed report of the condition of the credit union to the Board."

Deciding When to Perform an RFE

NCUA Instruction 5000.20, Examination Scope outlines the eligibility requirements for defined-scope and risk-focused examinations for all federally insured credit unions. The instruction is updated annually and eligibility requirements may change from year to year.

The current exam requirements are as follows:

Asset Size CAMELS Rating Type of Exam
Less than $30 million 1, 2, and 3 Defined-scope examination
4 and 5 Defined-scope examination, at a minimum, plus additional reviews as necessary to appropriately supervise the risk
$30–50 million 1, 2, and 3 Region has discretion to choose a defined-scope examination or an RFE (However, newer examiners will be limited to conducting only defined-scope examinations for FCUs in this asset size range.)
4 and 5 RFE
More than $50 million All RFE, ensuring examination scope requirements are met

Risk-Focused Exams vs. Defined-Scope Exam

The primary difference between the two types of exams is that in a defined-scope exam the risk areas have already been identified and the scope is pre-determined. This means that an examiner will not perform a preliminary risk assessment or develop an individualized exam scope.

Defined-Scope Examination Risk-Focused Examination
  • Scope is predetermined and primarily focuses on internal controls, recordkeeping, and lending (no preliminary risk assessment is performed)

  • Required procedures are outlined in the examination software (there is no opt-out provision)

    • Tier 1 (always required unless the credit union does not offer the product or service)
    • Tier 2 (if triggered)
    • Tier 3 (if triggered)
  • To expand the scope, an examiner must obtain SE approval
  • Scope is determined by the examiner who conducts a preliminary risk assessment to identify specific risks at the credit union

  • Review areas are dictated by the annual NCUA Instruction 5000.20, Examination Scope, which includes:

    • Required
    • Baseline (can opt out based on examiner judgment)
    • Optional/ Expanded (can opt in based on examiner judgment)

Conducting a RFE

RFEs, which are performed onsite, are complemented by ongoing offsite supervision, which may include a review of board meeting minutes, financial statements, Call Reports, FPR, policy revisions, and RATE. Additional onsite supervision may be required for certain credit unions as discussed in the NSPM.

Each examination results in a report and CAMELS rating that:

  • Evaluates the soundness of credit unions on a uniform basis,
  • Quantifies the degree of risk to the NCUSIF, and
  • Identifies institutions that require additional supervisory attention.

The examination process involves the following broad steps:

  • Make a preliminary assessment of expected risk.
  • Determine appropriate examination steps and procedures.
  • Document process and transaction reviews and results.
  • Evaluate information, using the total analysis process, to assign CAMELS ratings and the level and anticipated direction of risk for each risk category.
  • Assess future examination resource needs.

Workpapers and Resources

Last updated April 29, 2022