Risk Management

People

Board of Directors

The board of directors must ensure the credit union has adequate bond coverage pursuant to FCUA §§ 1761b(2) and 1766(h), and the NCUA regulations §§ 713.5, What is the required minimum dollar amount of coverage? and 713.6, What is the permissible deductible?

Additionally, NCUA regulation § 713.2, What are the responsibilities of a credit union's board of directors under this section? requires a federally insured credit union’s board of directors to:

  • Review the extent of coverage at least once a year to ensure that it meets the minimum requirements set by the NCUA Board and is adequate to address the potential risks facing the credit union
  • Pass a resolution approving the purchase or renewal of fidelity bond coverage and delegate one member of the board, who is not an employee of the credit union, to sign the purchase or renewal agreement and all attachments

Note: no board members may be a signatory on consecutive purchase or renewal agreements for the same fidelity bond coverage policy.

FISCUs are subject to state laws, which may require an annual board review. FISCUs must comply with any relevant state law that addresses bond coverage.

The board of directors should consider the credit union's loss exposure, internal controls, and financial resources when determining the amount and the type of coverage necessary.

For example, the board of directors may consider:

  • The size of the credit union’s asset portfolio and share base
  • The effectiveness of the internal controls
  • The amount of cash, securities, and other property that the credit union normally holds
  • The number of employees, as well as their levels of experience and authority, and the employee turnover rate
  • The reliability and security of the information system
  • The types of services offered (for example, plastic cards, electronic banking services)
  • The overall risk of the institution

Management

A credit union’s management is responsible for:

  • Timely payment of the bond premium
  • Making any bond claims in accordance with the requirements of the bond
  • Reporting bond claims to the credit union’s board of directors
  • Reporting bond coverage on the Profile
  • Ensuring that the credit union obtains insurance through an approved bond form, pursuant to NCUA regulation §713.4(a)
  • Assessing the credit union’s coverage needs and recommending endorsements or riders, as appropriate, to the board of directors

As credit union officials, all supervisory committee members must be bondable by the credit union’s bond company pursuant to NCUA regulation § 713.3(a)(2).

The supervisory committee is responsible for reviewing any audits performed by the bond company and responding to any related recommendations.

Policies and Procedures

Anti-Fraud Policy

A credit union’s anti-fraud policy may outline the action the credit union will take in the event that fraud is discovered, including notifying surety and filing a bond claim if losses are determined. The policy may also identify the person(s) responsible for making notifications to the bond company. A credit union may supplement its anti-fraud policy with a code of ethics policy or a whistleblower policy. Refer to the Fraud chapter of the Examiner’s Guide for more guidance.

Hiring Policy

A credit union’s hiring policy should outline standard hiring practices. The policy may require criminal record, credit report, background check, and drug testing of prospective employees. It should also require management to document a prospective employee’s bondability. The policy should also address nepotism (hiring relatives, friends, or business associates of current employees) and institute probationary periods for all employees.

Credit unions should consider obtaining credit checks on all new employees, employees considered for promotion, and review credit reports on all employees and volunteers. In the event that adverse information is discovered, credit unions should have procedures established to address the situation.

In addition, credit unions should have a process for monitoring all key employees with civil judgments or bankruptcies. A credit union should have its legal counsel review its processes to verify compliance with all federal and state laws.

Procedural Review

The credit union should have procedures in place to ensure that:

  • The credit union’s bond coverage is adequate and in effect
  • The credit union files bond claims and other notifications with the bond company in accordance with the bond requirements

Last Updated on October 09, 2020