Allowance for Loan and Lease Losses

1. Review the COVID-19 survey completed with credit union staff to assess the level of ALLL funding related to COVID-19.
2. Review the ALLL methodology and supporting documentation to determine if the credit union has a sound process for estimating the amount of probable losses in its loan portfolio. This includes the estimates used for capturing the impact of COVID-19 on probable loan losses, if applicable.
3. Review the supervisory committee audit report, if applicable, for findings related to the ALLL methodology.
4. Assess the overall adequacy of the ALLL and the internal controls for preventing a material misstatement.

Questions to Consider

• Has credit union staff incorporated the impact of the COVID-19 pandemic into its ALLL funding? If yes, how was it incorporated (for example, qualitative factors, unallocated reserves, etc.)?
• Is there documentation to support the qualitative and environmental factors?
• Is there documentation to support any unallocated reserves?
• Are there controls in place to detect and prevent data entry and formula errors used to calculate the ALLL funding amounts?
• Does the credit union maintain adequate ALLL policies and procedures?
• Does the credit union maintain documentation of the ALLL reserving methodology, including modeling assumptions, and support any ALLL funding adjustments related to the COVID-19 pandemic?
• Does the reserving methodology adhere to GAAP standards?
• Do the credit union’s procedures and controls provide for independent reviews of the reserving methodology and documentation practices by the supervisory committee, internal or external auditors?

Last updated on September 15, 2021