Internal Controls

A credit union’s IRR management process should be an extension of its overall internal control structure. A properly structured system of internal controls will promote effective and efficient operations, reliable financial and regulatory reporting, and compliance with relevant regulations and internal policies.

Key IRR controls in credit union operations include, but are not limited to:

• Segregation of duties between the risk taker and risk measurer

• Change control for method assumptions

• Process to back-test projected versus actual results

• Validation of measurement system

• Process to ensure IRR exposures are reported to board/senior management

• IRR-related audit findings reported to the board with recommended corrective actions and time frames

Management’s comprehensive evaluation and review of the various components of the IRR management process is an important element of a credit union’s internal controls for IRR. This includes verifying that personnel are following policies and procedures, as well as evaluating the policies and procedures to determine whether they accomplish their intended objectives (and adjusting where necessary).

IRR program reviews and evaluations should also address any significant changes that may impact the effectiveness of controls and evaluate whether policy limit breaches are escalated promptly. Management should ensure that all program reviews and evaluations are conducted regularly by individuals who are independent of the function they are assigned to review. The results of this review, along with any recommendations for improvement, should be reported to senior management and/or the board and recommendations should be enacted promptly.

Last updated on December 06, 2024