Exam Procedures

Coverage Requirements

NCUA regulations part 713, Fidelity Bond and Insurance Coverage for Federally Insured Credit Unions, sets the minimum bond coverage and the maximum deductible for credit unions. These figures are based on a credit union’s asset size and, in the case of the deductible, the credit union’s level of capitalization and composite CAMELS rating.

For each credit union, examiners determine:

• The minimum required bond coverage (NCUA regulation 713.5, What is the required minimum dollar amount of coverage?)
• The maximum permissible deductible (NCUA regulation 713.6, What is the permissible deductible?)

Examiners should verify that the credit union has obtained the appropriate bond coverage for its asset size and has not exceeded the maximum deductible required by regulation.

Coverage Deficiency

If an examiner finds that the coverage does not meet the regulatory minimum, this information should be conveyed to credit union management and corrected immediately. Typically, a credit union can increase its bond coverage quickly and easily by calling the bond company. If the credit union hesitates to do so, an examiner should address insufficient bond coverage in the appropriate section of the exam report.

The NSPMdetails when problems should be included in a DOR or in another section of the exam report. Inadequate fidelity bond coverage may put a credit union at risk of account insurance suspension or even revocation of its charter. Safety and soundness concerns may arise if a credit union with minimal reserves or high exposure to risk lowers its bond coverage in efforts to reduce expenses.

Coverage Documentation

During the course of an examination, an examiner may:

• Determine that the bond is in force in an amount at least equal to regulatory minimums
• Document in the examination workpapers the bond type, bonding company name, amount of coverage, and any deductibles
• Be alert to any unprotected areas of risk for the credit union

Risk Management Audits

Some writers of credit union bonds have a risk management division whose auditors will, upon request, perform a risk management audit designed to detect internal control weaknesses. Examiners can review these reports and confirm whether or not the credit union has adequately addressed the weaknesses identified. Material issues that have not been resolved by the credit union may present transaction risk that the examiner should address.

Last Updated on October 14, 2021