Responsibilities

A supervisory committee is primarily responsible for verifying that the credit union’s board of directors and management:

  • Meets required financial reporting objectives, per NCUA regulation § 715.3(a)(1)

  • Establishes practices and procedures sufficient to safeguard members’ assets, per NCUA regulation § 715.3(a)(2)

In carrying out these responsibilities, the supervisory committee:

For more information, see FCUA § 1761d, Supervisory committee; powers and duties; suspension of members; passbook

The supervisory committee may, by unanimous vote, suspend any officer of the credit union or any member of the credit committee or of the board of directors for any unsafe or unauthorized action or failure to fulfill fiduciary responsibility, and call a special membership meeting to remove that official. For more information, see FCUA § 1761d, Supervisory committee; powers and duties; suspension of members; passbook.

Annual Audit and Periodic Internal Control Reviews

All credit unions must perform or obtain an annual audit. The type of audit depends on a credit union’s asset size and type of charter. The minimum audit standards for credit unions are identified in NCUA regulation § 715.4, Audit responsibility of the Supervisory Committee.

Manage Resolution of Audit and Exam Issues

One of the supervisory committee’s main responsibilities is to ensure the annual audit is completed. The committee holds management responsible for addressing any findings and recommendations included in an audit and the timely resolution of those findings and recommendations.

Similarly, the supervisory committee should ensure management addresses any findings or issues identified in examination reports or any other type of audit obtained—for example, internal control audits or IT audits.

The supervisory committee can attend board or management meetings or receive minutes of these meetings to evaluate management’s actions. Management meetings that follow best practice identify significant management decisions including resolution of any issues identified in examinations or audits. These discussions are documented in the meeting minutes. The supervisory committee may also request a response from management and the board on all issues and findings, and periodically follow up with management regarding progress in resolving all issues.

Ideally, credit union management resolves these findings by maintaining tracking reports to demonstrate resolution. This activity will allow the supervisory committee and management to fulfill their duties to safeguard members’ assets while operating in a safe and sound manner and complying with regulatory and accounting requirements.

Member Account Verification

The supervisory committee is required to independently verify or cause the verification of credit union members’ accounts once every two years. Examiners review the MAV to determine whether a supervisory committee or its designee has followed required procedures and maintained internal controls over the process. Examiners will review the account verification in accordance with NCUA regulation § 715.8, Requirements for verification of accounts and passbooks.

The MAV is typically completed in conjunction with the annual audit. The purpose of the MAV is to detect errors and fraud. Through the MAV process, the supervisory committee asks the credit union’s members to respond to the committee directly if the activity or balances on their statements are inaccurate.

Ideally, the supervisory committee will verify accounts that are currently open, as well as accounts that have closed since the last MAV. Verification includes on-system and off-system shares and loans. Good internal controls call for the supervisory committee to verify closed accounts at least every few months to confirm the member chose to close the account.

The supervisory committee must reconcile the totals from the member statement report (print processor) to the share and loan trial balance and general ledger—including off-system shares and loans. This mitigates the potential for insider manipulation of trial balances or general ledger accounts. For more information, see NCUA regulation § 715.8(a), Verification obligation.

To avoid conflict of interest, the supervisory committee controls the MAV process. Any credit union staff assistance is limited and overseen by the supervisory committee. The supervisory committee also oversees staff compiling and sending the file to the processor.

To protect the supervisory committee from management influence or interference when completing the MAV, the supervisory committee uses an independent address, email, or post office box that the committee controls. This prevents the credit union from receiving member responses directly.

When the MAV is conducted by an independent auditor, the auditor follows the guidance in AU-C 505, External Confirmations. A separate address maintains integrity of the confirmation process.

Even with electronic statements, it is still a common practice for the MAV process to occur by mail. While electronic statements have reduced or eliminated Do Not Mail accounts, if the credit union still maintains a list of Do Not Mail accounts, the supervisory committee should verify those accounts. The committee contacts the member through email or telephone contact to confirm the Do Not Mail account status. If a supervisory committee is unable to contact a member with a Do Not Mail account, the committee will review the account history to determine if there are any unusual transactions.

Some credit unions mark accounts of members filing for bankruptcy or under a bankruptcy plan as Do Not Mail. Correspondence between a credit union and a member filing for bankruptcy or under a bankruptcy plan must be facilitated through the member’s attorney or bankruptcy plan trustee. In these cases, the committee will review the account history to determine if there are any unusual transactions. Refer to the Consumer Loans section of the Examiner’s Guide for additional bankruptcy information.

Types of Member Account Verifications

A supervisory committee can review a credit union members’ share and loan accounts (a controlled verification method) or review a statistical sample. Per NCUA regulation § 715.8(a), Verification obligation, the committee must reconcile the member share and loan account used to the general ledger regardless of MAV method. For more information, see NCUA regulation part 715, Appendix A: Supervisory Committee Audit—Minimum Procedures.

The statistical sample should provide for:

  • Random selection of members’ open and closed share and loan accounts

  • A sample that is representative of the members’ share and loan accounts

  • An equal chance of selecting each account in the population

  • Sufficient accounts in both number and scope on which to base conclusions concerning management’s financial reporting objectives

  • Additional procedures to be performed if evidence provided by confirmations alone is not sufficient

If the supervisory committee engages an independent, state-licensed party to complete the MAV, the auditor may choose between the sampling methods described above and non-statistical sampling methods consistent with GAAS, AU-C 530, Audit Sampling, if there are:

  • Sufficient accounts, in both number and scope, on which to base conclusions concerning management’s financial reporting objectives to provide assurance the general ledger accounts are fairly stated in relation to the financial statements taken as a whole

  • Additional procedures required to be performed by the auditor, if evidence provided by confirmations alone is not sufficient

  • Documentation of the sampling procedures used, and their consistency with GAAS

For more information, see NCUA regulation § 715.8(b), Methods.

Confirmations

The supervisory committee may choose to complete a positive or a negative MAV.

Positive Confirmation

To conduct a positive confirmation MAV, the supervisory committee issues notices to members and expects the member to reply regardless of the accuracy of account balance or activities. A supervisory committee should use this type of confirmation when:

  • Using the sampling methodology

  • Internal controls are weak

  • An account(s) is dormant, has unusual activity, or a large balance

Negative Confirmation

To conduct a negative confirmation MAV, a supervisory committee sends notices to members and only expects a reply if members’ account balances or activities are inaccurate. Specifics to keep in mind with negative confirmations include:

  • Negative confirmations assume accounts are accurate, even if no response is received

  • Most credit unions use this type of confirmation, which is easier and may be less costly to complete

  • Following best practices, the supervisory committee will, at a minimum, positively confirm a sample of members’ accounts if the credit union’s internal controls are weak

Examiners confirm the supervisory committee retains the records for each MAV until it completes the next verification.

For more information on the steps the supervisory committee takes to complete the MAV, the examiner may refer to the Verification of Accounts section in the Other Supervisory Committee Audit Minimum Procedures Guide § 715.7.

Call Report Filings

The NCUA requires consumer credit unions to file quarterly Call Reports accurately, on time, and in accordance with GAAP and NCUA Instructions. If exam findings reflect significant errors, inaccuracies, or the Call Report is not submitted on time, a supervisory committee may institute an oversight process or review of Call Report preparation to resolve concerns and improve the accuracy of financial reporting. For more information, see NCUA regulation § 741.6, Financial and statistical and other reports.

Internal Control Reviews

The supervisory committee is responsible for reviewing, testing, and evaluating the appropriateness and effectiveness of internal controls established by the credit union’s board of directors and senior management to mitigate risks as required in NCUA regulation § 715.3, General responsibilities of the Supervisory Committee. To fulfill this responsibility, the supervisory committee or its independent designee, which may be an internal or external auditor, must perform ongoing reviews of operations in addition to performing the biennial MAV.

The supervisory committee may develop an annual audit program or work plan for its ongoing reviews. The annual process includes identifying the review type, timing, and frequency. Examiners review the audit program or work plan to verify the supervisory committee is monitoring significant internal controls and risk areas.

The supervisory committee must prepare, maintain, or make available to NCUA staff a complete set of workpapers representative of the work performed in its work plan. For more information, see NCUA regulation § 715.10(b), Working papers.

Dormant Accounts and Do Not Mail Reports

Dormant accounts are generally not monitored by the member, and are easy targets for fraud perpetrators. Credit union insiders can divert funds into a personal account or make withdrawals from an account without detection. To further avoid detection, a fraud perpetrator may stop generating statements for these accounts by putting them in Do Not Mail status or changing the member’s address to one under the perpetrator’s control, including the credit union’s address.

Dormant member accounts are defined as those accounts without activity for a stated period, usually 12 months or longer.

Many data processing systems can produce reports that flag dormant or Do Not Mail accounts and require supervisory overrides to perform transactions. A credit union’s dormant and Do Not Mail maintenance reports will show when activity occurs on dormant accounts, as well as when accounts are changed to Do Not Mail or when the address associated with an account is changed.

When reviewing dormant or Do Not Mail accounts, the supervisory committee considers:

Account Parameters

The supervisory committee reviews the period of inactivity to determine if it is reasonable before a dormant or Do Not Mail account is considered dormant. Dormant accounts are targets for insider fraud and abuse. The supervisory committee also reviews dormant accounts for unusual activity or activity in general other than automatic dividend deposits or inactivity fees. A dormant account has a defined period of inactivity, generally twelve months or greater. Dormant accounts are considered abandoned property and are escheated to the appropriate state authority. Rules for escheatment and inactivity time periods vary by state.

An account that is flagged as dormant should not have any activity.

Accounts with Loans

The supervisory committee traces the origin of loan payments to confirm the loan is valid. It also reviews the credit union’s daily work to identify the type of loan payments being made, the source of those payments—for example, cash, check, or transfer from another account—and the identity of the teller or employee who is posting the transactions. In addition, the committee compares the member’s signature on the loan document against the member’s signature card to confirm loan validity.

Withdrawals

The supervisory committee reviews the cash receipt vouchers and signatures for members who physically visited the credit union and withdrew cash from a dormant or Do Not Mail account. It also reviews archived images of credit union checks used to make withdrawals and compares the signature on the checks to the signature card of the member to verify they match.

New Accounts

The supervisory committee reviews new member accounts for appropriate documentation requesting Do Not Mail status. Documentation includes member signature, as well as documents verifying the members’ address and regulatory compliance with BSA and OFAC. The committee also verifies the signature on the checks against the member’s signature card.

Reactivated Accounts

The supervisory committee reviews the source documents to validate a transaction that changes the status from dormant account to re-activated account. The supervisory committee can accomplish this by comparing the member’s signature on those documents to the member’s signature card.

File Maintenance and Supervisory Override Reports

File maintenance reports (also known as user override reports, supervisory override reports, or non-financial transaction reports) are part of a data processing system’s internal controls. These reports identify unusual or non-routine data changes to member files or general ledger accounts on the data processing system. Ideally, the data changes are routinely reviewed and validated by credit union personnel who are independent of recording entries.

A supervisory committee reviews these control reports for:

Unusual Changes of Address

Unusual changes of address include an address changed to the credit union’s address, a post office box, or an employee’s address. An example of adequate documentation is a change of address request.

Unusual Changes in Interest or Dividend Rates

Unusual changes in interest or dividend rates include changes such as a rate not offered by the credit union or an unusually low loan rate or high share rate. An example of adequate documentation is a subsequent action form.

Due Date Adjustments

Under best practices, loan due dates are only changed in the case of a Chapter 13 bankruptcy or an extension agreement, including skip-a-payment. Generally, due date adjustments do not exceed 30 days unless the adjustment is needed to correct an error.

Ideally, the credit union has supporting documentation for all due date adjustments. Examples of adequate documentation are bankruptcy documentation, a signed request from the member, or a signed extension agreement.

Management reviews and initials the file maintenance report for all due date changes. The committee periodically reviews the management initialed file maintenance report.

Loan Origination Date Changes

Manual loan origination date changes are generally infrequent and are only made to correct an input error. A system notation or supervisor approval may provide support for error corrections. Adequate support for an origination date change resulting from the refinancing of a loan includes fully completed and properly approved loan documents.

In many data processing systems, a refinanced loan would be paid off and closed, and the new loan would contain a different loan number or suffix.

Release of Collateral

Collateral releases occur when a member pays off a loan or a credit union agrees to release existing collateral at the same time new collateral of similar value is offered in its place. A credit union retains the title of the collateral until the loan is paid in full. Details of the collateral are reflected in the loan security agreement. A prudent credit union will have a process to verify collateral pledged and perfected lien when collateral is offered.

Backdated Transactions or Information

Backdating is the action of posting a transaction to a prior period. There is rarely a good reason for credit union staff to backdate transactions.

Refer to the Fraud chapter and Internal Controls section in the Examiner’s Guide for additional review area considerations. Examiners may also reference the Other Supervisory Committee Audit Minimum Procedures Guide § 715.7 for review steps a supervisory committee may use for internal control reviews.

Member Complaints

The supervisory committee plays an essential role in reviewing member complaints and handles them in an impartial and independent manner. Credit union members may complain either directly to the supervisory committee or to the NCUA CAC. The types of member complaints vary, but below is a list of the more common complaints received.

  • Lending policies and procedures

  • Loan denials

  • Fee structure

  • Annual meetings

  • Share withdrawals

  • Dividend rates and terms

  • Credit union services

Regardless of the nature of the complaint, the supervisory committee conducts a full and complete investigation.

As part of pre-planning, examiners review historical complaints filed against a credit union by its members to identify any trends that warrant further review. Examiners may access complaints filed through NCUA via the Complaint Portal on the NCUA Intranet.

Suspend Credit Union Officials

The supervisory committee can suspend directors and credit committee members and call special meetings of the members, as outlined in FCUA § 1761d, Supervisory committee; powers and duties; suspension of members; passbook, and NCUA regulation Appendix A to Part 701 Article IX, § 1(c).

FCUA § 1761d, Supervisory committee; powers and duties; suspension of members; passbook, further notes that the supervisory committee may suspend any officer of the credit union, member of the credit committee, or the board of directors by unanimous vote if the committee determines the member has acted or is acting in an unsafe or unauthorized manner. In the event of a suspension, the supervisory committee must call a special membership meeting to act on the suspension if the next regular members’ meeting is scheduled less than seven, or more than fourteen days after the suspension. The chair of the supervisory committee acts as chair of the meeting unless the members select another person to act as chair.

A supervisory committee can call a special membership meeting to consider any violation of the provisions of the FCUA, NCUA regulations, the credit union charter or Bylaws, or to consider any credit union practice the committee deems unsafe or unauthorized. For more information, see FCUA § 1761d, Supervisory committee; powers and duties; suspension of members; passbook.

Last updated on October 14, 2022.