The Power and Duties of the Supervisory Committee
by Amy Kleinschmit
Chief Compliance Officer
4/11/2019

The Supervisory Committee: An active supervisory committee helps to improve the credit union.

 

The Federal Credit Union (FCU) Act §115, and as implemented in Part 715 of NCUA rules and regulations, sets forth the power and duties of the supervisory committee. These duties include that the “the supervisory committee shall make or cause to be made an annual audit and shall submit a report of that audit to the board of directors and a summary of the report to the members at the next annual meeting of the credit union.” A federally-insured credit union is required to obtain an annual supervisory committee audit which occurs at least once every calendar year (period of performance) and must cover the period elapsed since the last audit period (period effectively covered).

 

Furthermore, the FCU Act requires that the Supervisory Committee, “make or cause to be made such supplementary audits as it deems necessary.” Thus, another major responsibility of the Supervisory Committee’s is to perform random audits throughout the year. There are no specific requirements as to how many times per year these interim audits need to be reviewed, however, the more interim audits that are done, the better the internal controls will be and the sooner mistakes will be detected. The more active the supervisory committee – the better the internal controls will be. The Appendix to Chapter 4 of the NCUA Supervisory Committee Guide includes a brief sample workplan that highlights some items.

 

Included in this work plan are such things as: review personnel records to ensure that all employees took at least one week of continuous vacation last year; follow up on prior audit and examination findings; review the bank reconcilement; review employee, official, and related family member accounts and loans; conduct a surprise cash, traveler’s check, and money order count (schedule for different days during the month); call a sample of members with new loans to ensure that loans are legitimate; review internal controls in the lending area, cash area, etc.

 

Other items to consider in as part, but not an all-inclusive list, of the interim audits could include such things as file maintenance reviews; paid ahead loan report; dormant account report; delinquency report; charge-offs; negative share report; bad address review.

 

As discussed in the NCUA Supervisory Committee Guide, “The supervisory committee serves a very important function in smaller credit unions in particular, because of limited internal controls. Smaller credit unions have fewer staff members and they cannot segregate job responsibilities well. Supervisory committee functions help to compensate for limited controls.” (page 4-3)

 

The FCU Act and NCUA Part 715 also tasks the supervisory committee with ensuring that the passbooks and accounts of the members are verified with the records of the treasurer from time to time, and not less frequently than once every two years.

 

Finally, the supervisory committee is responsible for responding to formal member complaints. Conveniently, there is two sample policies in CU policy pro on the topic and the Supervisory Committee guide at the link above includes a good step-by-step starting on page 4-10. Finally, there is a video on the topic at the links below.

 

To meet the responsibilities of the FCU Act and the NCUA rules and regulations, the credit union’s supervisory committee must determine whether:

 

(1) Internal controls are established and effectively maintained to achieve the credit union's financial reporting objectives which must be sufficient to satisfy the requirements of the supervisory committee audit, verification of members' accounts and its additional responsibilities;

(2) The credit union's accounting records and financial reports are promptly prepared and accurately reflect operations and results;

(3) The relevant plans, policies, and control procedures established by the board of directors are properly administered; and

(4) Policies and control procedures are sufficient to safeguard against error, conflict of interest, self-dealing and fraud. 12 CFR 715.3(b)

 

These determinations are made primarily through audits and verifications. Thus the importance of the interim audits discussed above as part of determining effective internal controls are in place.

 

The National Credit Union Administration (NCUA) CURE office has developed several very useful video series regarding the Supervisory Committee’s function and also series on fraud that addresses additional internal controls. These resources can be found here under “videos” https://ncua.usalearning.net/mod/page/view.php?id=39.

 

As a note, with regard to North Dakota state chartered credit union. NDCC 6-06-15 provides for the duties and powers of the supervisory committee, including, make an annual audit and report and submit the audit and report at the annual meeting of the credit union. This same section provides that, if the bylaws of the credit union do not provide for the election or appointment of a supervisory committee, the duties and powers listed in NDCC 6-06-15 are the responsibility of and delegated to the board of directors.

 

Feel free to contact Amy Kleinschmit with any compliance related questions. 

 

 

 

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