Compliance Update with Amy K
by Amy Kleinschmit
Chief Compliance Officer
11/21/2019

Business Continuity Management.

The Federal Financial Institutions Examination Council (FFIEC), which includes the National Credit Union Administration (NCUA), recently updated the Business Continuity Management booklet which focuses on enterprise-wide approaches that address technology, business operations, testing, and communication strategies critical to the continuity of the business.

Find this updated booklet here.

This booklet replaces the 2015 booklet, Business Continuity Planning. Note the new emphasis on Business Continuity “Management”, not just limited to planning. Business continuity includes the continued maintenance of systems and controls for the resilience and continuity of operations.

2020 Form W-4.

The IRS Video Portal has a number of helpful videos for individuals and businesses. Two videos that were recently added may be of interest to the credit union as an employer and also credit union employees.

Understanding the 2020 Form W – 4 and How to Use it to Calculate Withholding

This video webinar will cover the following as an overview of the checklist: Explain the reason for a new design of the W-4; Explain Steps 1-5 of the 2020 Form W-4; Explain who must use the 2020 Form W-4; and Illustrate how to complete two of the five worksheets from Publication 15-T.

Tax Withholding Estimator

This video webinar will illustrate the user-friendly features and design improvements of the new IRS withholding estimator to help taxpayers check their withholding. It will demonstrate how to use the new withholding estimator and explain why taxpayers need to do a “Paycheck Checkup” to check their withholding.

NCUA Diversity Self-Assessments.

The NCUA recently issue Letter to Credit Unions 19-CU-03 that encourages credit unions to complete the voluntary credit union diversity self-assessment. As discussed in the Letter, “The NCUA is committed to supporting diversity and inclusion in the credit union system, and part of that commitment is building a database of credit unions’ activities related to diversity and inclusion. The data that credit unions voluntarily provide helps the NCUA better understand areas where guidance would be useful and, when appropriate, prompts us to issue guidance to help bridge the gaps and assist credit unions with their diversity and inclusion efforts.” The Self-Assessment is voluntary — it is not part of the NCUA’s or state regulators’ examination processes, and it has no impact on a credit union’s CAMEL rating.

The Self-Assessment form, instructions for completing it, and several useful diversity-related tools and resources are available here.  

NCUA Final Rule - Supervisory Committee Audits.

The National Credit Union Administration (NCUA) board approved their final rule amending Part 715 Supervisory Committee Audits and Verification requirements. This rule can be found here and is effective January 6, 2020.

The final rule eliminates two audit options, specifically, the Balance Sheet Audit option in §715.7(a) and the Report on Examination of Internal Controls Over Call Reporting in §715.7(b). These were both options for Federally Insured credit unions with assets less than $500 million.

The final rule also removed the 120-day report delivery deadline in §715.9(c)(6) from the required terms for audit engagement letters with outside, compensated persons. As explained by the NCUA, “The Board believes that this amendment will provide enhanced flexibility and potential cost savings, without any adverse impact to the auditing process. Although audit due dates may now vary across the industry, the regulation will continue to require annual audits, which provides substantial uniformity.”

Please note: For North Dakota State Chartered credit union, under ND admin rule 13-03-25-05. Assistance from outside, compensated person Subsection 3 specifies the contents of the engagement letter and still specifies the 120 day requirement. Specifically, “3. Contents of letter. The engagement letter shall…f. Specify a target date of delivery of the written reports, such target date not to exceed one hundred twenty days from date of calendar or fiscal year-end under audit (period covered), unless the supervisory committee obtains a waiver from the commissioner of the department of financial institutions…”

Lastly, the final rule removes references to the NCUA’s Supervisory Committee Guide in §715.7 and replaces it with a new appendix covering minimum supervisory committee audit requirements. The NCUA found the Supervisory Committee Guide to be outdated and the minimum areas of review will be now incorporated into the regulation. The NCUA will replace the Supervisory Committee Guide with reference materials on audit procedures to aid in performing the areas of review in the Appendix.

The new appendix – “Supervisory Committee Audit – Minimum Procedures” provides that, “this option may not be adequate for all credit unions as it is designed for smaller, less complex credit unions. The supervisory committee, internal auditor, or other qualified person may also need to perform additional procedures to supplement these minimum procedures if the specific circumstances of a particular credit union so dictate.”

The minimum areas of review include:

  • Review Board of Director minutes to determine whether there are any material changes to the credit union’s activities or condition that are relevant to the areas to be reviewed in the audit;
  • Test and confirm material asset and liability accounts including, at a minimum: Loans; Cash on deposit; Investments; Shares; Borrowings;
  • Test material equity, income, and expense accounts;
  • Test for unrecorded liabilities;
  • Review key internal controls including, at a minimum: Bank reconciliation procedures; Cash controls; Dormant account controls; Wire and ACH transfer controls; Loan approval and disbursement procedures; Controls over accounts of employees and officials; Other real estate owned; Foreclosed and repossessed assets;
  • Test the mathematical accuracy of the allowance for loan and lease loss account and ensure the methodology is properly applied;
  • Test loan delinquency and charge-offs.

With regard to North Dakota State Chartered credit union, ND admin rule 13-03-25-03. Audit responsibility of the supervisory committee, has different thresholds and audit requirements for state chartered credit unions. Specifically, any credit union with assets greater than twenty-five million dollars must obtain an annual audit of its financial statements performed in accordance with GAAS by an independent person who is ND licensed. Any credit union with assets less than twenty-five million dollars may also choose this option.

Alternatively, any credit union with assets less than twenty-five million dollars must obtain either of the following options to a financial statement audit: a. Balance sheet audit. A balance sheet audit performed by a person who is licensed to do so by this state. b. Audit per supervisory committee guide. An audit performed by the supervisory committee, its internal auditor, or any other qualified person (such as a certified public accountant, public accountant, credit union auditor consultant, former financial institutions examiner, etc.) in accordance with the procedures prescribed in the national credit union administration's supervisory committee guide. Qualified persons who are not state-licensed may not provide assurance services.

 

As always, CUAD members may contact Amy Kleinschmit with any compliance related questions.

 

<< Go to Memo List