Examination & Supervision2012 Update

Chairman's Statements on Supervision

“NCUA will not sacrifice safety and soundness as we work to help the credit union industry recover in the

coming years.”January 2011

“NCUA will remain focused on due diligence and risk management…NCUA will continue to encourage responsible

lending.” January 2012

What is Safety and Soundness?• Management and Officials Understand Risks

• Accurate and Timely Financial Data

• Sound Internal Controls / Effective Audits

• Active Supervisory Committee

• Efficient Operations / Operating Expense Controls

• Written Policies that Reflect Actual Practices

• Realistic Budget and Strategic Plan

• Communication and Transparency

Today’s Topics

• National Supervision Policy Manual

• Examination Questionnaires

• Credit Union Online (NCUA 5300)

• NCUA Assessments

• Fraud Risk Indicators in Credit Unions

National Supervision Policy Manual

• Two years in development

• Collaborative effort by NCUA staff at all levels, all Regions

• Thorough internal review and comment process

• Provides for uniform supervision of CU’s nationwide

• Includes more rigorous follow-up process6

National Supervision Policy Manual Implementation Timeline

• Field use began January 2012

• Examiner training - pilotJanuary through June 2012

• Agency-wide policyMid-year 2012

National Supervision Policy Manual Table of Contents

District Management

FCU Program and

Procedures

FISCU Program and

Procedures

Quality Assurance Program

Audits Recordkeeping

Fraud

WaiversOther Regulatory

Actions

Credit Union Service

OrganizationsSmall Credit

Union Program

Bank Secrecy Act

Enforcement

Prompt Corrective

Action

Administrative Remedies

2012 Examination ScopeMinimum Review Requirements

Resolution of Prior DOR Items

Loans - Concentrations, High Risk, Insider, Extensions, ShareConcentrations = in relation to Assets and NW

Allowance For Loan and Lease Losses

SC Activities, Audit (Audit Work Papers)

File Maintenance Reports

Bank and Corporate Account Reconciliations (Testing)

Strategic, Business, and Marketing Plans

2012 Examination ScopeRequired Questionnaires

BSA – Bank Secrecy Act * Loan – Participation Loans IC – Financial Triggers

Loan – Flood Act * Loan - Controls IC – Cash *

5300 Review * Loan – Real Estate – IC Red Flag Questionnaire *

SC Audit and Verification * Loan – Indirect Lending – IC Foreclosure Procedures

Interest Rate Risk – A Loan – Sub-Prime – IC Third Party Relationships

Interest Rate Risk – B Loan – Home Equity– IC Credit CARD Act

Interest Rate Risk – C Loan – Business Loans– IC SAFE Act

Interest Rate Risk – D Loan – SBA– Parts I and II

Liquidity – A Share – Controls IT - Website and E-banking *

Liquidity – B Share – Internal Controls IT - FFIEC Authentication *

Liquidity – C Third Party RelationshipsUnlawful Internet Gambling Enforcement Act 2006 (UIGEA)Investment Controls (New) IC – Lines of Credit

Examination Questionnaires

Examination Questionnaires

• AIRES Automated Integrated Regulatory Examination

System

• All AIRES Questionnaires are posted on NCUA web site

• http://www.ncua.gov/Resources/CUs/Pages/AIRES.aspx

13

ExaminationQuestionnaires

(full screen shot of web page)

14

Examination Questionnaires Demonstration

15

Microsoft Office Excel 97-2003 Worksheet

CU Online – Version 2• Silverlight must be installed to access CU Online• Website to install:

http://www.microsoft.com/getsilverlight/Get-Started/Install/Default.aspx

• System Requirements Windows

• Operating System: Windows 7, Windows Vista; Windows XP Service Pack 3• Intel® Pentium® III 450MHz or faster processor (or equivalent)• 128MB of RAM

Mac OS• Operating System: Apple Mac OS X 10.4.8 or above• Intel Core™ Duo 1.83GHz or faster processor• 128MB of RAM

CU Online – Version 2• User Interface updated• Security improvements• View only screens display all checkboxes• Programs/Services categorized like the paper

formNew

Version

CurrentVersion

CU Online – Version 2• Profile Certification

Required quarterly to submit Call ReportCertify Profile button appears anytime changes are made,

and when quarterly certification is due

Users can make several changes to the profile and then certify

• Must certify to permanently save all changes to the NCUA • Changes will be lost if the user logs off or leaves the profile area without certifying

CU Online – Version 2

• Warnings in the Profile– Implemented to help improve data integrity– Warnings must be commented on prior to

certification (similar to call report process)– Will not prevent profile certification

CU Online – Version 2

• Profile Snapshot taken each quarter when the Call Report is submitted– Permanent record of the profile for the quarter– Ability to print as a PDF

CU Online – Version 2

• Eliminated edit and delete functionality on Regulatory and IS&T pages– Can only add a date – Sections impacted:

• financial statement audit, • member account verification, • annual meeting, • disaster recovery test, and • data processing conversion.

CU Online – Version 2Current Version – CU Online Version 2 – CU Online

Profile Changes:

Inability to print profile easily Profile PDF on demand

Merger Partner Registry on General Tab MPR on its own tab

Part 748 Certification on General Tab Part 748 on Regulatory Tab

Call Report Changes:

Must click “Save” for calculations and edits to refresh

Refresh during data entry

December 1990 – June 2009- no profile fields on forms

All forms display profile fields

No easy way to print warnings Ability to export to PDF or Microsoft Excel

CU Online – Version 2

• Request FPR button moved– Used to obtain a 20

page FPR on a submitted or validated Call Report

Current Version

New Version

CU Online – Version 2• Warnings: Compares Call Report and Credit

Union Profile– Warnings identify potential reporting errors– Displayed in the Call Report – Do not backdate the profile to match call report

cycle date to remove the warnings• Profile should always reflect current operations

CU Online – Version 2

• Added a CU Basic role– View only permissions for your credit union– Requested by CUs so they could give their Board

Members access to CU Online– Optional for credit unions

More Information to Come…

• NCUA will host a webcast for credit unions to provide more information prior to system upgrades

• Email notification of Webcast– CU Online Administrators and Users– Call Report Contact– Profile Information Contact– Organizational email of the Credit Union (IST page

of profile)

Assessments - Perception

Assessments - Perspective

"The amount of the assessments for the

national share insurance fund really depends on the

industry's own performance."

NCUA Chairman Debbie Matz

Troubled CU Shares to Total Insured Shares 2006 – 2011

31

Credit Union Failures2002 - 2011

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

5

10

15

20

25

30

1513

21

1516

12

18

28 28

16

Assessments - Future

Fraud

• Credit Unions are experiencing higher losses due to fraud

• Do you have a Fraud and Ethics Policy?

Fraud Failure Statistics 2004 - 2010

13 Fraud Related Credit Union Failures

Total Assets in Fraud Failures

Total Losses in Fraud Failures

Average Loss to Assets

$ 330,263,481 $ 252,641,813 76.5%

Assets Loss Loss/AssetsSmallest CU $972,266 $3,690,194 379.55%

Largest CU $247,512,380 $187,834,226 75.89%

Fraud Losses – Common TraitsCU Weak SC Limited

StaffRecords

OOBAudit / MAV

LackingManipulated

RecordsTrusted

Staff

A X X X X X X

B X X X X X XC X X X X X XD X X X X XE X X X X X XF X X X X XG X X X X XH X X X X X XI X X X X XJ X X X X X XK X X X X XL X X X X X XM X X X X

NCUA Red Flag Questionnaire

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Microsoft Office Excel 97-2003 Worksheet