Supervisory Committee Duties and Responsibilities by cyf16036

VIEWS: 318 PAGES: 24

									    Supervisory
 Committee Duties
and Responsibilities
          Presented by:
  James L. This, PhD, President
  The Paragon Consulting Group




   Presented By: The Paragon Consulting Group
              Supervisory Committee Duties
                                           and Responsibilities




Learning Objectives
  •   Understand the entities that charter and oversee credit union operations.
  •   Learn the legally mandated duties and responsibilities.
  •   Understand a volunteer’s fiduciary responsibility and liability.
  •   Review the Supervisory Committee member Job Description.
  •   Discuss best practices in participating on an effective Supervisory Committee.
  Supervisory Committee
        Duties and
     Responsibilities
              Presented by:
       James L. This, PhD, President
       The Paragon Consulting Group



          Presented By: The Paragon Consulting Group




Credit Union Structure


  Legislative                              Judicial
Board of Directors                  Supervisory Committee



                     Executive
                   President/CEO

                                                         2




                                                              3




Components of Fiduciary Duty

                                          Duty of Care
                                          Duty of Loyalty
                                          Duty of Obedience




                                                                  1
                                                          4




Duty of Care
Volunteers must act in good
faith and exercise their duties in
a reasonable and prudent
manner.
Reasonable person standard




                                                          5




Duty of Loyalty

                          Volunteers must put the
                          interests of the credit union
                          above their own.
                          Avoid conflicts of interest.




                                                          6




Duty of Obedience
Obey the law in all its
variations.
  Statutory law
  Regulatory law
  Bylaws
  Policies




                                                              2
                                                     7




Chartering Authorities
 Federal
   National Credit Union Administration (NCUA)
 State
   Department of Financial Institutions
 Insurance
   National Credit Union Share Insurance Fund
   (NCUSIF)




Credit Union Organization
Federal Charter




                                                 8




Credit Union Organization
State Charter




                                                 9




                                                         3
                                                                                 10




Responsibilities Table




                                                                                 11
Responsibilities
Federal Credit Unions
 C. Mandates. In carrying out the responsibilities set forth in
 paragraphs (A) and (B) of this section, the Supervisory Committee
 must:
    Ensure that the credit union adheres to the measurement and filing
    requirements for reports filed with the NCUA Board under § 741.6 of this
    chapter;
    Perform or obtain a supervisory committee audit, as prescribed in §
    715.4 of this part;
    Verify or cause the verification of members’ passbooks and accounts
    against the records of the credit union, as prescribed in § 715.8 of this
    part;
    Act to avoid imposition of sanctions for failure to comply with the
    requirements of this part, as prescribed in § 715.11 and § 715.12 of this
    part.


                                    NCUA Rules and Regulations 715.3




Responsibilities
State Chartered – WA Example
 The supervisory committee of a credit union shall:
    Meet at least quarterly;
    Keep fully informed as to the financial condition of the credit
    union and the decisions of the credit union's board;
    Perform or arrange for a complete annual audit of the credit
    union and a verification of its members' accounts; and
    Report its findings and recommendations to the board and make
    an annual report to members at each annual membership
    meeting.
 At least one supervisory committee member may attend
 each regular board meeting.


                                                          RCW 31.12.335     12




                                                                                      4
Supervisory Committee                                         13




Federal CU Bylaws - Article 9
 Section 1. The supervisory committee is appointed by
 the board from among the members of this credit union,
 one of whom may be a director other than the financial
 officer.
 The board determines the number of members on the
 committee, which may not be fewer than 3 nor more than
 5. No member of the credit committee, if applicable, or
 any employee of this credit union may be appointed to
 the committee.




Supervisory Committee                                         14




Federal CU Bylaws - Article 9
 Section 2. The supervisory committee members choose
 from among their number a chair and a secretary. The
 secretary of the supervisory committee prepares,
 maintains, and has custody of full and correct records of
 all actions taken by it.
 The offices of chair and secretary may be held by the
 same person.




Supervisory Committee                                         15




Federal CU Bylaws - Article 9
 Section 3. The supervisory committee makes, or causes
 to be made, such audits, and prepares and submits such
 written reports, as are required by the Act and
 regulations. The committee may employ and use such
 clerical and auditing assistance as may be required to
 carry out its responsibilities prescribed by this article,
 and may request the board to provide compensation for
 such assistance. It will prepare and forward to the
 Administration such reports as may be required.




                                                                   5
Supervisory Committee                                           16




Federal CU Bylaws - Article 9
 Section 4. The supervisory committee will cause the
 verification of the accounts of all members with the
 records of the financial officer from time to time and not
 less frequently than as required by the Act and
 regulations. The committee must maintain a record of
 such verification.




Supervisory Committee                                           17




Federal CU Bylaws - Article 9
 Section 5. By unanimous vote, the supervisory
 committee may suspend until the next meeting of the
 members any director, board officer, or member of the
 credit committee. In the event of any such suspension,
 the supervisory committee must call a special meeting of
 the members to act on the suspension, which meeting
 must be held not fewer than 7 nor more than 14 days
 after the suspension. The chair of the committee acts as
 chair of the meeting unless the members select another
 person to act as chair.




Supervisory Committee                                           18




Federal CU Bylaws - Article 9
 Section 6. By the affirmative vote of a majority of its
 members, the supervisory committee may call a special
 meeting of the members to consider any violation of the
 provisions of the Act, the regulations, or of the charter or
 the bylaws of this credit union, or to consider any
 practice of this credit union which the committee deems
 to be unsafe or unauthorized.




                                                                     6
                                                           19




Legal Qualifications
  Must be a member of the credit union
  Must be bondable
  Cannot be:
    Employee
    Member of the credit committee




Desirable Characteristics of                               20




Members
  Willingness to actively participate in the supervisory
  committee process
  Ability and willingness to ask probing questions about
  business risks and financial matters
  Willingness to learn
  Independence in attitude
  Expertise in financial accounting and reporting
  Credit union experience




                                                           21


Sample Job Description
Supervisory Committee Handbook, CUNA
  To ensure ongoing reviews and audits to make
  sure that credit union records are maintained
  properly, honestly and accurately; that policies
  established by law and by the board of directors
  are carried our faithfully; and that member
  assets are safeguarded and used according to
  the purposes of the credit union.




                                                                7
                                                                        22




Areas of Responsibility
1.    Ensure that appropriate policies and procedures are in place
      and followed.
2.    Ensure that credit union operations follow applicable laws
      and regulations.
3.    Ensure that financial reports are accurate and reflect the true
      condition of the credit union.
4.    Ensure that the required verifications of accounts are done.
5.    Ensure that member assets are safeguarded.
6.    Review the conduct of the official family.
7.    Direct the audit plan of the credit union.
8.    Link to the members.




                                                                        23




     Area One

     ENSURE THAT APPROPRIATE
     POLICIES AND PROCEDURES
     ARE IN PLACE AND
     FOLLOWED




                                                                        24




Major Areas of Policy Concern
     Asset-liability management (ALM)
     Lending
     Collections
     Data security
     Disaster recovery
     Investments
     Purchasing



                                            Policies and Procedures




                                                                             8
Major Issues on the Regulatory                           25




Agenda
 Bank secrecy act compliance
 Emergency preparedness
 Indirect lending
 Information systems and privacy of data
 Commercial lending
 Strategic planning in small credit unions
 Vendor monitoring



                               Policies and Procedures




                                                         26




 Area Two

 ENSURE THAT CREDIT UNION
 OPERATIONS FOLLOW
 APPLICABLE LAWS AND
 REGULATIONS




                                                         27




Kinds of Laws
 Statutory law
 Regulatory law
 Charter and Bylaws
 NCUA & State supervision
 Federal consumer laws
 Employment laws




                               Compliance with the Law




                                                              9
                                                              28




 Area Three

 ENSURE THAT FINANCIAL
 REPORTS ARE ACCURATE
 AND REFLECT THE TRUE
 CONDITION OF THE CREDIT
 UNION.




                                                              29

Financial Statements
NCUA Supervisory Committee Guide
 The committee determines that management
 has:
   Promptly prepared accounting records and financial
   reports to accurately reflect operations and results.




                               Accurate Financial Reporting




                                                              30

Financial Statements
NCUA Supervisory Committee Guide
 Primary reports to review
   Balance sheet
   Income statement
   Budget reports
   Delinquencies and charge-off’s
   Key financial ratios




                               Accurate Financial Reporting




                                                                   10
                                                           31




 Area Four

 ENSURE THAT MEMBER
 ASSETS ARE SAFEGUARDED.




                                                           32




Areas for Safeguarding
 Safety
   Robbery training and procedures
   Physical security
   Entry procedures
     Opening
     Closing




                                     Safety and Security




                                                           33




Areas for Safeguarding
 Risk management
   Insurance
   Bonding




                                     Safety and Security




                                                                11
                                                                   34




Areas for Safeguarding
 Electronic data security
   Mainframe
   PC’s
   Network
   Internet
   Identity protection




                                             Safety and Security




                                                                   35

Internal Controls
NCUA Supervisory Committee Guide
 The committee determines that management
 has:
   Established and maintained effective internal controls
   to achieve the credit union’s financial reporting
   objectives.
      These controls must meet the requirements of the
      supervisory committee audit, verification of members’
      accounts and your additional responsibilities.




                                             Safety and Security




                                                                   36

Internal Controls
NCUA Supervisory Committee Guide
 The committee determines that management
 has:
   Established policies and control procedures that
   safeguard against error, carelessness, conflict of
   interest, self-dealing and fraud.




                                             Safety and Security




                                                                        12
                                                                37

Internal Controls
NCUA Supervisory Committee Guide
 Common internal control processes
   Periodic statements to members
   Division of duties
   Review of work
      Policy adherence
      Irregularities
   Restricted access and security codes




                                      Safety and Security




                                                                38




 Area Five

 ENSURE THAT THE
 REQUIRED VERIFICATIONS
 OF ACCOUNTS ARE DONE.




                                                                39




Verification Choices
 Controlled verification
   100% of loan and share accounts
 Statistical method
   Random sample




                                     Verification of Accounts




                                                                     13
                                                                               40




 Area Six

 REVIEW THE CONDUCT OF
 THE OFFICIAL FAMILY.




                                                                               41




Review the Work of the Volunteers
 Volunteer committees
    Board
    Executive committee
    Standing committees
    Credit committee
 Looking for
    Decisions in alignment with policies and strategic plan




                                Review The Conduct Of The Official Family




                                                                               42




Review the Work of the Volunteers
 Possible topics for monthly report to the Board
    Significant changes in financial statement items from last period and/or
    budget
    Summary of the results of the key performance indicators
    Significant internal control exposures and how management intends to
    reduce or eliminate those exposures
    Policy concerns
    Regulatory examination report exceptions and plan of action to respond
    Results of any special audit functions
    Significant business risks of the credit union and how management
    controls such risks




                                Review The Conduct Of The Official Family




                                                                                    14
                                                                 43




Review the Work of the Volunteers
 Attend planning sessions
   Keep updated
   Give perspective




                         Review The Conduct Of The Official Family




                                                                 44




Guard Against Conflicts of Interest
 Contracts and services
 Loans to official family members
 Handling of expense accounts




                         Review The Conduct Of The Official Family




                                                                 45




And in Awful Circumstances
 Causes for Suspension
   Violations of:
      FCU Act
      Rules and Regulations
      Charter
      By-laws
      Unsafe acts




                         Review The Conduct Of The Official Family




                                                                      15
                                                                          46




Rights of Suspended People
 A special meeting of the members to act on the
 suspension
     The special meeting must be held within seven to
     fourteen days after the suspension
 The person being suspended must be given an
 opportunity to present a defense and be given
 due process




                              Review The Conduct Of The Official Family




                                                                          47




 Area Seven

 DIRECT THE AUDIT PLAN OF
 THE CREDIT UNION.




Audit Requirements
NCUA Rules and Regulations
Federally Chartered Credit Unions
 $500 Million or More          Financial statement audit per GAAS
                               by independent, State-licensed
                               person
 $10 Million - $500 Million    Either financial statement audit or
                               other supervisory committee audit
                               options
                                   – Balance sheet audit
                                   – Report on Examination of Internal
                                     Control Over Call Reporting
                                   – Audit per Supervisory Committee
                                     Guide
 Under $10 Million             Either of three supervisory committee
                               audit options
                                                                     48




                                                                               16
Audit Requirements
NCUA Rules and Regulations

State Chartered Credit Unions
 $500 Million or More     Financial statement audit per GAAS
                          by independent, State-licensed
                          person
 Less than $500 Million   Either of three supervisory
                          committee audit options unless
                          audit prescribed by State law is
                          more stringent




                                                                 49




                                                                      50




 Area Eight

 LINK TO THE MEMBERS.




                                                                      51




Link to the Members
 Independent source for questions, investigation
 and complaint resolution




                                               Link to Members




                                                                           17
                                                            52




Link to the Members
 Verification of accounts
 Responses or inquiries that come to a
 Supervisory Committee box




                                          Link to Members




                                                            53




 KEEPING OUT OF TROUBLE




                                                            54




Your Legal Liabilities
 Financial Institution Reform, Recovery and
 Enforcement Act (FIRREA) prescribes penalties
 for “Institution Affiliated Parties” who cause harm
 to the credit union via willful acts or failure to act
   Volunteers, Management, Consultants, Contractors
 Civil money penalties
   Tier 1 - up to $5,500/day
   Tier 2 - up to $27,500/day
   Tier 3 - up to $1,170,000/day




                                                                 18
                                                                                 55




Indemnification
 The credit union may elect to indemnify to the extent authorized by
 (check one)
    [ ] law of the state of __________:
    [ ] Model Business Corporation Act:
 the following individuals from any liability asserted against them and
 expenses reasonably incurred by them in connection with judicial or
 administrative proceedings to which they are or may become parties
 by reason of the performance of their official duties (check as
 appropriate).
    [ ] current officials
    [ ] former officials
    [ ] current employees
    [ ] former employees
                                                         Federal CU By-laws
                                                        Article XVI, Section 8




                                                                                 56

Indemnification
Sample State Law - WA
 Directors and committee members at a credit union or federal credit
 union have no personal liability for harm caused by acts or
 omissions performed on behalf of the credit union if:
    The director or committee member was acting within the scope of his or
    her duties at the time of the act or omission;
    the harm was not caused by an act in violation of RCW 31.12.267;
    the harm was not caused by willful or criminal misconduct, gross
    negligence, reckless misconduct, or a conscious, flagrant indifference to
    the rights or safety of the individual harmed;
    and the harm was not caused by the director or committee member's
    operation of a motor vehicle, vessel, aircraft, or other vehicle for which
    the state requires the operator or the owner of the vehicle, craft, or
    vessel to either possess an operator's license or maintain insurance.




                                                                                 57

Indemnification
Sample State Law - WA
 This section does not affect a director's or committee member's
 liability to the credit union or to a governmental entity for harm to the
 credit union or governmental entity caused by the director or
 committee member.
 This section does not affect the vicarious liability of the credit union
 with respect to harm caused to any person, including harm caused
 by the negligence of a director or committee member.
 This section does not affect the liability of employees of the credit
 union for acts or omissions done within the scope of their
 employment.




                                                             RCW 31.12.269




                                                                                      19
                                               58

Indemnification
Credit Union Level
 Specifics in your By-laws
 Employees, Directors and Officers Insurance




                                               59




Recommended Added Protection
 Personal Umbrella Policy




                                               60




Why Volunteers Are Sued
Mismanagement
  Bad decisions
Non-management
  Lack of attention or involvement
Self-interest management
  Conflict of interest




                                                    20
                                                   61




Demonstrate Good Judgment
 Attend all meetings and retreats
 Read the board packet
 Review committee reports
 Review financial reports
 Review all examination reports from supervisory
 agencies and ensure that exceptions are
 corrected
 Develop and understand the annual audit plan




                                                   62




Demonstrate Good Judgment
 Hire a quality CPA firm
 Review the results of the annual audit and
 ensure that exceptions are corrected
 Hire an internal auditor when appropriate
 Review insurance programs at least annually
 Use strong ALM practices
 Have strong personnel policies




                                                   63




Resources
 Supervisory Committee Guide
   NCUA
 NCUA Rules and Regulations
   NCUA
 Credit Union Supervisory Committee Handbook
   CUNA
 Credit union by-laws




                                                        21
Sample Supervisory Committee Job Description
Title:             Supervisory Committee Member
Reports To:        Credit Union Members (and, in some cases, to the Board of Directors)
Supervises:        Clerical and auditing personnel (if any) hired by the committee to
                   carry out its directives.

Primary Function:
To ensure ongoing reviews and audits to make sure that credit union records are
maintained properly, honestly, and accurately; that policies established by law and by the
board of directors are carried out faithfully; and that members’ assets are safeguarded and
used according to the purposes of the credit union.

SPECIFIC DUTIES:
   1. Make sure a complete and thorough audit of the credit union’s records and
      operations, including a verification of member loan and share accounts, is
      conducted at least once a year. Make sure that all necessary written audits and
      work papers are submitted to regulatory and insuring agencies in a timely fashion.
   2. Verify that adequate internal controls are established and effectively maintained
      to safeguard the credit union’s assets. Oversee the inspection of securities, cash,
      and accounts of the credit union Review credit union operations and monitor
      overall financial condition on an ongoing basis.
   3. Review the actions of the board of directors, officers, and committees to make
      sure that they exercise firm control over the credit union’s affairs, they understand
      their role, and they promote the credit union for its intended purposes
   4. Ensure that the credit union is in full compliance with all relevant laws and
      regulations.
   5. Review all new policies and changes in credit union procedures in terms of their
      effects on the quality of service to members and safety of members’ funds.
   6. Present a full report of the findings of annual audits and any special findings to
      the board of directors.
   7. Prepare and make available an annual report to be presented to members at the
      annual meeting.
   8. Carry out all other duties as required by law, regulation, or the credit union’s
      bylaws.
   9. Engage the services of auditors as needed to perform audits. Direct and oversee
      all work by auditors.


CUNA’s Credit Union Supervisory Committee Handbook




                                            22

								
To top