CUs Must Monitor NCUSIF More Closely, Analysts Suggest
WASHINGTON-In light of recent audit reports, credit unions must take a more proactive role in monitoring NCUA's fund management, according to two analysts. "It's a collective responsibility we have here. You didn't ship money off to Washington to just let NCUA figure out what to do with it," said Callahan & Associates co-founder Chip Filson.
'Material Weakness' Cited In Audits
Filson, along with Callahan EVP Jay Johnson, noted that audit reports from Deloitte & Touche and KPMG cited "material weakness" in several NCUA-managed funds including the National CU Share Insurance Fund (NCUSIF), the Central Liquidity Facility (CLF), and the Community Development Revolving Loan Fund (CDRLF). KPMG even noted that the share insurance fund did not have sufficient staff with proper expertise to perform a number of internal control activities. "These are very serious issues," Johnson said. Filson's and Johnson's statements came during a webinar hosted by Callahan & Associates.
NCUA responded by saying it experienced a significantly higher workload in 2009 and noted that it is a "small agency with limited resources." Johnson mused that a number of credit unions could legitimately use the same line of defense against NCUA examiners and called the regulator's defense "a very weak fallback."
"It really doesn't cast the agency in a positive way when they say they are small and don't have enough resources," said Filson. "I think the response to the auditor's concern could be called, very mildly a 'non-response.'"
The Callahan co-founder added that any credit union that used that excuse to defend itself against a poor examination report would be written up. The webinar also alleged other possible red flags of poor management of NCUA's auditing process, noting that audits of the NCUSIF were not completed until June 2010 even though Deloitte & Touche had completed its audits of NCUA and CDRLF in February 2009. Also, both firms had wrapped work on the NCUA, CLF and CDRLF by April of this year, but they were not released until June.
Other Questions Raised
The analysts also raised questions about the CLF's statutory authority to borrow $10 billion on March 23, despite reporting an equity deficit in December 2008, and the board's reliance on internal analysis, the same analysis that concluded that corproates were "doing just fine" in June 2008, to set aside funds for loss reserves, according to Callahan & Associates. "Loss estimates are the key issue. It's the most critical issue when we look at the fund," said Filson.
Johnson noted there were several positive takeaways from the reports, including that all of them were "unqualified opinions," that the NCUSIF numbers match management reports, and that the fund is healthy at $9.5 billion in cash or cash equivalents, with only $204 million in acquired assets. Filson encouraged CUs as well as trade associations and the media to make more frequent use of Freedom of Information Act requests when information is not disseminated by NCUA quickly. "I think there needs to be a more aggressive way until the agency is able to produce information that is timely and relevant to the issues at hand," he said.