ALEXANDRIA, Va. – An internal report issued yesterday by NCUA said the agency’s examiners are negligent in enforcing supervisory agreements, resulting in the failure of numerous CAMEL 1 and CAMEL 2 credit unions over the past few years.
The new report, issued by NCUA’s Office of the Inspector General, found neither NCUA’s Office of Examination and Insurance nor the five regional offices effectively monitored or followed up on unresolved items in documents of resolution, known as DORs. “Specifically, we found that E&I performed limited DOR monitoring and that monitoring in each region varied based on their individual policy,” said the report.
The IG found that as of Dec. 31, 2010, NCUA had more than 26,000 unresolved DOR items. These DORs encompassed 63% of all federally insured credit unions, of which 23% had unresolved DOR items related to management issues which were cited as a cause of credit union failures in every Material Loss Review conducted by the Inspector.
The IG said from 2008 through 2010, 74 credit union closures and/or mergers resulted in approximately $649 million in losses to the NCUSIF. Of these 33, or 45%, historically received a composite CAMEL 1 or 2 rating and resulted in $559 million in losses to the NCUSIF. All but one of these credit unions closed or merged within two years of being downgraded to a composite CAMEL 3, 4, or 5 rating.
“We found that of the 74 credit unions closed and/or merged from 2008 through 2010, 45% had been regularly rated a composite CAMEL 1 or 2,” said the IG. “The problems were so insurmountable that 18 of these credit unions closed or merged about a year after the initial downgrade.”
“We also found that for 14 of these credit unions examiners noted a total of 55 unresolved DOR items during the last examinations where the credit union received a composite CAMEL 1 or 2 rating,” said the report. “We believe NCUA examiners considered these credit unions a low risk and therefore did not aggressively pursue timely resolutions for the unresolved DOR items. Consequently, NCUA missed opportunities to mitigate losses to the National Credit Union Share Insurance Fund.”
The Inspector recommended that NCUA develop a standardized DOR monitoring process requiring E&I and the regions to generate and analyze DOR database reports on a regularly defined basis including, but not limited to, the DOR Aging Months of Unresolved Report.
The report also recommended that NCUA require written responses from credit union management, regardless of the composite CAMEL rating, for all DOR items not resolved within the established time frames.
NCUA said it agreed with the recommendations and has taken corrective action. Specifically, NCUA said that E&I and the Office of the Chief Information Officer will work together to improve the DOR reports, thereby strengthening the regions’ ongoing monitoring and reporting of DOR items. In addition, NCUA plans to provide training on the proper use of the DOR during NCUA’s 2012 National Conference. It also plans to require written responses for all DORs not completed within the prescribed time frame, regardless of the credit union’s composite CAMEL rating.
