ALEXANDRIA, Va. – Auditors for NCUA criticized the federal regulator yesterday for its financial reporting documenting the corporate bailout, which resulted in a year-long delay in completion of the agency’s 2008 financial audit.
In reporting on NCUA’s 2009 financials, KPMG said it identified material deficiencies in the agency’s internal control over financial reporting and recommended the agency take numerous steps to improve its financial audit process.
The audit, issued yesterday along with the long-delayed audited financials for 2008, cover a period when NCUA first took control of the corporate credit union meltdown by taking over U.S. Central FCU and WesCorp FCU and lending the two corporates $10 billion from the National CU Share Insurance Fund, which was provided by the Central Liquidity Facility.
NCUA uncertainty over losses in the corporate system initially prompted it to direct all credit unions to set aside 1% of their assets to pay the costs of the corporate bailout, then three months afterward to retract the set-aside for a smaller one as Congress created a Temporary Corporate CU Stabilization Fund to move the corporate bailout off the books of the NCUSIF. Credit unions were flummoxed by the reversal, as many had already buried the corporate bailout charges in their previous year’s [2008] financials, and were forced to reverse the charges on their own books.
Despite the removal of the corporate bailout from the NCUSIF, the dual audits show how NCUSIF is still on the hook for the $10 billion loans to U.S. Central and WesCorp, which far exceeds the capacity of the stabilization fund.
The audits recall the extraordinary turmoil that buffeted the credit union movement in 2008 and 2009, culminating in the corporate bailout and last year’s unprecedented $1.1 billion assessment on credit unions. Later this week NCUA is expected to announce the second round of assessments to pay for the corporate bailout, an expense that could be as much as $400 million.
What made the dual audits even more difficult was that NCUA replaced its 2008 auditor, Deloitte and Touche, and contracted with KPMG to perform the 2009 audit.
In its 2009 audit, KPMG discusses some of the shortfalls of NCUA’s accounting for the variable interest entities that are interrelated, such as NCUA, NCUSIF, CLF and the stabilization fund, that it controls. KPMG concluded that NCUA does not have sufficient staffing with expertise to consistently perform internal control activities, particularly reporting, and made several recommendations to improve the financial reporting of its various entities.
In response, NCUA said it is a small agency with limited resources. “NCUA is a small Federal agency and must focus its resources on essential functions,” said the agency. “To strengthen our financial reporting, we will review and refine our internal control processes and evaluate training requirements. We will also hire additional staff with requisite skills.”
“I am pleased that these audits have finally been completed by both accounting firms that conducted independent reviews of the permanent funds that support NCUA’s operations,” said NCUA Chairman Debbie Matz in a prepared statement. “As soon as these audits were signed by the accounting firms, NCUA released the complete financial statements and audit opinions to the public on our website. Transparency will continue to be a hallmark of NCUA’s operations.”
