AUSTIN, Texas – The Texas CU Department on Tuesday warned credit unions about understating loan loss reserves, telling state charters an intentional understatement could qualify as an effort to falsify records.
“The Department continues to see instances where a credit union’s Allowance for Loan and Lease Losses is materially understated based on management’s own internal analysis of the loan loss exposure,” said the state supervisor in its monthly report. “The failure to accurately record the appropriate loan loss expense is frequently the result of budgetary or other earnings considerations. Credit unions should be aware that any intentional failure to fund the ALLL in a timely manner may be classified as an effort to falsify the accounting records.”
The state’s Finance Code specifies that a person has committed a criminal offense if they knowingly make a false accounting entry with the intent to deceive,” noted the regulator.
In order to ensure full and fair disclosure, Texas CU Commission Rule 91.718 specifies that adjustments to the Allowance for Loan and Lease Losses be made prior to the end of each calendar quarter in accordance with a clearly established internal methodology.
