NCUA REPORTING DEFICIENCIES CITED IN CORP. ACCOUNTING
ALEXANDRIA, Va.-Auditors for NCUA criticized the federal regulator last week 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.
For its part, NCUA noted that two independent audit firms "unequivocally reported" the agency's financial statements fairly presented the condition of the NCUSIF (see related letter to the editor, page 6).
The audit, issued 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, that 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. At its board meeting late last week, NCUA was expected to announce the second round of assessments to pay for the corporate bailout, an expense that could be as much as $400 million.
In its audit, 2009 KPMG discusses some of the shortfalls of NCUA's accounting for the variable interest entities that are interrelated, like 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."
FED ISSUES ANOTHER ROUND OF CREDIT CARD REGULATIONS
WASHINGTON-The Federal Reserve issued new rules to implement last year's the Credit Card Accountability Responsibility and Disclosure Act which will cap most late-payment fees at $25.
The rule also bars lenders from charging a fee that exceeds the amount of the violation. For example, if a cardholder is late making a $25 payment, the penalty fee can't exceed $25. Many issuers now charge late fees up to $39.
The Fed also directed card issuers to reconsider interest rate hikes imposed since the beginning of 2009. The legislation prohibits banks from increasing interest rates on customers' existing balances. But while the law was enacted in May 2009, the interest-rate provision didn't take effect until Feb. 22, 2010. In the months before that date, many banks raised interest rates, even for customers who paid their bills on time.
The new rules also ban inactivity fees, such as fees charged to cardholders who don't use their card to make new purchases; and bar card issuers from charging multiple fees based on a single late payment or other single transgression.
NCUA EXTENDS COMMUNITY DEVELOPMENT GRANTS
ALEXANDRIA, Va.-NCUA said it is expanding is community development revolving loan program to provide small grants to low-income credit unions to help fund for financial education, student internships, jobs and purse community outreach.
In addition, grants are now available for credit unions to develop plans in order to apply for secondary capital from the U.S. Treasury's Community Development Capital Initiative.
NCUA will also continue to offer loans and grants to help certified low-income credit unions pursue staff and board training; enhance their technology and internal processes; offer the Volunteer Income Tax Assistance program; and meet emergency needs.
In all, $1.25 million is available for grants and $6.8 million is available for loans through NCUA's community development fund this year.