Musings from the CU Suite

Written by Anthony Demangone

NCUA's Office of Inspector General recently published a Material Loss Review (NCUA.gov, 32 pages) that serves as a postmortem on the failure of Telesis Community Credit Union.  You really should read MLRs. While you can learn from your own mistakes, I recommend learning from the mistakes of others. 

Taking the report at face value, there are many lessons to be learned.  I'll focus on two issues related to management and corporate governance. 

1.  Corporate Governance Matters.  The NCUA OIG criticized Telesis' management and board oversight.  This passage really caught my eye:

Based on our review of TCCU’s Board minutes, we concluded that managerial decisions were concentrated in two people, the CEO and the EVP, with very little depth or reliance on the skills of the rest of the Credit Union’s staff. The CEO appears to have had a persuasive and aggressive management style. The CEO was well known in the industry and viewed as strategically successful, particularly due to the historical success of BP. Thus, the Board tended to follow her recommendations with little discussion.

We found some of the minutes for both the Board and the Supervisory Committee were missing. Although the packets we did obtain contained voluminous reports, we found very little substantive discussion related to strategy, risk management, or related party activity. We were also unable to identify diligent follow-up on issues raised by examiners. We were told that the delivery of packets to Board members was so late that a thorough read and understanding of the details and trends was unlikely. (Emphasis added.)

2.  Information flow matters. From the report:

We determined TCCU’s management and Board made a series of questionable decisions. Specifically, examiners noted poor internal controls in the December 2009 examination (Effective), which observed that the internal audit function was neither adequate nor effective, and that the internal audit manager did not provide written recommendations or findings to the Supervisory Committee or Board of Directors. The internal auditor reported directly to the CFO. (Editor's note. For me, the issue isn't necessarily how the internal auditing function was set up.  But it sounds like the internal audit recommendations were not done, or did not get to the right people.)

Any credit union failure has many "fathers."  There's the economy, business risk, bad luck, and other factors that contribute.  And one should be careful when doing "failure analysis."  Of course there were problems at Telesis.  Otherwise, it would not have failed.  For that reason, you shouldn't generalize and take what happened there to be an indicator of what happens in other places.

That being said, I do believe that lessons can be learned.  Please consider passing this along to others at your credit union involved with your board and management team.

You might also be interested in the following:

• NCUA's Material Loss Review on Telesis Community Credit Union.
• NCUA's Material Loss Review Homepage. 
• NAFCU's Board of Director's and Supervisory Committee Conference, May 15-17, Asheville, NC.
• NAFCU's Online Training - A cost effective way to help meet training needs for your board and new employees.  It's wicked good!  (OK, I created it, so I may be a bit biased...) In all seriousness, it has a series of short modules designed to make sure everyone on your board understands risk management, NCUA, their role, interest rate risk, BSA requirements...and, well, you get the idea.  Click on the banner below for more details.  30-day money back guarantee, especially if my narrator's voice gets annoying.