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Following the NCUA Board's decision to retire its Supervisory Committee Guide, NAFCU Regulatory Compliance Counsel Reginald Watson discusses the recently issued Final Rule on Supervisory Committee Audits and Verifications. As recommended by NAFCU, the original Supervisory Committee Guide will remain on the NCUA's website as an additional resource for credit unions.

The final rule replaces the Supervisory Committee Guide with a simplified appendix, eliminates two audit types that federally insured credit unions (FICUs) seldom use, and eliminates a specific deadline (120 days) for outside, compensated persons to deliver written audit reports to FICUs. 

"In replacing the guidance, the final rule adopts the newly-created Appendix largely as proposed, with the addition of two new topics: a review of board minutes and testing for unrecorded liabilities," writes Watson. "In lieu of prescriptive provisions, the appendix provides flexibility for the Supervisory Committee to use its judgment in determining the auditing procedures."

According to Watson, topics that must be outlined in the Supervisory Committee review include:

• reviewing Board of Director minutes;
• testing and confirming certain types of asset and liability accounts;
• testing material equity, income and expense accounts;
• testing unrecorded liabilities;
• reviewing key internal controls;
• testing the methodology and mathematical accuracy of the allowance for loan and lease loss account; and
• testing loan delinquency and charge-offs.

Watson adds that the appendix "also requires that the audit report explain the method of selection when a test or confirmation procedure includes the making of a sample or selection."

For more on the Final Rule on Supervisory Committee Audits and Verifications, including the elimination of outdated audit alternatives and timing of completed outside audits, read Watson's full blog. Those interested can sign up to receive new NAFCU Compliance Blog posts in their inbox every Monday, Wednesday and Friday.