Supervisory Committee Audit Guide Revisions – Brian Sullivan, Partner, CPA

As you already know, the agreed-upon procedures engagements we perform are based on the minimum procedures required by NCUA Regulation Part 715 to be performed annually for credit unions over $10 million in assets. These procedures were adopted in 1999 and have not changed since then. The time has finally arrived, and 20 years later, the NCUA has FINALLY updated these procedures. 

Some of these new procedures have already been incorporated in our previous agreed-upon procedures engagements. These procedures involve:

  • Obtaining a listing of all other asset and other liability accounts, making a selection of those accounts, and performing additional procedures.
  • Obtaining and comparing the Allowance for Loan and Lease Losses policy with current calculation and determining whether it has been approved or reviewed by the board within the last year. Also determining whether the policy complies with Interpretive Ruling and Policy Statement (IRPS) #02-3.
  • Compare the weighted average yield on loans, investments, shares and borrowed funds as reported in the subsidiary ledger to the effective yield reflected in the general ledger.
  • Select one random quarterly employer tax report (Form 941) filed during the testing period and compare the total compensation reported to the total compensation expense per the general ledger for the corresponding quarter. Report any differences greater than 10% (other than accrual postings).
  • Obtain a detailed listing of Other Real Estate Owned and determine that the related accounts have been reclassified to other assets in the general ledger.
  • Obtain a listing of all fixed asset accounts and perform additional testing procedures.

Of course, the NCUA didn’t eliminate any procedures or replace any procedures, they just added several procedures to the current guide. They will include the following:

  • Select and review 10 expense checks disbursed during the month following the review date and trace to the proper accrual as of the review date or determine that the expense was incurred in the month disbursed.
  • Select 5 wire transfers to determine if it requires two individuals to complete a wire transfer.
  • Determine if an ACH audit is being performed annually as required under NACHA guidelines.
  • Select 12 operating expenses from the general ledger for detail testing. Test that expenses are properly authorized, paid/posted by a different individual, paid invoices are mathematically accurate, and are properly classified in the general ledger for the testing period.
  • Obtain a detailed listing of Repossessed Autos and determine that the related accounts have been reclassified to other assets in the general ledger.

- Test the listing for mathematical accuracy.

- Determine that the items were transferred from loans to other assets and are at the lower of cost or estimated fair value (less cost to sell) by reading internal documentation and agreeing any losses to the detailed listing of charge-offs.

- Select 20% of repossessed autos sold (sample not to exceed 10) during the testing period and compare the cash proceeds to the book value of the collateral in process. Compare the difference between the book value and the cash proceeds to the recording in the general ledger gain or loss account.

  • Obtain a report of active users on the Credit Union’s core operating system and compare that report to a listing of current Credit Union employees. Include in the report any individual on the core operating system listing who is not a current Credit Union representative.
  • Determine whether the Credit Union has had annual penetration testing performed in accordance with NCUA Regulations.
  • Obtain a listing of all individuals who were CU employees during the testing date and perform the following:

- Select 10% of the employees and determine whether the CU has retained hiring documentation (application, resume, etc.), annual performance reviews, and salary authorization in selected personnel files.

- Obtain the last payroll journal prior to the testing date and trace selected employees approved pay rate from their personnel file to the payroll journal.

- Select three random payroll journals from throughout the testing period and determine if there are any individuals listing on the journal who were not an employee of the Credit Union.

We will plan on incorporating these procedures to reflect the minimum required procedures under Part 715 of the NCUA in all of our 2020 agreed-upon procedures engagements. Please feel free to reach out to me if you have any additional questions.