Examination & Supervision 2012 Update

Chairman's Statements on Supervision

“NCUA will not sacrifice safety and soundness as we work to help the credit union industry recover in the coming years.” January 2011 “NCUA will remain focused on due diligence and risk management…NCUA will continue to encourage responsible lending.” January 2012

What is Safety and Soundness?

• Management and Officials Understand Risks • Accurate and Timely Financial Data • Sound Internal Controls / Effective Audits • Active Supervisory Committee • Efficient Operations / Operating Expense Controls • Written Policies that Reflect Actual Practices • Realistic Budget and Strategic Plan • Communication and Transparency

Today’s Topics • National Supervision Policy Manual • Examination Questionnaires • Credit Union Online (NCUA 5300) • NCUA Assessments • Fraud Risk Indicators in Credit Unions

National Supervision Policy Manual

• Two years in development • Collaborative effort by NCUA staff at all levels, all Regions • Thorough internal review and comment process • Provides for uniform supervision of CU’s nationwide • Includes more rigorous follow-up process 6

National Supervision Policy Manual Implementation Timeline • Field use began January 2012 • Examiner training - pilot  January through June 2012 • Agency-wide policy  Mid-year 2012

National Supervision Policy Manual Table of Contents District Management FCU Program and Procedures FISCU Program and Procedures Quality Assurance Program Credit Union Service Organizations Audits Recordkeeping Fraud Waivers Other Regulatory Actions Small Credit Union Program Bank Secrecy Act Enforcement Prompt Corrective Action Administrative Remedies

2012 Examination Scope Minimum Review Requirements Resolution of Prior DOR Items Loans - Concentrations, High Risk, Insider, Extensions, Share Concentrations = in relation to Assets and NW Allowance For Loan and Lease Losses SC Activities, Audit (Audit Work Papers) File Maintenance Reports Bank and Corporate Account Reconciliations (Testing) Strategic, Business, and Marketing Plans

2012 Examination Scope Required Questionnaires

BSA – Bank Secrecy Act * Loan – Flood Act * Loan – Participation Loans Loan - Controls 5300 Review * Loan – Real Estate – IC SC Audit and Verification * Loan – Indirect Lending – IC Interest Rate Risk – A Interest Rate Risk – B Interest Rate Risk – C Interest Rate Risk – D Loan – Sub-Prime – IC Loan – Home Equity– IC Loan – Business Loans– IC Loan – SBA– Parts I and II Liquidity – A Liquidity – B Share – Controls Share – Internal Controls Liquidity – C Third Party Relationships Investment Controls (New) IC – Lines of Credit IC – Financial Triggers IC – Cash * Red Flag Questionnaire * Foreclosure Procedures Third Party Relationships Credit CARD Act SAFE Act IT - Website and E-banking * IT - FFIEC Authentication * Unlawful Internet Gambling Enforcement Act 2006 (UIGEA)

Examination Questionnaires

Examination Questionnaires

• AIRES  Automated Integrated Regulatory Examination System • All AIRES Questionnaires are posted on NCUA web site • http://www.ncua.gov/Resources/CUs/Pages/AIRES.aspx

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Examination Questionnaires

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Examination Questionnaires Demonstration

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CU Online – Version 2

• • • Silverlight must be installed to access CU Online Website to install: http://www.microsoft.com/getsilverlight/Get Started/Install/Default.aspx

System Requirements 

Windows

• Operating System: Windows 7, Windows Vista; Windows XP Service Pack 3 • Intel® Pentium® III 450MHz or faster processor (or equivalent) • 128MB of RAM 

Mac OS

• Operating System: Apple Mac OS X 10.4.8 or above • Intel Core™ Duo 1.83GHz or faster processor • 128MB of RAM

CU Online – Version 2

• • • • User Interface updated Security improvements View only screens display all checkboxes Programs/Services categorized like the paper form New Version Current Version

CU Online – Version 2

• Profile Certification  Required quarterly to submit Call Report  Certify Profile button appears anytime changes are made, and when quarterly certification is due  Users can make several changes to the profile and then certify • Must certify to permanently save all changes to the NCUA • Changes will be lost if the user logs off or leaves the profile area without certifying

CU Online – Version 2

• Warnings in the Profile – Implemented to help improve data integrity – Warnings must be commented on prior to certification (similar to call report process) – Will not prevent profile certification

CU Online – Version 2

• Profile Snapshot taken each quarter when the Call Report is submitted – Permanent record of the profile for the quarter – Ability to print as a PDF

CU Online – Version 2

• Eliminated edit and delete functionality on Regulatory and IS&T pages – Can only add a date – Sections impacted: • financial statement audit, • member account verification, • annual meeting, • disaster recovery test, and • data processing conversion.

CU Online – Version 2

Current Version – CU Online

Profile Changes: Inability to print profile easily Merger Partner Registry on General Tab

Version 2 – CU Online

Profile PDF on demand MPR on its own tab Part 748 Certification on General Tab Call Report Changes: Must click “Save” for calculations and edits to refresh December 1990 – June 2009- no profile fields on forms No easy way to print warnings Part 748 on Regulatory Tab Refresh during data entry All forms display profile fields Ability to export to PDF or Microsoft Excel

CU Online – Version 2

• Request FPR button moved – Used to obtain a 20 page FPR on a submitted or validated Call Report Current Version New Version

CU Online – Version 2

• Warnings: Compares Call Report and Credit Union Profile – Warnings identify potential reporting errors – Displayed in the Call Report – Do not backdate the profile to match call report cycle date to remove the warnings • Profile should always reflect current operations

CU Online – Version 2

• Added a CU Basic role – View only permissions for your credit union – Requested by CUs so they could give their Board Members access to CU Online – Optional for credit unions

More Information to Come…

• • NCUA will host a webcast for credit unions to provide more information prior to system upgrades Email notification of Webcast – CU Online Administrators and Users – Call Report Contact – Profile Information Contact – Organizational email of the Credit Union (IST page of profile)

Assessments - Perception

Assessments - Perspective

"The amount of the assessments for the national share insurance fund really depends on the industry's own performance." NCUA Chairman Debbie Matz

Troubled CU Shares to Total Insured Shares 2006 – 2011 31

Credit Union Failures 2002 - 2011

30 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Assessments - Future

• Credit Unions are experiencing higher losses due to fraud

Fraud

• Do you have a Fraud and Ethics Policy?

Fraud Failure Statistics 2004 - 2010

13 Fraud Related Credit Union Failures

Total Assets in Fraud Failures

$ 330,263,481

Total Losses in Fraud Failures

$ 252,641,813

Average Loss to Assets

76.5% Smallest CU Largest CU

Assets

$972,266 $247,512,380

Loss

$3,690,194 $187,834,226

Loss/Assets

379.55% 75.89%

CU A B C D K L M E F G H I J X X X X X X X X X X X X X

Fraud Losses – Common Traits

Weak SC Limited Records Audit / MAV Manipulated Staff OOB Lacking Records X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Trusted Staff X X X X X X X X X X X X

NCUA Red Flag Questionnaire

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