EXAM PROCESS Focus Trends and Practices April 24, 2013 Bill - - PowerPoint PPT Presentation

EXAM PROCESS

Focus Trends and Practices April 24, 2013

Bill Shirley, Supervisory Examiner St Louis Office/Austin Region

Today’s Presenters

Jim Capps, NCUA Principal Examiner Sarah Hartzel, NCUA District Examiner

Bill Shirley, Supervisory Examiner St Louis Office/Austin Region

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Four Sections of Today’s Presentation

• 1. The three hats an Examiner wears
• 2. What we are looking for and how the

Internal Auditor can help

• 3. The logical progression we take towards the

Exam and DOR process

• 4. Current supervisory focus

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Three Hats an Examiner Wears

• 1. Regulator
• 2. Insurer
• 3. Consultant

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Regulator

• 1. Did we ID/address law/rule violations?
• 2. Did we educate management/staff on

these?

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Insurer

• 1. Did we ID/address Safety and

Soundness Concerns?

• 2. Did we consider and convey the what-

ifs?

• 3. Did we make the CU stop the risks they

cannot sustain – both operationally and financially?

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Consultant

• 1. Did we recommend/direct the CU to do

things that will:

• 1. Better insulate them from the risks

they are taking;

• 2. Better ensure their continued success

and/or viability?

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Risk Focused Exam

• 1. Credit Risk
• 2. Interest Rate Risk
• 3. Liquidity Risk
• 4. Transaction Risk
• 5. Compliance Risk
• 6. Strategic Risk
• 7. Reputation Risk

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From the IA perspective

• What are the examiners

looking for?

• What can you provide to

expedite the exam process?

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Credit Risk

• Policies and procedures for each loan product
• Enterprise-wide monitoring of lending programs
• Internal controls and monitoring
• New or planned programs
• Delinquency data
• Charge-off and recovery data
• Static Pool Analysis
• Paid ahead loan monitoring

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Interest Rate Risk

 ALM Policy  ALCO Minutes  ALM reports including assumptions

and validation

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Liquidity Risk

 Liquidity Policy  Investment Policy  Investment Schedules  Borrowed Funds Schedules  Alternate Liquidity Sources

Lines of credit-used, unused, advised, guaranteed, etc. Loan sales and participations Reverse Repurchase Agreements

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Transaction Risk

 Supervisary committee audit report  Reportable Conditions Letter  Follow up recommendations  Internal Audit program  Procedures for verifying GL accounts  CUMIS or other risk management audit  Insider Account Review and monitoring  Allowance for Loan Losses evaluation  Multi-factor or Multi-layer authentication

for internet access

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Compliance

 BSA/OFAC and other compliance

policies

 Risk Assessments  Independent Testing  CTRs and SARs filed since last exam  Training Program  Suspicious Activity Monitoring

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Strategic Risk

 Budget  Business Plan  Strategic Plan  Disaster Recovery Plans  Succession Plans  Vendor Listing and Oversight

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Reputation Risk

Member complaints SAS 70 Audit Board Minutes

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Logical Progression the Examiner Takes

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Background/History

• 1. Review the last Exam/Contact
• 2. Review the status of any Administrative Actions
• 3. Review FPRs, Risk Reports and FOM
• 4. Identify/Consider any news sources, rumors, etc.

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• 1. Consider the background/history
• 2. Consider and changes since the last Exam
• 3. Consider the most recent Final Risk Assessment

Direction

• 4. Extensiveness is dependent/consistent with Risk

Rating

Preliminary Risk Assessment & Exam Scope

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• 1. Anomaly Based Analysis Attuned to Oddities in

the Trend Information. Usually Two Things:

• 1. Reporting Errors – Staff Changes,

Inconsistencies or Intentional?

• 2. Deviations From Norms – Changes to

Programs, Terms, Conditions, Policies or Philosophies?

• 2. Law of Averages – Do Averages Look Right? For

example, Average Loan Size > Peer in Most Fraud Cases

• 3. NIM – NOE = bps of Disposable Income

Financial Trending

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• 1. Conclusion/Support for CAMEL Ratings
• 2. Supports the Risk Level and changes from PRA
• 3. Indicates/Supports the Risk Direction
• 4. Extensiveness is dependent/consistent with Risk

Rating

Final Risk Assessment

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• 1. Outlines/Identifies the root of the problem
• 2. Willing to escalate to the next level of

enforcement action if not resolved

• 3. Sets an action plan
• 4. Implements a timeframe management must

address – either immediately or in a compressed period of time

What is the DOR?

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• 1. Unsafe and unsound practices threatening the

viability of the credit union

• 2. Systemic compliance violations
• 3. BSA violations

What is Included in the DOR?

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• 1. Is the problem pervasive?
• 2. If unresolved, could the problem cause financial
• r operational damage?
• 3. Is it in substantive noncompliance with laws

and/or regulations?

• 4. Is the problem a result of management’s inability
• r unwillingness to properly identify, measure,

monitor, and control the risk?

Questions we ask to help qualify it as a DOR?

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Current Exam Topics

Please refer to your handouts for additional information and/or discussion on current NCUA examination issues and topics.

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Capacity Focus

Operational Risk Technology Internal Controls Balance Sheet Management IRR and Liquidity Risk Concentration Risk Less Established Products

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Enhancing Clarity Improving Consistency

Member Business Lending (MBL) Troubled Debt Restructuring (TDR) DOR and NSPM Pre-exam and Exam Report Cover Letter CU Online Profile – How to contact your SE and the District Examiner assigned to your credit union

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We appreciate your participation

• today. Our contact information is
• n the next slide.

Any final questions?

Thank You!

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Office Contact Page

Primary Staff: Jim Capps, Principal Examiner (PE) jcapps@ncua.gov Sarah Hartzel, District Examiner (DE) shartzel@ncua.gov Secondary Staff: Bill Shirley, Supervisory Examiner (SE) wshirley@ncua.gov SE Shirley’s Phone: 703-609-6108

Feel free to contact our office with questions or comments.