Credit Union Exam Solutions Presents With Flying Colors

Hey everyone, this is Mark with a special
Archive episode of With Flying Colors.

I hope you enjoy.

Just got off the beach,
brought my notebook with me.

I had my long career.

I had different ways of keeping track of
things, but when I started consulting.

Gosh, three and a half years ago, I
started using a college ruled composition

notebooks, one for each month.

And it allows me to go back
and find things much easier.

And instead of writing it on sticky
notes or starting some electronic

file, it's proven to be the best
system that I've got anyway, in that

I have a updated list that I update
every month of potential podcasts.

That I want to do.

And I had a note that said three ways
to avoid getting a document resolution

and sitting on the beach, watching
the waves, watching people walk by.

I took out my pen and I actually came
up with 10 ways to avoid a document

resolution, and that's what I'm going
to talk to here, just in case my

throat gets a little scratchy, I'm
going to open up a polar seltzer,

which was on sale at Publix this week.

Here we go.

There's the seltzer.

Take a sip before we get going.

All right, 10 ways to avoid
a documental resolution.

First, so what is a document resolution?

Obviously, most of the listeners
know that, but it's part

of the examination report.

And short of getting something
that is a formal action by NCUA,

like a letter of understanding,
it is a document resolution.

The most aggressive required action by a
credit union as part of an examination.

Now, a code one can get a document
resolution, a code five can get a document

resolution, which means credit unions in
the middle can get document resolutions.

Of course, code ones and
code twos oftentimes don't.

Usually, if you're code three, you are
going to get some document resolutions,

although I've seen that not be the case.

Also seen that recently.

So anyway, so the reasons for a
document resolution, a safety and

soundness concern, a compliance
concern, inadequate management or board

oversight are three broad areas that
will trigger a document resolution.

However, let's dive into that.

The first item I had written down was a
violation of the Federal Credit Union Act.

or a violation of an N.

C.

U.

A.

Regulation.

File that under commit.

No minor blunders.

Obviously, you need to know
what your policies are.

We'll get to that.

You need to know what the regulations
are and you need to follow the Federal

Credit Union Act situations like this
put A lot of discretion into the hands

of the examiner, because there are
some instances where if you violate

a regulation or a law, they have to
give you a document of resolution.

And that an example, the best example of
that is Bank Secrecy Act, where they have

agreements with FinCEN that they will do
that type of take that type of action.

In that situation, the
examiner can't even.

Negotiate with you.

But other examples of violations
of regulations would be a violation

of the commercial loan rule.

And that on occasion when someone
gets into a new program and they don't

understand the documentation requirements
or the follow up requirements.

Of commercial lending, the theory is,
and the concept is commercial loans.

You put more eggs in, in one
basket, commercial loans can

be more complicated to review.

Commercial loans require a
certain level of expertise.

So if you don't follow the regulation,
you can cause a loss to the credit

union, some credit unions ultimately
have caused loss to the insurance fund.

So NCOA will act.

fairly aggressively when it
relates to a regulation violation

of commercial loans, for example.

Now, sometimes you might see NCUA
negotiate that down to a different

type of document in the examination,
but I'll get to that shortly.

Another no that you very rarely
get any leeway on not being a

document resolution if, is if you
have issues tied to your audit.

NCWA takes that very seriously
and typically will have that in a

document or resolution or higher if
there were flaws in your audit, you

didn't do your audit timely, etc.

Or the verification of accounts,
which falls into the responsibilities

of the supervisory committee
or the audit committee or state

charters that might call it that.

All right.

So violation of the act,
violation of regulation.

Number two, a violation of your
own policy is sometimes you might

do a policy limit as squishy and
might not document exceptions to it.

If you do have exceptions to policies,
NCOA is typically going to ask you

to track those, monitor those, but
I've seen situations where NCOA

has criticized credit unions for
not following their own policies,

viewing their policies as a goal.

For example, we'll have a
loan to asset ratio of 80.

You go to 81 the next month, you change
it in your policy to 85, six months later,

you go to 86 and then you change it to 90.

Now, can you make changes like that?

Yes.

But NCOA is going to expect the board
be involved, that there'd be good

corporate governance around that.

And that it's not just, oops, we went
over and we want to keep making these.

You need to have a logic behind that.

And if you don't, NCOA will criticize
you most likely in some way, shape

or form, and it could rise to a
level of a document of resolution.

Now.

Over the last few years, I've seen
several instances in conversations with

credit unions where credit unions had a
strategic plan, their strategic plan said

we're going to do A, B, and C, and then
the results of the year were they did,

instead of doing A, B, and C, they did
A, D, and F, and maybe Z, and then went

back and did B and C for good measure,
and it wasn't exactly what the board

approved at the credit union for their
strategic plan, And then opportunities

came about where, let's say, marijuana
banking, let's say, opportunity to do a

merger of a bank, acquisition of a bank,
where that was not in the strategic plan.

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And as a result.

Maybe some other things didn't
get done that could have been

done or should get gotten done.

I've seen SUA be critical of
a board and a credit union not

following their strategic plan.

Ironically, there's not a lot of
references to the requirement of strategic

plans, which by the way, they're not.

They're just, of course,
sound business practices.

But that has popped up.

So number one, comply with
the Act of Regulation.

Number two, comply with your own policies.

And number three, comply with your
strategic plan, or revise your

strategic plan, or make your strategic
plan a little bit more flexible.

Number four, how do you
avoid a document resolution?

Communicate well.

Communicate well with NCUA.

If you're contemplating a new
program, reach out to the examiner.

Talk to the supervisory examiner.

Make sure they're aware that
you're contemplating these things.

Sometimes they'll see best practices.

And other institutions and
share some ideas that will

improve your implementation.

Reminds me of a quote by a former
NCUA board member who said when

we were negotiating with NCUA's
union, familiarity breeds consent.

When you have a good relationship where
you show that you are going to communicate

well with them, you can get more leeway.

That works with NCUA, that
works with your teenage kids.

Anyway.

Communicate.

Communicate.

Communicate.

Make sure that if you have a new
program that you are in contact

with NCOA relative to that.

They're not going to bless policies
and procedures and different things,

but they will tell you what they've
learned and they've seen a lot of things.

Do that.

Number five.

Negotiate.

Negotiate.

Negotiate.

Right?

So, you get a document resolution.

It's a draft.

That is the first draft, right?

You might have a better idea
on how to deal with something.

You also may be able to convince them
that instead of a document resolution,

here's fact A that you didn't consider
fact B that you didn't consider.

And maybe we can put it into an examiner
finding instead of a document resolution.

Now, why would you want to do that?

It's a little less draconian.

It's a little less likely
to impact your camel code.

And it's just a better place to
have it in an examiner findings.

Another thing you can do too
is, okay, number one, maybe it

shouldn't be a document resolution.

It should be an examiner finding.

And Oh, by the way, we fixed
it before the exam was done.

Sometimes they'll take that out
of the exam in its entirety.

Sometimes they'll just
say, this was a problem.

You dealt with it when.

We're, we were here and now it's done.

So negotiate number five, number six
training, make sure your board is trained.

Make sure your staff is trained, whether
that's through the new America's credit

unions, whether that's through NASCS,
whether that's through leagues, whether

that's through hiring consultants,
there's a lot of good consultants

and a lot of good areas out there.

That can give you a deep
dive on different things.

So don't crimp your budget on training.

Make sure your staff have the
resources to do what they need to do.

That's common sense, right?

Numbers eight, subscribe to NCOA express.

That alerts you when regulations are
proposed, that alerts you when NCOA

is going to do a webinar, that alerts
you when a regulation is final, and

it's a good way to keep track of
what's out there and forward it on

to your staff so they can develop a
plan to resolve before NCOA comes in,

because again, you're expected to stay
up to date on those new regulations.

Number seven.

Subscribe to my podcasts.

Of course, I've got two
podcasts out there now.

This one is with Flying Colors,
where we assist our credit unions

with NCUA exam type issues so
that they can save time and money.

Number two is an AI driven
podcast, which is more audio book

style hosted by Samantha Shares.

And that podcast is called Credit
Union Regulatory Guidance, which is

again, audio books on NCUA related
or financial institution related.

Issuances that are still
relevant or are new that you may

want to study and understand.

So again, subscribe to the
podcast, just hit subscribe.

I'd appreciate that.

Hey, if you could give me a rating, if
you like it too, that would be great.

The more ratings you get, the more
Apple and Spotify like to share your

podcast when people do searches.

All right.

Founding problems.

I mentioned people have issues
with their audit and CUA is going

to do a document resolution.

So the best way to make sure you don't
in this arena to make sure you don't get

a document resolution is to make sure
your main accounts are reconciled and

that you have your audits done timely.

If you go back and look at my
podcast about CamelCode downgrades,

Oftentimes when that happens, one
of the into a board members will

ask the chief financial officer.

So what's driving this trend?

And they will speak to operational issues,
management issues, accounting issues,

and oh, by the way, that's happening in
some large credit unions over a billion.

Again, commit no minor blunders.

NCUA will not only react to accounting
problems, they will overreact because

that can lead to fraud, that can lead to
losses at the insurance fund, and really,

other than BSA, probably the least likely
thing that they will negotiate on is

accounting issues until they are done.

All right.

So that was number.

Nine, number 10, give them access to you.

If you're the CEO and they can't pick
your brain, can't talk to you, you're

not available during the day, or you're
not even there during the examination.

NCOA is not going to like that.

Do they have access to your C suite?

A lot of credit unions, particularly
bigger credit unions, now have a chief

risk officer who's responsible to,
to liaison with government agencies.

That's great.

But they should understand what makes
you tick as a CEO or a number two.

Again, it goes back to
communication, right?

If you communicate well with NCUA at all
levels, your examination will go better.

Alright, so those are 10 ways
to avoid a document resolution.

I'll summarize them here for you.

Number one, comply with the federal credit
union act and regulation and regulations.

Number two, apply with policy.

Number three, live within what you
approved in your strategic plan.

Number four, communicate with NCOA.

Number five, negotiate with NCOA.

Number six, train yourself and.

Your staff and your board.

Number seven, subscribe to NCWA Express.

Number eight, listen to my podcasts.

Subscribe if you'd like.

Number nine, avoid accounting problems.

And number 10, provide them access to
you so they understand what's going on at

the highest levels of the credit union.

That's a show of respect to the examiner.

And it is appreciated.

And I've seen that go awry
over my 34 years at NCUA and my

additional four years doing this.

Wow.

That adds up to 38, a couple more
years, we'll be at 40 in the industry.

All right, everybody.

I enjoyed updating you on my brain
dump on document resolutions.

We're seeing more of them.

We're seeing more code threes.

I'm going to do a podcast on
code threes coming up here soon.

All right.

I'm going to go back out to the beach.

I hope you have a great
week at your credit union.

Normally, by the way.

Okay, here we go.

I digress.

I hope you enjoyed listening.

I.

You'll listen again soon.

This is Mark Treichel signing
off with flying colors.