Credit Union Exam Solutions Presents With Flying Colors

Hey everyone, this is Mark Kel with
another episode of With Flying Colors.

It is.

The last Monday of July and last
week, there was some interesting

news in the press as it relates to
President Trump's firing of board

members, Todd Harper and Tanya Otsuka.

Let me see if I can get my days right.

Last Wednesday there was.

Uh, decision made at
some level of the courts.

I'm not gonna go into the nuances
of what levels there are, but there

was a decision made saying that
Trump violated the Federal Credit

Union Act and that Harper and Otsuka
would be reinstated that same day.

The government, uh, representing Trump
scent Kyle Halman and Larry fao, who were

also, uh, sued by, uh, interestingly by.

Harper and Ska.

But they filed a motion saying We need
to stay this on Wednesday, uh, because it

would be problematic to bring them back.

While this has not worked its way all
the way through the courts, uh, that

did not get acted on in time for the
NCA board meeting on Wednesday, which

was, excuse me, on Thursday, last
Thursday, which was three briefings.

A briefing on artificial intelligence,
a briefing on the CLF and a briefing by

NCOs Ombudsman, a new office that has been
created under Harper and or Halman, uh,

as opposed to it just being one person
who reported to the executive director.

Uh, by the way, I predict that when
new Republicans come in, that that

office may be wound back into the
office of the executive director.

Anyway, I digress.

So Thursday they had the board meeting.

Uh, it was interesting to, I was
interested to see how that went.

Tanya Ska was in purpose.

Todd Har Harper was on video, appeared
to be elsewhere probably because he

had things going on that prevented
him from getting there in person

on Thursday with the short notice.

But the stay was not was not put in place.

So they did have the board meeting.

Harper cracked a joke on the
front end, but hey, what's been

going on the last three months?

And the 500 pound elephant in
the room relative to the whole

issue, all three sides avoided.

It, didn't bring it up.

It was essentially business as
usual from that perspective.

Uh, the three briefings really
didn't have anything of substance.

The CLF briefing they do on occasion
saying, Hey, they need more, uh, borrowing

capacity for credit unions and the the.

Briefing on the Ombudsman.

Uh, it was interesting.

They asked, uh, board member
Harper asked if they were going to

be doing some initiatives coming
up, uh, relative to the program.

And the individual said they
didn't have enough staff.

Uh, well, when I was there,
we staffed the ombudsman with.

One person and, uh, there were enough
other structures at the agency to

handle any complaints or appeals.

So, uh, I found it ironic that new office
was complaining about resources while NCO

a's submission, uh, is losing about 20
to 22% of their staff and really having

a hard time getting their mission done.

They're having to do a lot of triage,
which we've talked about here.

But you know, no, nobody ever has
enough resources and the ombudsman.

Is, in my opinion, more of a,
of a make believe position.

That really doesn't do much of
anything, but I will leave it at that.

Okay, so they had those three briefings.

Uh, you know, this puts
staff in a weird position.

Are they coming back?

Are they not coming back?

You obviously want to treat everybody
with respect and it was a respectful

board meeting, so that was all great.

Uh, the AI briefing really I didn't
glean anything from that other than an

interesting dialogue and fact pattern
Question from Todd Harper saying perhaps

we can provide opinions that certain AI
vendors are doing things right, uh, and.

Talked about it as it relates to
small credit unions, and, uh, while

I was watching or listening I did the
little head nod, like, when your dog

doesn't understand what's going on.

'Cause Todd's a smart guy.

Clearly he doesn't think
NCA can sanction those.

So what was the purpose
of asking that question?

I don't know.

Uh, but no, NCA cannot give opinions
that, say vendor A, B, C that does X, Y,

Z is blessed by NCA and he knows that.

So I don't know, uh, what the purpose
of that was, but I'm sure there was one.

And maybe we'll find out in the future.

Maybe we won't because the reality
is, over the weekend, a stay was put

in place and it said, you know, we're
not, we're not commenting on the merits

of the case, but we, but what we are
doing, uh, is agreeing that the, with

the government, that we should have a
stay until this could be seen further.

And I believe the next step
will be the Supreme Court.

Now, if you're listening to
this, you can't see the shirt I

have on, which is very colorful.

It's the jockeys.

Uh, silks of the numbers.

And it's, uh, by the way, it's
old smoke who makes some really

cool horse racing t-shirts.

Uh, but what are the odds that
Harper notes could come back?

I would say ultimately if I was a batting
man, and I'm not, unless it has something

to do with horse racing, uh, I would say
80% chance that they do not come back and

that the places will be filled, before
the end of the year, before the budget

probably with the possibility of two board
members, one Republican and one Democrat

or Kyle Huffman's term is up next month.

This is July, last Monday of
July, next month his term is up.

You could see president Trump reward
three board members, put two Republicans

in and one Democrat and have a brand
new group, which, it is chaotic, right?

Uh, the care and feeding of a board
member at the executive level, when

they come in the first year, uh,
they believe that that they hear a

lot of things negative about NCUA.

They believe all them, and
then staff spends time.

Showing their professionalism and
showing that things are done well and

showing that they, what they might
have not heard isn't all factual.

You know, I I, I praise NCA when
I think they need to be praised.

I criticize them when I think
they need to be criticized, but

the professionalism of staff.

Is well above average.

And while they're going through
all these things, it's chaotic.

But imagine it's chaotic with
two board members coming in and

having to get brought up to speed.

It's possible there will be three B
brought on by the end of the year,

and it's possible that, uh, I don't
think the odds are long back to

the, uh, to the silks on the shirt.

Uh, but I don't think the odds are long.

But it's possible that oats
and Harper could come back.

Now, as I've talked about elsewhere.

On, on LinkedIn, on my blog posts
here on video and on the podcast.

Uh, NCUA does have a two year budget.

The biggest thing coming up is the
budget, and I think a Republican

board of two would do some things
relative to the budget, uh, and take

some actions that would reduce cost
to credit unions in the short term.

And you can debate
whether it would reduce.

Cost to credit unions in the long
term, uh, since AI was brought up, uh,

I'm gonna pivot into, uh, one item.

The inspector general at NCUA at all
agencies has to report to Congress

every six months, and there's
certain things that they must do.

And as it relates to senior government
employees, if there are investigations

that are done, whether they're they
provide fruit, uh, or, or provide

wrongdoing or exonerate, the senior
government employee, they have to tell

Congress that those actions were taken.

And it's based on pay.

It's not based on grade.

And because the banking agencies pay
higher, they tend to have to have

a bigger percentage of their staff.

Fall into the category of
senior government official.

So they did an audit, uh, that I'm
going to read from the March report.

Uh, I'm not sure exactly
when this went up.

It covered October to March.

Takes 'em a couple months to do it.

Probably submitted this in May.

But anyway, false statement, misuse of
government property during the reporting.

Period.

Uh, oi, the Office of Investigation closed
an investigation that was opened during

the prior reporting period regarding n
NCAA's critical Infrastructure Division

Director who was a grade 15 and an
information system officer grade 14,

who reported to him the investigation,
substantiated allegations that direct the.

The director sent non-public
supervisory information, personally

identifiable information and law
enforcement sensitive documents to his

personal email account in violation
of the NCAA's acceptable use policy.

The investigation also also found
that the director provided false

statements during the process
for his background investigation.

Including OMI omitting numerous outside
employment positions he held while working

at the NCA and that he violated the N
C's acceptable use policy by routinely

using his NCA email account to conduct
business for the outside employment.

The investigation substantiated
allegations that the information

system officer sent NA
work to his personal email.

And provided false information in the
application process to the NCA that

overstated his cybersecurity experience.

On October 15th, the US Attorney's office
of the Eastern District of Virginia

declined the case for prosecution.

By the way.

They always decline 'cause it.

Historically, what's pointed out here
is not something, uh, that is, uh,

the US attorney feels that they need
to prosecute The information System

officer resigned from NCA on September
19th, and the critical infrastructure

division director retired from NCA
on October 19th, because if you're

eligible to retire, what do you do?

You say, we're gonna fire you.

They, you say, no, I'm
gonna, I'm gonna retire.

This situation is interesting.

You've got people lying
about their resume.

You've got people sending stuff to
their personal, the computer peop using

NCA government, uh, for other work.

And by the way, there's a regulation,
uh, if, if A NCA employee has outside

work it needs to be approved if
you're going to continue doing that.

So, look, sounds like
they were double dipping.

Maybe triple dipping sounds like they.

We're sending information to their
lap, their personal computers, using

their business computers for personal
work which probably in and of itself

wouldn't have triggered all this.

Having some personal documents,
for example, on their, their NCA

government employ, uh, laptop
isn't gonna trigger this, but it's

all that other noise around it.

And I.

I understand from the AI briefing that
there's, that, you know, they want,

they want credit unions to be able
to use ai, but use it appropriately

and follow third party due diligence
that NCOA is using it in some.

Minor ways.

I've also heard that NCOA says they
are not authorized to, to use it, and

I also heard rumor that perhaps some
people were involved in this case

were sending information to their.

Personal laptop and using their
personal laptop to get information

back into the NCA system, uh, so that
they could use AI perhaps so that they

could enhance their presentations.

That's a little bit of
conjecture on my part.

A lot of rumor tied to what
they may or may not have done.

But I will be watching these IG
reports going forward a little bit

more closely to see if there's anything
worthy of talking about they do.

Audits, uh, they have an audit plan, just
like they expect you to have an audit

plan for your supervisory committee.

And they did do an audit that caught my
eye about the examiner rotation policy,

which depending on what year it is uh,
NCA has had a a three year rotation and

they've had a four year rotation where
examiner can only be an examiner charge

for three years, if that's a policy, or
four years, if that's the current policy.

And quite frankly, I don't know
which one the current policy is.

But, uh, they made a, a pretty
generic statement saying they

need to improve their policies and
make sure they're following that.

That didn't go into great detail, but
of the long report to Congress, those

were the two items that caught my eye.

Uh, lastly I had a longer podcast a
couple weeks back with three members of

my team, Dennis, who's new to the team.

Steve and Todd, and it was
longer than most of our podcasts.

It was about the OCC risk
report which there's a lot of

corollaries to credit unions.

What that means to credit unions and what
you can look at, at the ramifications

of how that might impact your exam.

Uh, it was so long that I broke
it down into shorter podcasts

that we'll run on Thursdays.

Uh, and that will also appear
on YouTube on Thursdays running

here through the summer.

The summer months are a little
slower as far as listeners.

A little slower as far as me.

Having much to talk about.

'cause the NCA board kind of
typically shuts down, and right

now there really is no board.

And, and as evidenced by the fact that
all they did was these tame briefings,

by the way, they could have done and
usually have done historically, have done.

Have acted on a mid-year budget
or had a budget briefing.

They didn't do that.

And it's probably because of the chaos
around all the numbers as it relates

to the reorg that they probably just
didn't wanna touch that as a reminder.

NCOA takes August off as a board.

They don't have a board meeting.

They could, but they don't historically.

'Cause that's when DC kind of shuts down
and, uh, they'll be back up in September.

Then they've got four months,
September, October, November,

December to theoretically.

Get new board members in place
to theoretically have a budget

to theoretically have a budget
briefing, which is, uh, required

by the Federal Credit Union Act.

Due to the good lobbying by Mark Warner,
uh, the Senator from Virginia to get

that act placed back several years ago.

Alright, that's it.

This is, uh, mark TriCal.

As always, I appreciate you listening.

I hope you'll listen again soon.

Signing off with flying colors.