Credit Union Exam Solutions Presents With Flying Colors

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The NCUA Office of Inspector General (OIG) did four limited reviews of credit unions that failed: Teamsters Local 92 Federal Credit Union in Canton, Ohio; Team Financial Federal Credit Union in Houston, Texas; North Bay Credit Union in Santa Rosa, California; and Copper and Glass Federal Credit Union in Glassport, Pennsylvania. They are OIG Reports 26-06, 26-07, 26-08 and 26-10.

Three ended in assisted mergers. Copper and Glass went to conservatorship and liquidation. The losses to the National Credit Union Share Insurance Fund (NCUSIF) totaled $8.62 million, and 83 percent of that came from the two big ones, North Bay and Copper and Glass. None of the four hit the statutory material loss threshold, which is why the OIG did a limited review. Jackson Area will be different — that one they’re going to have to do.

I downloaded all four reports and pulled out ten failure themes, scored as central finding, indicator, or not raised. The scoring is my take on their words. Four themes were central in every report: unreliable books or no reconciliation, weak internal controls and segregation of duties, thin or inexperienced staff, and board and audit oversight gaps. The basics broke everywhere, and the exotic broke once.

In this episode:

•     Why NCUA has zero tolerance for accounting issues — and why it does an exam, not an audit

•     What fewer exam visits mean for a well-run credit union, and for the insurance fund

•     Two-person staffs, relatives on staff, and a teller cited for insider transactions who was promoted to manager with sole access

•     Eight years on a fictitious fidelity bond at Team Financial

•     How each problem surfaced: a regular exam, a call to the OIG fraud hotline, a joint exam with the state — and 60 months at Copper and Glass

•     North Bay’s complexity pattern: a fintech subsidiary, a cannabis CUSO, a core conversion, and commercial loans over statutory limits

•     If you’re acquiring a failed credit union, why I’d usually take it as a liquidation rather than a merger

•     What the OIG memos don’t tell us, including the CAMELS path

•     Eight questions to ask your board this quarter

OIG reports are on the NCUA website under About Us:  https://ncua.gov/about/inspector-general

Mark Treichel spent 33 years at NCUA, eight as Executive Director, and now helps credit unions work through NCUA exams, Documents of Resolution (DORs), and enforcement matters at Credit Union Exam Solutions (CUES).  www.marktreichel.com