Six Essential Steps for Passing Your Next NCUA Examination
You want to pass your next NCUA exam with flying colors, but not sure where to begin? Here are six important steps that your credit union needs to follow to ensure that you are ready for the examiners when they show up on your doorstep.
Start Preparing Early
One of the biggest mistakes that I encounter with credit unions when it comes to NCUA examinations is that they often wait until it’s too late to start preparing for the exam. I’ve seen this lead to longer than expected examinations, findings, Documents of Resolution (DORs), onerous corrective actions, and other regulatory demerits. Think about it. If an issue is found with balancing to your ledger, how long would you estimate it would take to correct it? First, you would need to find what’s causing the discrepancy. Depending on how long it has been since your ledger has balanced to your Lending Insights data, you could find that there are several contributing factors. Hunting down each issue could take weeks, sometimes months to fully reconcile.
Review Examination Reports from Previous Exams
This is the first place examiners will look! Start with previous DORs and findings to ensure that all root causes have well documented corrective action in place. Review and audit policies and procedures to ensure that the new controls are being adhered to by staff, and metrics are in place to demonstrate their effectiveness.
It is equally important to review older examination documents as well. Ensure previously issued DORs and findings have not resurfaced in your program, as these could fall into the category of systemic, reoccurring or willful neglect.
Balance to the Balance Sheets
In my experience this is the most critical piece of a NCUA exam. Examiners are trained to make balance sheet variances a focus of their examinations. It is critically important to identify balance sheet discrepancies and the underlying cause. Some of the more common issues that the Lending Insights team sees when it comes to variances on the balance sheets are the exclusion of certain loan categories. Also, we often find gremlins in the charge off data. Are you including recoveries in your balances across the organization or only in specific areas? Ideally, any discrepancies would be corrected before the examination and policies are updated to address them so that it does not emerge again in the future.
Be Prepared to Tell the Story
There is no “One Size Fits All” credit union and therefore no two credit union’s challenges, goals and strategies are the same. You must be prepared to tell and defend your credit union story. The story must be a trilogy – where you were, where you are and where you are going. This story can’t just be words; the documentation has to support it. All areas of credit union management (including the Board of Directors) should be involved in formulating the story. This demonstrates to the examiner that you are in control of the management of your credit union and have identified areas to improve and strategies to achieve the improvement.
In a recent conversation, an Indirect Lending Manager told me that he initially received grief from an examiner for his concentration levels in the subprime risk category for auto loans. Because he knew this would raise a red flag with the examiner, he was prepared to tell this part of the story by using Lending Insights to provide historic loss, loss timing, and profitability reports. This demonstrated that his strategy was safe and sound, and that the necessary controls were in place to continue to monitor this segment of the portfolio to ensure positive performance and profitability.
Know What the Examiner is Looking For
Did you know that the NCUA publishes an annual Supervisory Priorities Letter announcing what their focus is going to be? This allows you to be proactive well in advance of the examination to ensure you have all of your ducks in a row.
Also, for each Lending Insights implementation, we set up Best Practice reports in the Favorites section in each module of the most common types of reports that NCUA examiners look for during their examinations.
Let Us Know
Did you know that CU Direct’s Lending Insights provides escalated support for credit unions during their NCUA examination? When you let us know in advance that you are expecting an NCUA exam, we will be standing by to assist to answer any questions, prioritization data file processing and help with running reports.