Auditors Fault NCUA's Accounting
KPMG gave the NCUA an unqualified audit but found material weaknesses in the reporting and documentation methods.
Increased assessments to credit unions and investment income led the revenue of the NCUSIF to more than double last year. The fund's revenue was $949.6 million last year, compared with $395.7 million in 2008.
The 28 credit union failures cost the fund $161.7 million last year. In 2008, the 18 failures cost the fund $246.6 million. The fund ended last year with $758.7 million in reserves.
NCUA Chairman Debbie Matz said the 2008 and 2009 audits-which had been delayed because of the problems facing the corporate credit unions--came back "clean," without qualifications and indicate that the credit union community "can be assured that the agency's finances remain strong."
However, the agency's outside auditors strongly criticized some of its accounting and documentation methods. NCUA officials said the additional work load over the last year cause a delay in the audits that were released on June 14.
The NCUSIF "does not have sufficiently comprehensive policies and procedures that document control activities and monitoring functions that should be embedded and/or performed within the financial accounting and reporting process," according to the report by KPMG.
The agency lacks adequate staffing with the necessary expertise and needs to improve "the overall core competencies of key financial management and personnel," according to the audit.
In response, the agency promised to "review and refine" its internal control procedures and promised to hire additional staff to make up for some of the gaps in expertise on its current staff.
Mary Mitchell Dunn, CUNA senior vice president and deputy general counsel, said she hopes the agency makes the necessary changes because "credit unions don't want a regulator with accounting practices that are problematic."
Carrie Hunt, NAFCU senior counsel and director of regulatory affairs, said the possible increase in the agency's staff size "has the potential to be a concern. We want the agency to have appropriate staffing levels, but that doesn't necessarily have to mean more personnel. They can decide to not fill certain positions to make up for the new positions being created elsewhere."
The audited report also showed that the Central Liquidity Facility, for which Congress temporary lifted the borrowing cap, had outstanding loans of $18.4 billion. The CLF approved a $10 billion advance to the NCUSIF to stabilize U.S. Central and WesCorp.?KPMG said the facility's cash flow statements were incomplete in several key areas, including not reporting $5.9 million in movement related to cash equivalents.
CLF President J. Owen Cole wrote the auditors that he agreed with the recommendations, and the facility has implemented the recommended changes.
Last year, the NCUA's operating fund collected $81.7 million in operating fees and had an overhead transfer rate of 53.8%. In 2008, it received $72.4 million, and the overhead transfer rate was 52%.
But KPMG said the documentation was often lax and the financial statement reviews conducted by the fund's managers "were not performed at a level of detail that would reasonably detect or identify financial statement errors and missing disclosures and, in part, the individuals performing the review did not possess adequate training and/or institutional expertise that would enable effective performance of such reviews."
The agency promised to "review controls where the availability of documentation appeared limited and strengthen processes accordingly."
The Community Development Revolving Loan Fund had $13.2 million in outstanding loans at the end of 2009, compared with $10.6 million at the end of 2008.
The audit noted that there was a "material weakness" in the way the fund handled cash and reconciled its books. These included not recording the congressional appropriation for the fund, which resulted in the understatement of cash in the fund balance by $1.2 million.
The audit used the same language to criticize the Development Loan Fund managers' financial statement reviews and expertise.
The NCUA responded that it "generally agrees," with both conclusions and has since changed its business process so receipts and disbursements are recorded in accordance with generally accepted accounting principles. The agency also promised to establish procedures which require supervisory review and approval of financial statements, journal entries and supporting documentation.