ALEXANDRIA, Va.-While the Deloitte and Touche study of the overhead transfer rate found no abnormalities in NCUA's setting of the transfer rate from the insurance fund to cover insurance-related expenses, it did suggest the agency tweak a few things. Last year the NCUA Board voted to raise the overhead transfer rate from its historic 50% to 66.72% for fiscal year 2001 and authorized the independent study at the same time. In order to determine where the overhead transfer rate should be set, NCUA's Office of Examination and Insurance conducts a survey of select examiners asking how many hours they spend on regulatory and insurance-related items. First, the study observed that NCUA should "develop a strategy for conveying growing focus" on insurance-related matters to the interested trade groups. Additionally, NCUA senior management should stress the importance of its survey of time spent on regulatory and insurance-related items and consider using technology, such as Web conferencing, to share information across the credit union community and agency personnel. As far as the timing of the survey, the CPA firm suggested the time of year in which the survey is completed be varied and that the survey be incorporated into NCUA's automated examination system. The study also recommended that the agency perform online training for the survey as part of examiners' overall training, as well as automating time accumulation sheets to break down each examination for accuracy and potentially reduce costs. "In particular, the Principle Examiners found that it was difficult to allocate time spent after the fact and felt that having an opportunity to review the survey's content prior to performing examination would be beneficial," the study found. The study by the CPA firm also suggested that NCUA should update the survey's definitions of insurance related and regulatory activities and reduce the use of "other" as a possible answer on the survey. Deloitte and Touche said in interviewing the survey participants, "[W]e also learned that the definitions of insurance versus regulatory-related activities were not always clear." NCUA should provide examples to illustrate exactly what information the agency is interested uncovering. Additionally, a help line and a frequently asked questions list should be provided to help with the survey. The accounting firm did find a few minor typographical errors in NCUA's survey results, but nothing that would strongly affect the calculation of the overhead transfer rate. While the independent study of the NCUA's overhead transfer rate indicated that the agency is on track with its methodologies of setting the transfer rate, it did not tackle the more substantive issues. Even while suggesting the definition of insurance related versus regulatory activities be updated, the study did not offer, and was not charged with offering, specific recommendations for definitions. These definitions, or the lack of understanding of them, have been a sore point between the agency and the regulated, regarding the division of time and resources between the two. "Auditing firms don't dabble in substantive matters." CUNA General Counsel Eric Richard commented. It was not the accounting firm's duty to define insurance-related matters and what resources should be allocated. NAFCU Senior Vice President and General Counsel Bill Donovan agreed, adding that Section 203 of the Federal Credit Union Act provides the agency "a broad grant of discretionary authority" and that "in the absence of abuse.that authority should be respected." NAFCU Communications Manager John Zimmerman also pointed out that the study found NCUA was getting better at defining "insurance related" and the agency is taking risk more into account. "Comparing the definition between the 1994, 1997 and 2000 surveys indicates an increasingly greater level of detail for the two categories as well as more examples of categories to assist the respondents in the 2000 survey," the study read. The increase in the overhead transfer rate caused great controversy last winter between federal and state chartered credit unions and their respective lobby groups. When the overhead transfer rate is increased, operating fees paid by federal credit unions drop. State chartered credit unions have stated through representatives that they feel they are unfairly subsidizing NCUA to regulate federal credit unions (See related story). The study points out that there are some things state regulators do receive from NCUA, such as free examiner training. While state chartered credit unions do not pay funds directly to NCUA, the dividends returned on the 1% investment of all federally insured credit unions paid into the National Credit Union Share Insurance Fund are diminished when the overhead transfer rate increases. Now that NCUA has received the results from Deloitte and Touche, NCUA Chairman Dennis Dollar has said that NCUA is working overtime to develop a "cost equity formula" to make the overhead transfer process "more efficient and equitable." He added that doing so can help protect NCUA's effectiveness as a safety and soundness regulator and insurer in the future. The overhead transfer rate weighs heavily in the agency's budget. The NCUA's increasing budget has been as controversial as the setting of the overhead transfer rate. "A reduction in the budget has an implication on who pays what," NAFCU Chief Economist Tun Wai explained. NCUA held an open forum for public discussion of the agency's budget November 1 (See related story page ?????). [email protected]