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Riverdale, Utah – Open communication and a close liaison between supervisory committees and internal auditors is practical and can prove productive regardless of the 2002 Sarbanes-Oxley law, according to a top audit executive for America First Federal Credit Union in Riverdale, Utah. Retaining an open dialogue between auditors and the supervisory committee bars “surprises” and so “the transparencies” of CU functions and practices become evident, declared Randy Manscill, vice president and chief audit executive for the $2.8 billion Ogden, Utah CU. Besides the openness the relationship fosters, remember “you are partners” working for the common good of the CU, said Manscill who spoke on the topic at a “Governance” session at the annual Directors Conference of the Credit Union Executives Society in December. In his CUES talk and in response to numerous audience questions, Manscill defended America First’s retention of a dual reporting system in which he answers to both the CEO and the supervisory committee. He told CUES directors that a conflict has yet to arise and his CEO, Rick Craig, has assured him that if “he finds something” in the operation of the executive branch, “you investigate.” .On this very topic, Manscill said a survey by the 350-member Association of Credit Union Internal Auditors showed half report solely to the supervisory committee and half report to both the CEO and the committee. Manscill said his performance at America First is indeed finally judged by Craig, but the committee can have input into the process. Manscill also disclosed that he meets once a year “alone” with the full America First Board of Directors and the session consistently proves fruitful to him. In line with governance provisions in Sarbanes-Oxley, the Utah auditor urged CUES directors to consider writing a supervisory committee “charter” as America First has done to give members a clear rundown of purpose, duties, composition and meeting times. For instance, at America First the charter states that the Supervisory Committee consists of at least between three to five independent members with the board appointing one of its own to serve on the committee. No employee can serve on the committee. America First also states its board will determine the number of committee members, the length of regular terms and that each committee member “will be both independent and financially literate” and that at least one member shall be designated as the “financial expert.” “This kind of best practices goes a long way,” said Manscill in fulfilling the intent of Sarbanes-Oxley. He said also that a CU with an internal auditor on board – particularly like the arrangement at America First – opens doors for that officer to examine functions in some departments which might seek to block intrusion. He said his CEO goes to bat for him to make sure there are no such barriers. Discussing the composition of CU boards, Manscill urged committees be in place to focus on “risk areas” and “one thing you should make sure you have is the asset-liability committee.” That panel should be meeting at least once a month to review CU policies, he said. In addition, there should be an information technology committee as well as a “governmental affairs” committee, which recognizes the importance of political activism by directors. That’s an issue which became rather important for his own Utah CU, the target of strident banker attacks in recent years and seems certain to arise in other states, he forecast. Like other CUs, America First is “phasing out credit committees,” he noted. When it comes to “ethics and integrity” for the institution and its board, the “tone at the top” is dictated by the CEO and top managers, said Manscill suggesting also there be a mechanism for feedback and even a “hotline” to protect against questionable practices. But discussing supervisory committees, he said “the more independent they are” the better off the institution will be and yet, the panels need to “know what is going on in the institution.” In his talk, Manscill, who is a director of the Association of Credit Union Internal Auditors, also noted the problems CUs have with hiring and retaining qualified internal auditors. The pay scale at banks is sometimes higher and thus there can be “high turnover” as a result prompting CUs to ensure compensation is competitive. The America First auditor, whose talk was entitled “Governance: Life After Enron” also cautioned CUES directors to make sure that external auditors hired for CUs are “free from conflicts of interest and there is a periodic bid process” in selecting the firms. -

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