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ALEXANDRIA, Va.-NCUA received comments from credit unions and their trades, a banking trade association, CPAs, and others regarding attestations on internal controls for credit unions and their responses were all over the map. “After careful consideration, NAFCU is unconvinced that the benefits gained from an attestation on internal controls requirement would surpass the demonstrated efficacy of existing requirements in part 715 or outweigh the potentially debilitating implementation and maintenance costs,” NAFCU President and CEO Fred Becker wrote on NCUA’s Advance Notice of Proposed Rulemaking. CUNA and many other commenters agreed on the cost argument. “Attestations would be particularly time-consuming, inefficient and costly for smaller credit unions,” CUNA Senior Regulatory Counsel Catherine Orr wrote. Founders FCU ($4.5 million) President and CEO Bruce Brumfield supported attestation for credit unions over $1 billion in assets. “Since the one percent of credit unions with total assets in excess of $1 billion represents 34% of the total assets of credit unions (CUNA 12/31/04), requiring the attestation of this group of large credit unions should provide the necessary risk coverage to safeguard the underlying insurance system and the credit union members it is designed to protect without requiring attestation of those credit unions under $1 billion.” Accounting firm Seldon Fox, Ltd. also supported this position. Those who opposed the attestations generally said that if NCUA were to approve a rule requiring them, the minimum assets size requirement should be $1 billion, equal to FDIC-insured institutions. From the perspective of the corporate’s corporate, U.S. Central CEO Francis Lee stated, “By their nature and structure alone, corporates are so distinct from banks and public companies that neither they nor their members nor their regulators have any need for, or would derive any benefit from, the Proposed Requirements.” A group of nine state credit union leagues that wrote the agency jointly acknowledged the recommendation of the Government Accountability Office and other governmental pressures, but “we absolutely do not see any benefit to the credit union movement having audit requirements more stringent than other types of financial institutions.” The letter continued, “The regulatory environment for types of financial institutions other than credit unions must heavily focus on financial performance to appease a limited number of stockholders that have a very intense interest in financial performance. In addition, other types of financial institutions must have access to various capital markets requiring financial reporting beyond the level needed for most credit unions. The primary users of financial statement data and reporting for financial institutions other than credit unions are myriad and would seek additional assurance on the adequacy of financial reporting to make sound investment decisions. “The same benefits to added levels of assurance on financial reporting would not accrue to members of most credit unions. The additional costs and resources allocated to the proposed higher levels of assurance on financial reporting would only benefit regulators and not the individual members of the credit union industry.” The $1.2 billion Think Federal Credit Union said it was unfair for the largest credit unions to shoulder additional burden. Vice President and Controller Daniel E. Beck wrote that not only do attestations lack a place in the credit union structure, but, “We believe that suggesting the setting of a minimum asset size for requiring an attestation of internal controls unduly places the burden on only the large credit unions. We would also suggest that the larger credit unions normally maintain better internal controls as the size allows for more separation of duties and review of controls, processes and procedures. The non-public banks have set the minimums at $1 billion in asset size, which is probably as good a cutoff as any, if one must exist.” America’s Community Bankers submitted that the credit unions should have the same safety and soundness protections as banks and thrifts. “It is important that credit union regulatory requirements reflect the changes in the credit union industry. Due to the concentration of credit union assets in large credit unions, the NCUA needs to have a thorough understanding of a credit union’s internal controls. We believe that requiring management and external auditors to report on the internal control structure and procedures would help the NCUA better ensure the safety and soundness of the credit union industry.” At the same time, ACB, the American Bankers Association, and the Independent Community Bankers of America issued a joint statement supporting a recommendation from the Securities and Exchange Commission’s Advisory Committee on Smaller Public Companies to exempt certain small businesses from Section 404 of the Sarbanes-Oxley Act, which is roughly equivalent to NCUA’s ANPR. Under the recommendation, (1) companies with a market capitalization under $128 million and less than $125 million in revenues would be classified as “micro-cap” companies and would be exempt from internal control and outside auditor requirements; and (2) companies with a market cap of between $128 million and $787 million and revenues of less than $10 million would be classified as “small-cap” companies and would be exempt from the outside auditor requirement. On the subject of supervisory committee minimum requirements included in the ANPR, CUNA called up one of the basic philosophies behind credit unions. “The use of volunteers is unique to credit unions, so far as financial institutions are concerned. No policy should be adopted that reduces the volunteer element, which overall is one of the great strengths of the credit union system,” Orr’s letter read. NAFCU pointed out that standards should really be developed based upon the credit union’s risk profile. However, if the NCUA Board does adopt basic requirements, they should be very flexible in order to meet individual credit union’s needs. Think FCU’s Beck stated that setting minimum requirements for supervisory committee members is hazy. “The fact that Supervisory Committee members cannot be compensated limits our field of choice. Many times, other, non-financial skills can be as important or more important in fulfilling their role,” he wrote. Again, he reasoned that larger credit unions should not bear the brunt of new requirements. “We would also suggest that asset size should not be a determining factor. It is our belief that it can be more important for a smaller credit union to have the expertise on the Supervisory Committee. Many smaller credit unions do not have the access to as many resources such as an internal audit department.” -

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