The NCUA-managed U.S. Central Federal Credit Union released its 2008 audit late in the afternoon on Sept. 11 as NCUA Chairman Debbie Matz was packing her bags for a town hall tour to discuss the future of the corporate network.

Unfortunately, the end of the week release created confusion for credit unions and the media, who were left to interpret the 50-page report's complicated charge-backs and reversals on their own.

U.S. Central Chief Financial Officer Kathy Brick sent an early morning Sept. 14 e-mail to U.S. Central members, apologizing that they weren't given access to the audit before the public and press.

Confusion over the bottom-line audit results became such a problem, it forced the NCUA to release a statement from Matz to clarify: the $27 billion U.S. Central did not lose any additional capital.

“The capital depletion figures, as reported by U.S. Central through June 30, 2009, have not changed. The depletion of all paid-in capital and 63.7% of membership capital shares remains valid,” said Matz in the statement.

Auditors Deloitte and Touche did determine the one bond required impairment to the tune of $9.2 million. That amount will be recognized in third-quarter financial statements, said Scott Hunt, from the NCUA's Office of Corporate Credit Unions. The OTTI will have little effect on U.S. Central's financial position because the wholesale corporate is generating enough income to quickly cover the amount.

With the exception of the $9.2 million, all newly recorded losses as of Dec. 31, 2008 were already recognized on U.S. Central's books in 2009, Hunt said. He called the accounting entries “just a timing difference,” saying nine months of perspective provided Deloitte & Touche with “the benefit of making a Monday morning quarterback call.”

U.S. Central's audit passes the capital hot potato down to retail corporates, which must now consult with their own auditors and adjust their capital to cover for U.S. Central's losses in 2008 and so far this year as well as their own investment losses. Most corporates have delayed recording any capital impairments until the Lenexa, Kan.-based credit union's figures had been fully audited.

Representatives from five of U.S. Central's retail corporate members-Corporate One Federal Credit Union, Southeast Corporate Federal Credit Union, Mid-Atlantic Corporate Federal Credit Union, First Corporate Credit Union and Members United Corporate Federal Credit Union-all said they have already, or will very soon, forward the U.S. Central audit to their own audit firms. Several said they expect to release their own 2008 audited financial statements and adjusted 2009 statements within the next two to four weeks.

When asked if they will follow the NCUA's guidance to deplete capital 63%, all said they have no reason to doubt U.S. Central's numbers. However, the decision to impair capital is for corporate auditors to decide.

Members United's Todd Adams did go on the record supporting the NCUA's guidance. He said the corporate is following NCUA guidance regarding depletion of capital from the impact of U.S. Central and its own investment OTTI. “Further charges related to U.S. Central beyond their announced charges to capital will be decided by discussions with our outside auditors.”

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