WASHINGTON – Larry Fazio, director of the NCUA Office ofExamination and Insurance, said the federal agency will bemodernizing AIRES, its technology platform used to conduct examsthat will feature a new portal that enables examiners and creditunions to exchange information.

Fazio also explained new exam procedures for small creditunions with up to $50 million in assets during his presentation ata breakout GAC session Tuesday focused on examiner priorities andcredit union exam concerns. He also highlighted some improvementsthat resulted from a new policy involving exam findings anddocuments of resolution that was implemented last year.

“There are a lot of technological things we got to do to makeAIRES happen,” Fazio said. “One of the things we are tryingto fast-track is the portal that would allow examiners and creditunions to share information back and forth in a secure way and in amuch more convenient and facilitated way.”

Fazio said the AIRES revamp may take up to two years tocomplete, but he hopes the new portal will be up and runningsooner. He did not say when the portal may go live.

The goal of the AIRES modernization project will be tofacilitate more up front interactions with credit unionselectronically so that the exam process is much more effective andefficient, Fazio said during the breakout session that discussedexaminer priorities and credit union exam concerns. Upgrading theAIRES system could also mean examiners would only need to visit acredit union when they were required to meet with credit unionexecutives.

“Most of it (the exam) should be able to be done off-siteelectronically through a much more secure portal and an informationexchange process, so (there will be) more to come on that,”Fazio said. “Stay tuned. I'm pretty excited about that one inparticular.”

He said the NCUA will be looking at building AIRES in a way thatis modular and takes advantage of off-the-shelf products.

“Instead of reinventing the wheel, we want to use some of thesame technologies that credit unions use to look at the risk ofcredit union portfolios and do it in amore automated way,” hesaid.

Fazio also discussed NCUA's new exam procedures for small creditunions that manage up to $50 million in assets. Examiner trainingfor this new process is expected to be completed by the end ofMarch.

“We've really narrowed the scope of the exam down to recordkeeping, internal controls and fraud red flags to really targetsome of the issues that tend to get smaller credit unions introuble,” he said. “Going forward, we hope that will also make theexam process for small credit unions more effective andefficient.”

The new exam process also will require examiners to take adeeper look at red flag issues. The depth of those exams willdetermine the areas of concern.

Since implementing a policy last year on exam findings and DOR,Fazio reported the NCUA has seen an 18% drop in DORs. However,he could not say whether the current policy is solely responsiblefor the reduction.

The current policy requires exam findings and DORs to be keptcompletely separate.

He said when examiners identify an issue, they need to decidehow material it is, and that some findings are issues than can becorrected by the credit union and require no follow-up fromexaminers. DORs are more significant issues because they canthreaten the safety, soundness and viability of the credit union,he said.

“If findings are not resolved and are minor, they won't beelevated to DOR,” he said. “However, if it represents somesystematic weakness in management or some other concern then itmight be elevated to a DOR.”

DORs also can be issued by examiners when there are major orsystematic violations of regulations or bank secrecy actviolations. Examiners are required to follow up on DORs to ensurethey have been resolved.

Fazio also reminded credit unions that NCUA's current policyalso requires examiners to cite a regulation, act or otherauthoritative policy when they issue DORs.

“They can't say it's a best practice or something the creditunion down the street does,” he said.

Examiners are allowed to share best practices with credit unionsinformally, but they are not allowed to include them in the examreport or classify best practices as DORs, he said.

Currently, about 52% of federal credit unions have not beenissued DORs, while 48% of federal credit unions have been issuedDORs, according to the NCUA.

Fazio also noted examiners are undergoing extensive training tolearn how to communicate with credit union management teams, thoughhe said the effects of that training will take some time.

“There should be no surprises,” he said. “You shouldn't show upat a joint conference and be surprised by something an examinerbrings to the table with the board of directors.”