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 enabling examiners and credit unionsto exchange information.

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Fazio also explained new exam procedures for credit unions withless than $50 million in assets during a GAC breakout sessionfocused on examiner priorities and exam concerns. He alsohighlighted improvements that resulted from a new policy involvingexam findings and documents of resolution implemented lastyear.

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“One of the things we are trying to fast-track is the portalthat would allow examiners and credit unions to share informationback and forth in a secure way and in a much more convenient andfacilitated way,” Fazio said.

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Fazio added that the AIRES revamp may take up to two years tocomplete, but he hopes the portal will be operational sooner.

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The goal of the AIRES modernization project is to make the examprocess is much more effective and efficient, Fazio said. Upgradingthe AIRES system could mean examiners would only need to visit acredit union when they were required to meet with credit unionexecutives.

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“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.

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He said the NCUA will build AIRES in a way that is modular andtakes advantage of off-the-shelf products.

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Fazio also discussed NCUA's new exam procedures for small creditunions with less than $50 million in assets. Examiner training forthis new process is expected to be completed by the end ofMarch.

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“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.”

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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.

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Since implementing a policy last year on exam findings and DORs,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.

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

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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.

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“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.”

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DORs also can be issued by examiners when major or systematicviolations of regulations are detected Examiners are required tofollow up on DORs to ensure they have been resolved.

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Fazio reminded credit unions that NCUA's current policy alsorequires examiners to cite a regulation, act or other authoritativepolicy when they issue DORs.

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

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

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

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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.

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“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.”

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