TABLE OF CONTENTS - National Credit Union …

1 TABLE OF CONTENTS chapter 1 -- INTRODUCTION Why update this guide ? What approach have you taken in revising the guide ? Who will benefit most from this guide ? Does this guide apply to FISCUs? Is this guide directed to the Credit Union having a manual or automated system? Is this guide all we need? chapter 2 -- WHAT IS A supervisory COMMITTEE? What is a supervisory committee? How is the supervisory committee appointed? What are the qualifications to be appointed to the committee? What actions may the supervisory committee take with other board and committee members? Who is required to maintain records of all actions taken by the supervisory committee? Is Credit Union information confidential? chapter 3 -- WHAT STANDARDS MUST WE MEET IN PERFORMING THE AUDIT AND VERIFICATION? What standards must we meet in performing the audit and verification? How qualified do we have to be?

2 How accurate must we be? How do we control the work? How much detail must we go into? What files must we make and keep? What is independence and must we be independent? What happens if we fall short of these standards? supervisory Committee guide , Change 1 TABLE OF CONTENTS (continued) chapter 4 -- WHAT ARE OUR RESPONSIBILITIES? What are our goals and responsibilities? What, then, must we do? What should we know about the annual audit? What should we know about the verification of member s accounts? How do we ensure that the board of directors is safeguarding assets, and that management complies with its policies and plans? What are internal controls and how do we review them? How do we manage and structure an internal audit function? How do we manage and structure an external audit function? What should we consider when looking at internal versus external auditing? How do we follow-up on examinations and audits?

3 What should we expect when meeting with the federal examiner? How do we handle member complaints? What other procedures should we consider? Are there any other resources we can use? What records can we access? What do we need to document? What if we find problems? How do we coordinate our plans into a program? Appendix Sample supervisory Committee Workplan chapter 5-- WHO MUST DO THE AUDIT? Who may do an audit or verification? What types of audit services satisfy the annual supervisory committee audit requirement? What must an audit involve? Who hires the auditor? What is the purpose of an engagement letter? Who signs the engagement letter? TOC - 2 supervisory Committee guide , Change 1 TABLE OF CONTENTS (continued) What is required in the engagement letter? What should be included in an engagement letter of a supervisory committee audit which does not address all of the required procedures? Who receives the written report from the compensated auditor?

4 Who is responsible to ensure that the independent, compensated auditor and the auditor s reports comply with the terms of the engagement letter? Who prepares the audit report if the supervisory committee or uncompensated representative completes the audit? Who has access to the written supervisory committee audit report? Who is responsible for reviewing compliance with the Bank Secrecy Act? Appendix 5A Sample engagement letter. chapter 6 -- SHOULD WE HAVE AN INTERNAL AUDIT FUNCTION? Who should have an internal auditor? How can an internal audit function assist us? What are our responsibilities with regard to the internal audit function? What are the board of directors responsibilities? How do we go about hiring an internal auditor? What qualifications should our internal auditor have? What is the audit plan and what should it include? What reports should the internal auditor prepare for us and to whom should we deliver them?

5 TOC - 3 supervisory Committee guide , Change 1 TABLE OF CONTENTS (continued) chapter 7 -- WHAT STEPS MUST WE TAKE TO COMPLETE THE AUDIT OURSELVES? What is involved in doing the audit ourselves? Why are sound internal controls important? How do we learn about the Credit Union s internal control structure? Could you discuss further the three elements of an internal control structure? What is involved in planning the audit? What is materiality? What should be our focus when reviewing internal controls? What audit testing is necessary and most effective? What should be the focus of our testing? What additional audit tests may be necessary? For cash? For investments? For loans? For shares? How do we review related party transactions? What reports should we review as part of the audit if the Credit Union has an EDP system?

6 What are the considerations in audit planning for manual Credit unions? What are some of the main audit concerns with manual Credit unions? What other issues must we review in the audit stage? TOC - 4 supervisory Committee guide , Change 1 TABLE OF CONTENTS (continued) chapter 8 -- HOW DO WE AUDIT CASH? What general ledger accounts are part of the cash area? What off balance sheet cash items need to be audited? What are the general objectives in auditing cash? How do we learn about internal controls over cash? How do we audit cash in the bank? How do we audit the change fund? How do we audit petty cash? How do we audit wire transfers? How do we audit travelers checks? How do we audit money orders? Appendices 8A Internal Control Checklists. 8B Cash-in-bank Account Reconcilement Form. 8C Receipts To Deposit Test Form. 8D Sample Confirmation Letter For Cash-in-bank Accounts. 8E Cash Count Sheet. 8F Change Fund Recap Form.

7 8G Travelers Check Inventory Form. 8H Sample Confirmation Letter For Travelers Checks. chapter 9 - HOW DO WE AUDIT INVESTMENTS? To help us get started, could you provide us some background on investment assets? What are our audit objectives? What are our audit procedures? How do we test internal controls? How does management classify investments? How do we verify the accuracy of the general ledger accounts? How do we verify investment accounts with supporting records? How do we verify the balances listed on the investment report? TOC - 5 supervisory Committee guide , Change 1 TABLE OF CONTENTS (continued) How do we review the premium or discount? How do we determine whether accrued income is reasonable? How do we confirm the ownership and existence of investments? How do we verify the accuracy of the investment fair value section on the financial statements? How do we verify the accuracy of the investment maturity breakdown on the financial statement?

8 What do we need to document? What if we determine through testing that internal controls are not working as intended? Appendices 9A Internal Control Checklist: Investments 9B Investment Control Worksheet Instructions Investment Control Worksheet 9C Standard Investment Confirmation 9D Securities Confirmation 9E Broker Account Confirmation chapter 10 -- HOW DO WE AUDIT LOANS? What is our audit objective? How do we learn about the Credit Union s system of internal controls over the lending activity? What are some additional considerations in reviewing internal controls over the lending function? What audit procedures must we perform? How do we audit record keeping? How do we review loan policies? How do we determine our loan sample? How do we document our review? Are the loan terms within policy and/or regulations? Is the loan properly documented? Is the borrower willing to repay the loan? TOC - 6 supervisory Committee guide , Change 1 TABLE OF CONTENTS (continued) Is the borrower able to make the loan payments?

9 Could you discuss with us the sample workpapers appended to this chapter ? Appendices 10-A Loans Internal Control Checklist 10-B Trial Balance of Members Loans Workpaper 10-C Loan Review Workpaper chapter 11 -- HOW DO WE REVIEW THE ALLOWANCE FOR LOAN LOSSES ? What is the Allowance for Loan and Lease Losses? Who is responsible for the ALLL? In our role of validating the methodology, would you clarify what you mean by methodology ? What are these common elements an ALLL methodology should have? In our role of overseeing and monitoring internal controls over the ALLL process, what should we focus on? What sorts of ALLL policies and procedures should we expect to find? Could you elaborate on the rules that govern establishing an ALLL? Could you expand on the requirements in relation to the ALLL under FAS 114? Could you expand on the requirements in relation to the ALLL under FAS 5? What documentation standards should the Credit Union meet?

10 Could you be more specific concerning the documentation of ALLL methodology in written policies and procedures? Is there a lesser documentation burden for small Credit unions? Could you provide some guidance on the process of consolidating the loss estimates? What should we focus on in validating the ALLL methodology? TOC - 7 supervisory Committee guide , Change 1 TABLE OF CONTENTS (continued) What documentation do we need to support the validation process? Appendices 11-A ALLL Questions and Answers 11-B Allowance for Loan Losses Workpaper 11-C Allowance for Loan Losses Checklist chapter 12 -- HOW DO WE AUDIT FIXED ASSETS? What general ledger accounts are part of the fixed asset area? What is the limit for fixed assets for a Federal Credit Union ? Why are internal controls over fixed assets important? How does the supervisory committee review the internal controls over fixed assets? What are the audit objectives for fixed assets?