Design an effective supervisory committee

Your supervisory and audit committees are under increasing pressure. In many parts of the country, examiners have ramped up their review and expectations of the supervisory committee.

As credit unions have become more complex, it has become more challenging to keep up with regulations, product and service offerings, delivery systems, and security threats.

Some challenges we’ve observed during our interactions with boards and these committees:

• Recruitment. It’s not uncommon to see higher turnover among the committees, and it’s challenging to find and retain people who have the right aptitudes, skills, and desire to serve.
• Consistency. Volunteering isn’t easy. It requires a high and consistent level of commitment.
• Scope of audit. Many committees are working from old scope of audits, or audits that are no longer current or lack the red flags for fraud, regulatory issues, or other risks that have emerged. Audits need to remain relevant to current and emerging risks.
• Depth of training. Board members must go beyond surface-level training to ensure they know the potential underlying risks of what they are auditing.

Consider these five recommendations when building your credit union’s supervisory and audit committees:

1. Recruit and train. Consider leveraging your commitment to community and social impact to attract millennial volunteers. According to the 2016 Millennial Impact Report, most millennials believe they can have an impact and make the country a better place to live.

Insist on regular training for supervisory committee members to ensure they have the skills necessary to carry out their responsibilities. This includes having a board training budget and communicating your expectations.

Provide timely and thorough onboarding for new members to get them up to speed quickly. Make sure training clearly identifies roles and responsibilities for committee members.

2. Be timely and consistent. Establish a regular and reoccurring meeting time, and commit enough time to complete an appropriate level of oversight.

It’s difficult to have consistently thorough audits when the committee meets for one hour per month. The time invested by the committees should be commensurate with the complexity of the credit union and potential risks.

3. Consider the scope of work. Ensure that the board and management have established appropriate practices and procedures to properly safeguard assets.

The committee must also ensure an appropriate level of audit to check the accuracy and reliability of accounting data, and that management has established effective internal controls.

Conduct an account verification at least every two years. In addition to an annual external audit, conduct an internal supervisory committee audit on a consistent schedule. Retain all internal audit documents.

4. Communicate. Communication with auditors is important. Review reports and materials ahead of time. Use the review session to ask questions, get auditors’ perspective on market trends, and request recommendations.

Provide an open avenue of communication among the independent accountants, financial and senior management, internal audit department, and the board of directors.

5. Look at the big picture. The board is responsible for the credit union’s vision and accountability to the membership. The board hires and supports the CEO in managing resources and communicating with members.

The CEO is responsible for managing daily operations and reporting progress to the board.

The supervisory committee needs to effectively interact with the board and management. Each has key responsibilities that, when carried out correctly, provide a solid foundation.

The health and long-term viability of credit unions depends on quality and consistent oversight. Member-centric accountability is a hallmark of our not-for-profit financial operative model.

If you haven’t done so in a while, do an honest assessment of your supervisory or audit committee’s effectiveness. If it’s not effective, set a course of action to get there.

SCOTT BUTTERFIELD is the principal at Your Credit Union Partner (yourcupartner.com).

This article initially appeared in Credit Union Directors Newsletter, which provides strategic insights for policymakers. Subscribe now to the print or PDF version.