While many view the board as the heart of the membership, the supervisory committee is its eyes and years, ensuring the credit union follows its policies and procedures, internal controls, and risk profile.

David Reed, partner at the law firm of Reed and Jolly PLLC, offered that insight during CUNA’s 2022 Supervisory Committee & Internal Audit Conference in Las Vegas. He offers insights into how the supervisory committee can serve this function within the “shifting sands” of modern financial services.

“When you look at what’s facing us, it’s rather daunting,” Reed says. “As your management team put in controls and protocols to manage risk, the supervisory committee comes in with its flashlight to make sure policies set by the board are being followed and processes are in place to guard against conflict of interest and fraud.”

As such, Reed says the supervisory committee should be independent: free from the influence, guidance, or control of others.

“Anything that interferes with your judgment or obscures your view of the credit union is a problem,” he says.

Reed notes the NCUA Supervisory Committee Guide uses the terms “independence” and “independent” 77 times, while the supervisory committee section of the NCUA Examiners Guide uses the terms 47 times.

“NCUA guidance is very specific,” he says. “If you can’t act in an independent manner, your opinions have less value.”

If a supervisory committee member can’t objectively perform a specific duty—or is perceived as lacking in objectivity—the committee must find by a committee member who can act independently to complete the task. 

Reed offers five “tough questions” for supervisory committees to consider about their independence:

1. Do all stakeholders understand the definition of independence?

2. Do you have access to the credit union’s books and records?

3. How many of your responsibilities do you directly control?

4. Can you use outside resources to ensure independence?

5. How involved is the board or CEO in supervisory committee affairs?