Sharpen Your Board’s Financial Skills

CUs are finding innovative ways to meet NCUA’s new requirements.

March 1, 2012

When NCUA’s new financial literacy rules went into effect last July, credit unions took a closer look at their directors’ basic financial skills.

Under the requirements, each director must have a minimum level of understanding of the credit union’s balance sheet and income statement, and be able to competently examine various line items of each. Credit unions have adjusted to the new requirements by incorporating programs that fit their boards’ needs and their organiztions’ budgets.

Preparing for the future

NCUA’s board financial literary requirements are “aggressive and forward-thinking,” says Christine Blake, president/CEO of $156 million asset Cardinal Community Credit Union,Mentor, Ohio. “As a certified public accountant (CPA) and former internal auditor, I believe it’s essential that directors—who are responsible for overseeing the safety and soundness of a credit union—have a basic understanding of accounting principles and can read a credit union’s financial statement.”

Overall, says Blake, the credit union’s board is very positive about the new requirements. Directors have varied backgrounds including two with financial backgrounds.

“Directors want to help each other improve financial literacy,” she says. “If they see a training need, they say, ‘Let’s do this as a group.’”

Cardinal Community’s Governance Committee recently added language to the credit union’s policies and procedures that requires directors to have an understanding of basic finance and accounting principles. Additionally, each of the nine board members is required to participate in and document 10 hours of annual financial education approved by the board chairman.

Approved education courses completed by each board member are included in board packets on a quarterly basis. “When they see what other directors did to improve their financial education, it inspires them to talk to each other about their experiences.”

Cardinal Community’s board has participated in numerous educational opportunities provided through the Ohio Credit Union League, and in webinars in conjunction with board meetings.

Cardinal Community has designated 2012 the year of technology for the credit union, and directors have joined in by making a commitment to embrace electronic education. “In December, each director received an iPad so they can access financial information when they log in to the board portal.”

The board no longer prints its board packets, which are now delivered electronically. “This new initiative has been very well received,” says Blake. “In fact, we encourage board members to get involved in other credit union conversations through blogging. We’ve said that when they notice a credit union talking about something they’d like to learn more about or would like to share their perspective as a credit union member, blog about it.”

As boards continue to diversify, some directors might not have specific skills in finance and accounting—crucial to monitoring a financial institution today. Boards that represent their select employee group base might not have this skill set either, she says.

“We need to prepare for the future to understand the complexities of this industry,” she adds.

Adapting to change

When NCUA announced its new requirements, Jack Peplinski, president/CEO of $840 million asset Altra Federal Credit Union, Onalaska, Wis., says “it felt somewhat like ‘preaching to the choir.’”

The majority of the Altra Federal’s directors have financial background, and Peplinski, himself, is a certified management accountant and has an undergraduate degree in accounting and a master’s in business.

Peplinski held a board position for five years starting in 1985 and has been on staff at Altra Federal for 21 years. “In the past,” he says, “we wanted one-third of the board to have accounting or finance backgrounds, and while that focus is still relevant, today we actively recruit for a mix of talents.”

With the new requirements, Altra Federal decided to bring all directors to the same level of understanding—making sure all are comfortable assessing financial statements, relevant ratios, and risk assessment.

“Because of their backgrounds,” he says, “some directors are more comfortable with risk avoidance than they are with risk management. We’ve spent a lot of effort on risk assessment, so the board has a good level of understanding of risk and is comfortable with it.”

The credit union has created a board portal, and each director has an iPad so they can easily access board information on the portal.

At each meeting, the board spends 30 minutes on financial education with a revolving topic presented by internal staff. Directors have participated in webinars and are now looking at online education as another option.

“Altra doesn’t require board education for each member, but directors have a variety of financial education opportunities,” says Peplinski. “They attend one convention a year and they might be encouraged to sit in on one or more seminars.”

Peplinski says discovering how much directors know and understand is a challenge. “How do you assess knowledge and experience when a new member joins the board?” he says. “We’re working to formalize the process, assess where the person is, and then supplement financial education with customized training as necessary.”

“We’re in an industry where we all do things a little differently,” he adds. “We have to adapt to different talents, strengths, and weaknesses. If you’re not a person with a financial background, and you don’t live it day-to-day, how do you remember it? That’s the future challenge of financial education, and that’s why we’re addressing those issues now.”

Staying ahead of the curve

As credit unions grow and change, their boards must stay up to speed on financial education, stresses Barbara S. Reuter, president/CEO of $135 million asset Financial Horizons Credit Union, Hawthorne, Nev.

“I’d much rather have a board of directors who are qualified to recognize whether or not we’re going down the right path than a board that simply trusts management is doing the right thing.

“I’ve worked in the credit union industry for 35 years,” she continues, “and today I see a big difference in the role of the board. Previously, our board didn’t have a good understanding of financial statements, and they didn’t have many questions to ask the CEO. Today, all that has changed.”

Financial Horizon’s nine directos are now very aware of their responsibilities as well as their liabilities, she says, and they understand how important continued education is to their role in the credit union.

While the directors have a wide range of skills, including accounting, budgeting, business management, and business ownership, they recognize that their ongoing financial training is crucial to the credit union’s success.

“The board has been very open to training because they understand it’s imperative that they combine knowledge they’ve gained from their professions with knowledge of credit union operations,” she says.

Financial Horizon’s board has adapted to NCUA’s new requirements in several ways—including through league webinars and the annual meeting, which provides valuable breakout sessions.

“Our chief financial officer presents a very detailed overview of the financial reports each month at the board meeting,” says Reuter. “The board also participates in our annual strategic planning session, facilitated by an expert in the credit union industry.”

Reuter admits it can be overwhelming to stay current with regulations, to say nothing of the challenge of continually making sure the credit union remains in compliance.

“In light of this, we recently joined CURoots, a credit union CUSO that provides internal audits and a compliance officer one day a week,” says Reuter. The CUSO reviews all the credit union’s policies, procedures, and work management on a regular basis to assure compliance. “This is a new program for us, so we’ll be learning as we go,” she explains.

No one has a crystal ball when it comes to predicting the future, says Reuter, but she adds, “The board absolutely has to have strong financial literacy skills—it’s very important to the future of credit unions and our membership.”