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CUs advised on 2008 top exams issues
ALEXANDRIA, Va. (1/30/08)—Third-party vendor relationships and strategic planning were the topics of a Tuesday National Credit Union Administration (NCUA) Webinar on key credit union examination issues for 2008, moderated by board member Gigi Hyland. Dominick Nigro, information systems officer of the NCUA’s Office of Examination and Insurance, noted that credit unions find vendor relationships in many areas or operations, such as lending services, auditing and management consulting services, asset liability management, Bank Secrecy Act and Office of Foreign Asset Control compliance, data processing and internet banking services. Nigro noted that although the NCUA recognizes the value that can come from third-party relationships, NCUA examiners are increasingly identifying problem areas associated with such arrangements. He discussed two key elements of an effective program, which he identified as good risk assessment and planning and effective due diligence work. Nigro also indicated that an effective program must address the different levels of risks that may be associated with different vendors. The more critical the service, the deeper the credit union’s review of the relationship must be, he advised. Effective due diligence must also include background checks, review of the vendor's business model, and the vendor's financial condition. Board member Hyland specifically highlighted the need to review the legal agreement with the vendor and to ensure compliance with all applicable state and federal laws. The other important element discussed was the need for written policies and procedures for measuring, monitoring, and controlling risk. Although credit unions may refer to samples that other credit unions use, they are cautioned to use them as a starting point and to adjust them, as necessary. However, credit unions may not need to perform a risk assessment for current vendor relationships, but should review these relationships if circumstances change. On the topic of credit union strategic planning, Debra Tobin, and NCUA supervisory examiner and economic development specialist, said that the focus away from the CAMEL matrix to a risk assessment approach means that strategic planning is more important than ever. Tobin said that planning documents should include a strategic plan, business plan and budget, and should vary in complexity with the size and complexity of the credit union. She also discussed a planning process that credit union may use and that performance measurement should include a method to measure, monitor, and report results as well as make changes as necessary. An inadequate planning process, she said, can result in material losses to the credit union’s earnings and/or net worth. NCUA’s Hyland also stressed that evaluation and making adjustments to these plans is a critical part of the process. The benefit of using a "facilitator" was also highlighted. The webinar will be posted on the NCUA website in about a month and will include a "frequently asked questions" section that will address all the questions that were raised by credit unions during this webinar.


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