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Compliance CU boards role in 3rd-party relationships
WASHINGTON (4/14/08)—A credit union board of directors has an important role in assuring third-party relationships further a credit union’s mission, and every director should be on top of the issues involved, advises a compliance article in the April issue of Credit Union Magazine. The article notes that the National Credit Union Administration (NCUA) has designated third-party relationship reviews a 2008 regulatory “hot topic,” backed by a 2007 supervisory letter on evaluating vendor relationships. It also highlights efforts by the Credit Union National Association’s (CUNA’s) Due Diligence Task Force, which is assembling resources, including sample vendor management policies and procedures, and addressing credit union concerns about the due diligence examinations process. The Due Diligence Task Force's key objectives are to develop a core due diligence model that credit unions can use to evaluate third-party vendors, as well as develop a due diligence best practices guide that goes beyond the core due diligence model. In “The Board’s Role in Vendor Due Diligence,” guest author David A. Reed, a Fairfax, Va. private practice attorney who advises credit unions, tells directors their vendor due diligence policies must incorporate the following five areas:
* Expectations for outsourcing: Outlining how vendor relationships enhance credit union services; * Planning; Make it clear before contracting with a vendor that your credit union will plan adequately, including assessing the need for and risks related to third-party support; * Due diligence: Conduct a background check of vendors, evaluate the company’s business model, perform cash-flow analyses between the parties involved, review a vendor’s affiliates’ financial conditions, and understand accounting and legal issues involved in the relationship; * Performance monitoring; Keep the relationship active by stating that the credit union will set up controls to monitor the vendor’s performance, including compliance with laws and regulations; and * Reports to the board: Define the content and frequency pf re[porting to the board on third-party relationships.
“NCUA and credit unions share the same goals: having vendors provide good value and faithfully perform according to their contracts,” Reed says, “There’s not question properly managed third-party relationships can be invaluable to credit unions and members by providing new services and cost savings.” CUNA is sponsoring a May 13 audioconference called “Due Diligence with Third Party Vendors – Getting it Right!” Use the resource link below for registration information.
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