Audit Report Sample

SAMPLE AUDIT REPORT
Sample Credit Union
Report on Operations
As of Audit Date
SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
GENERAL OVERVIEW
Overall, the Credit Union appeared to be well managed and continuing to maintain its
financial stability. During the twelve months ended December 31, 2009, the Credit
Union experienced modest growth, with total assets increasing approximately $756,000
(2.9%), investments increasing approximately $2,017,000 (22.1%), and shares and
equivalents increasing approximately $630,000 (2.8%). However, during the same
period, loans decreased approximately $1,202,000 (8.3%).
NET WORTH
Net income of approximately $124,000 generated during the twelve months ended
December 31, 2009, strengthened the Credit Union's capital position. Capital is
comprised of regular reserves and undivided earnings, and represents all earnings the
Credit Union has accumulated since its organization. Furthermore, capital provides a
cushion against any losses that might be sustained by the Credit Union in future years.
During the audit period, the capital adequacy ratio (capital divided by total assets)
increased slightly from 12.8% as of December 31, 2008, to 12.9% as of December 31,
2009. The Credit Union's net worth ratio was slightly above the industry average of
approximately 12.2%. Management and the Board of Directors must ensure that dividend
and loan rates are properly priced in order to control loan and share growth. The Credit
Union’s net worth ratio has historically been above the industry. The Credit Union's net
worth ratio remains strong, and still compares very favorably to the 7.0% minimum ratio,
which is considered well capitalized according to NCUA Letter 01-CU-01.
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
The Credit Union has continued its pattern of slight capital growth, and experienced a
3.7% increase in equity during the twelve months ended December 31, 2009.
Specifically, Reserves and Undivided earnings increased from approximately $3,330,000
as of December 31, 2008, to approximately $3,455,000 as of December 31, 2009. The
increase in equity is below the industry average net worth growth of 6.8%.
ASSET QUALITY
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
The Credit Union suffered a decline in its loan portfolio. During the annual audit period,
the Credit Union experienced an 8.3% decline in loans, while the industry average loan
growth was 3.1%.
The Credit Union was not able to increase loan demand, but instead, diverted incoming
funds from share growth and loan repayments into investments, which had a lower yield.
This situation should be closely monitored by management since, as a result of this
situation, the Credit Union's loan to share ratio decreased from 63.8% as of December 31,
2008, to 56.9% as of December 31, 2009. This is below the industry average of
approximately 63.1%. While we would not suggest that the Credit Union make any
questionable loans, we recommend that management try to stimulate loan demand.
The following graph depicts the distribution of the different types of loans offered by the
Credit Union. The Credit Union’s loan portfolio consisted primarily of secured
automobile loans and real estate loans, followed by share secured, signature, credit card,
and other collateral loans.
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
The Credit Union’s delinquency ratio indicates all delinquent loans greater than two
months divided by total loans. As of December 31, 2009, the Credit Union’s delinquency
ratio was 0.4%, an increase from 0.3% as of December 31, 2008. The Credit Union’s
delinquency ratio is considerably lower than the industry average of approximately 1.5%.
The relatively low delinquency ratio is evidence that management has established
adequate controls over the lending process. Management should continue their consistent
collection efforts to thwart any future increases in loans delinquent.
Net charge off loans increased from approximately $24,000 to approximately $51,000
during each of the twelve months ended December 31, 2008 and December 31, 2009,
respectively. As shown below, the Credit Union’s net charge-off ratio has historically
been below the industry average.
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
INVESTMENTS
Since the last audit, investments increased approximately $2,017,000 or 22.1% as of
December 31, 2009. As shown in the graph below, the Credit Union’s increase in
investments was above the 14.5% increase in the industry average.
EARNINGS
The Credit Union reported gross revenues of approximately $1,595,000, for the twelve
months ended December 31, 2009. Of this amount, the Credit Union reported net income
of approximately $124,000 (7.8%), operating expenses of approximately $1,234,000
(77.4%), provision for loan losses of approximately -$15,000 (-1.0%), and approximately
$253,000 (15.8%) was returned as dividends to members.
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
The Credit Union reported net income of approximately $124,000 generated for the
twelve months ended December 31, 2009. This represents an increase in net income of
approximately $18,000, as compared to the previous twelve months ending December 31,
2008. The Credit Union was able to reduce operating expenses approximately 2.1%,
despite asset growth of 2.9%. The Credit Union's net operating expenses to average
assets was 4.7% as of December 31, 2009, but was above the industry average of 3.9%.
The Credit Union’s return on average assets ratio of .05% was an increase from .04%
return in the previous year, but is below the industry average of 0.7%. The Credit
Union’s cost of funds to average assets decreased to 1.0% as of December 31, 2009, from
1.5% as of December 31, 2008, and remains lower than the industry average of 1.4%.
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
LIQUIDITY
Members placed more money into the Credit Union, increasing shares by 2.8% during the
audit period, but lagged the industry average share growth of 7.8%.
The average share per member, as shown below, was $3,459 as of December 31, 2009,
which was below the industry average of $5,129. This average share per member has
steadily increased over the past four years, indicating that members are continually
increasing their confidence and interest in the Credit Union.
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
The following report details the results of the annual audit. In addition, it communicates
matters that are not necessarily deficiencies but are presented for Management’s, the
Board of Directors’, and the Supervisory Committee’s consideration.
FINANCIAL AND ACCOUNTING
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
The annual audit scope included testing the accuracy of the Credit Union’s financial data
and compliance with Generally Accepted Accounting Principles (GAAP). Additionally,
we reviewed the accounting system for its overall integrity and efficiency. Supervisory
committee audit procedures and tests included reviewing the quality of the subsidiary
accounting records and supporting schedules. Our review disclosed the following as of
and for the twelve months ended December 31, 2009:
Allowance for Loan and Lease Losses
1.
We have reviewed and evaluated the credit union’s Allowance for Loan Loss
methodology and supporting documentation practices, as well as other credit risk
management practices as of December 31, 2009. It is our finding that the policy
and procedures adequately reflect an accurate estimation of the required funding
of the Allowance for Loan Loss account. Furthermore, the policy and procedures
are acceptable under the guidelines of NCUA Interpretive Ruling Statement
(IRPS) 02-03 and Generally Accepted Accounting Principles (GAAP).
To conform with NCUA's requirements, the allowance for loan and lease losses
account should be large enough to cover all potential losses within the Credit
Union's loan portfolio. At a minimum, the Credit Union should maintain written
supporting documentation for the following decisions, strategies, and processes:
1. Policies and procedures:
a. Over the systems and controls that maintain an appropriate ALLL, and
b. Over the ALLL methodology,
2. Loan grading system or process,
3. Summary or consolidation of the ALLL balance,
4. Validation of the ALLL methodology, and
5. Periodic adjustments to the ALLL process.
Management should consult NCUA Interpretive Ruling Statement (IRPS) 02-03
to analyze and document the adequacy of the allowance for loan losses account on
a regular basis. Such analysis is a necessary and useful tool when reviewing the
reasonableness of the process undertaken by Management during the assessment
of the adequacy of the allowance for loan losses account.
2.
We compared loans charged-off through the general ledger to their approval by
the Board of Directors.
No exceptions were noted.
3.
We reviewed the loan and credit card trial balances as of December 31, 2009, and
reconciled the amount to the general ledger. We tested a sample of loans and
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
supporting documentation. Our individual loan review findings are discussed in
the Loan Review Section below.
The loan trial balances agreed to the general ledger control accounts as of the
annual audit date. Our review disclosed no exceptions.
4.
We reviewed all collateral in process of liquidation as of December 31, 2009. We
reconciled the amount to the general ledger, and where material, physically
observed the collateral.
We tested a sample of loans and supporting
documentation for costs incurred in the acquisition and disposal of collateral. We
reviewed sales of collateral to ensure that competitive bids were obtained. We
examined a sample of invoices for costs incurred in the sale of collateral and
verified the amount that was ultimately charged-off.
Our review disclosed no exceptions.
Cash
1.
We confirmed all of the Credit Union’s cash balances and reviewed the bank
reconciliations prepared as of December 31, 2009. Our review consisted of
examining deposits-in-transit for overstatement, verifying the outstanding check
list, agreeing all reconciling items to their supporting documents and investigating
any reconciling items or checks which were outstanding in excess of 90 days.
We found no exceptions as a result of the procedures.
2.
We performed a cash count on February 9, 2009, and compared the cash on hand
to the general ledger balance. We also compared the December 31, 2009, teller
cash subsidiaries to the general ledger balance.
We found no exceptions as a result of the procedures.
3.
We reviewed daily deposits to the bank for the last 10 business days of the annual
audit period. We agreed the cash deposits per the journal cash record to the
deposits per the bank statement to ensure that deposits are being made to the bank
on a timely basis.
We found no exceptions as a result of the procedures.
4.
Bait money is specific money within a teller's drawer, for which Management has
recorded the serial numbers. When given out during a robbery, this may be useful
to law enforcement agencies in apprehending the criminal. We verified the
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SAMPLE AUDIT REPORT
SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
existence of bait money within the tellers' drawers, and reviewed Management's
documentation of the specific serial numbers of all bait money. We verified that
bait money was not obviously marked or identified in a way that would make it
obvious to a bank robber.
Our review of bait money disclosed no exceptions.
5.
We counted traveler's checks and money orders on February 9, 2004, and verified
the accuracy of the subsidiary logs maintained for traveler's check and money
order activity. We also verified the Credit Union’s inventory of traveler’s checks
and money orders via a faxed inventory statement from American Express and
Travelers Express Company.
We found no exceptions as a result of the procedures.
6.
We reviewed the Credit Union's written currency transaction reporting (CTR)
policy. In addition, we observed the adherence to the reporting requirements
under The Bank Secrecy Act of 1986.
Beginning 2002, credit unions have been required to maintain Office of Foreign
Assets Control OFAC's listings of countries and individuals (SDNs) identified by
the government as not allowed to conduct financial transactions within the
banking system. Any accounts on record as belonging to anyone on the OFAC list
were required by law to be frozen or the assets "blocked" and reported to the
government by filing a suspicious activity reports (SARs). The Credit Union was
aware of the reporting requirements.
We found no exceptions as a result of the procedures.
Investments
1.
We obtained a schedule of the Credit Union’s investments as of December 31,
2009, and traced the amounts to the general ledger.
We found no exceptions as a result of the procedures.
2.
We traced the investment account balances, interest rates, and maturity dates from
the investment schedule to the specific security instruments (passbooks,
safekeeping receipts, brokers’ statements, and certificates of deposit).
We found no exceptions as a result of the procedures.
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SAMPLE CREDIT UNION
REPORT ON OPERATIONS
AS OF AUDIT DATE
3.
We sent positive confirmation requests to a sample of the financial institutions
with which the Credit Union has its funds invested. We confirmed the balances
and interest rates for all sampled accounts.
We found no exceptions as a result of the procedures.
4.
We reviewed the Credit Union’s investment policy to gain an understanding of
the investment practices of the Credit Union and to determine whether all
investments are permissible and allowable under the investment policy and in
compliance with the guidelines required by Section 703.3 of the NCUA Rules and
Regulations.
We found no exceptions as a result of the procedures.
5.
We confirmed all of the Credit Union’s Corporate Credit Union account balances
and reviewed the account reconciliation prepared as of December 31, 2009. Our
review consisted of examining deposits-in-transit for overstatement, verifying the
outstanding check list, and investigating any checks which were outstanding in
excess of 90 days.
We found no exceptions as a result of the procedures.
6.
We read the Board of Directors minutes to determine if authorization for
purchases of new investments were formally approved by and recorded in the
minutes of the Board meetings.
We found no exceptions as a result of the procedures.
7.
We tested accrued income on investments as of December 31, 2009.
We found no exceptions as a result of the procedures.
8.
Investment income was reviewed for reasonableness.
We found no exceptions as a result of the procedures.
Fixed Assets
1.
We compared the balance of the fixed asset subsidiary records to the balance
reported in the general ledger and to compliance with applicable regulatory limits.
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REPORT ON OPERATIONS
AS OF AUDIT DATE
No exceptions were noted.
2.
We reviewed the estimated depreciable lives and recalculated the monthly
depreciation expense for a sample of the fixed assets.
Based on our tests, no exceptions were noted.
3.
We reviewed all debit (purchase) and credit (disposal) entries to the general
ledger fixed asset accounts for the period of January 1, 2009, through December
31, 2009. For the purchases, we examined a sample of the invoices supporting
the new fixed assets and visually observed the assets. In addition, we verified the
propriety of the expenditures with respect to their capitalization. For sales, we
verified the proceeds received and the reasonableness of the gains/losses recorded
on these sales.
Based on our tests, no exceptions were noted.
4.
We reviewed the repair and maintenance expense accounts for capital
expenditures and to verify if they were correctly expensed.
Based on our review, no exceptions were noted.
5.
We reviewed the insurance coverage on the Credit Union's fixed assets as of
December 31, 2009.
Furniture and Equipment was recorded at a cost of approximately $335,000, while
the insurance coverage was approximately $175,000. At a minimum, the
coverage should cover cost; however, the Credit Union may desire insurance at
replacement cost.
We suggest that the Board of Directors or Management review the insurance
coverage for furniture, fixtures and equipment with their insurance representative
and increase it to a reasonable replacement cost. In the future, insurance coverage
should be reviewed by the Board of Directors or Management at least annually, or
as needed to ensure adequate coverage.
6.
We reviewed to identify any significant lease commitments and whether these
lease commitments were adequately disclosed in the Credit Union’s financial
statements.
Our review disclosed no exceptions.
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REPORT ON OPERATIONS
AS OF AUDIT DATE
7.
We performed a calculation and determined that fixed assets including lease
obligations did not exceed 5% of shares and retained earnings.
We found no exceptions as a result of this procedure.
Accounts Receivable, Prepaid Expenses and Other Assets
1.
We reviewed accounts receivable and other assets. Our review included
comparing the accounts receivable and other asset subsidiary ledgers to the
general ledger. In addition, we examined, on a sample basis, documentation to
support the validity of the accounts receivable and other assets accounts.
Our testing disclosed no exceptions.
2.
We reviewed the Credit Union's prepaid assets. Prepaid assets arise from an
expenditure that creates a future benefit to the Credit Union (i.e., maintenance
contracts, association dues, supplies, etc.). In order to determine the accuracy of
the general ledger prepaid asset accounts, we compared the subsidiary ledger to
the general ledger as of December 31, 2009. In addition, we reviewed a sample of
the prepaid assets by examining the invoices for propriety and the periods
benefited for reasonableness.
No exceptions were noted.
3.
We reviewed accrued income on loans for reasonableness.
This was
accomplished by comparing accrued interest balances in the general ledger to the
supporting computer trial balance totals.
No exceptions were noted.
4.
We confirmed the Credit Union's deposit with the National Credit Union Share
Insurance Fund (NCUSIF).
No exceptions were noted.
Accounts Payable and Other Accrued Liabilities
1.
We reviewed accounts payable and other accrued liabilities as of December 31,
2009. We compared the accounts payable and other accrued liabilities subsidiary
ledgers to the general ledger.
No exceptions were noted.
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REPORT ON OPERATIONS
AS OF AUDIT DATE
2.
We examined, on a sample basis, invoices supporting documentation in order to
assess the validity of the recorded liabilities.
No exceptions were noted.
3.
We performed a review of material expense disbursements subsequent to
December 31, 2009. Identified expense disbursements were reviewed to
determine if unrecorded liabilities existed as of the audit date.
No exceptions were noted.
4.
We reviewed dividends payable for reasonableness. This was accomplished by
comparing dividends payable balances in the general ledger to supporting
computer trial balance totals.
No exceptions were noted.
Notes Payable
1.
We reviewed general ledger accounts pertaining to borrowed funds, and
recomputed interest expense for the twelve months ended December 31, 2009.
No exceptions were noted.
Members’ Shares and Equity
1.
We compared the trial balance and general ledger totals as of December 31, 2009,
for shares, share equivalents, and loan accounts. We also traced all financial
statement balances to the respective general ledger accounts.
No exceptions were noted.
2.
We reconciled the balance of credit card loans per the general ledger with the
totals provided to the Credit Union by the credit card processor.
We found no exceptions as a result of the procedures.
3.
We read the Board of Directors minutes to determine whether dividend rates were
declared and approved. We reviewed the accuracy of dividends posted to
members' accounts and interest charged on members' loans for the twelve months
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AS OF AUDIT DATE
ended December 31, 2009. Specifically, dividends were recalculated on a sample
of members’ share accounts.
No exceptions were noted.
Interest charged to members was recomputed for a sample of various loan types.
Based on the tests performed, it appears that interest on loans was being
calculated properly during the twelve months ended December 31, 2009.
4.
We reviewed the activity in the general ledger equity accounts for the twelve
months ended December 31, 2009. We determined whether the statutory reserve
requirements are adequately funded in accordance with the Prompt Corrective
Action requirements of Section 702 of the NCUA Rules and Regulations. The
Credit Union had an actual total reserve balance of approximately $3,455,000 and
a net worth ratio of 12.9%.
The Credit Union is considered “well capitalized”. No exceptions were noted.
5.
We reviewed the loan and share trial balance to ensure that there were no
accounts in negative status for more than one month. An overdrawn share
account represents an interest-free loan to the member and every effort should be
made to collect these moneys.
No material exceptions were noted.
Income and Expenses
1.
We reviewed total interest on loans, total dividends on deposits, other operating
income, and compensation expense for reasonableness for the twelve months
ended December 31, 2009.
No exceptions were noted.
2.
We selected a sample of expense disbursements paid during the twelve months
ended December 31, 2009, and inspected supporting documentation for proper
approval, cancellation, propriety of account, whether sales taxes were paid, and
proper invoice totals. In addition, we performed an analytical review of general
ledger expense variances.
No exceptions were noted as a result of our review.
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AS OF AUDIT DATE
3.
We reviewed the appropriateness and documentation for purchases on the Credit
Union’s corporate credit card during the twelve months ended December 31,
2009.
Our review disclosed no exceptions.
4.
We performed a recalculation of a sample of individual payroll amounts during
the twelve months ended December 31, 2009. Our testing included comparing
gross payroll amounts, recalculation of federal and state taxes, and verification of
the payment of the net payroll amount to the employee.
Our testing disclosed no exceptions.
5.
We reviewed the Credit Union’s non-operating income/expense accounts for
reasonableness for the twelve months ended December 31, 2009.
Our review disclosed that non-operating income/expense was reasonably stated,
and no exceptions were noted.
LOAN REVIEW
The annual audit encompassed a review of the Credit Union's loan policies, procedures,
and operations. We reviewed all loans granted to officials and employees, and a sample
of new loans granted to the members during the twelve months ended December 31,
2009. The review included, but was not limited to, real estate, credit card, vehicle, share
secured, and signature loans. Each loan type was specifically reviewed for compliance
with the Credit Union's written loan policy requirements and limitations. We verified
that each file contained a loan application with proper approval, a completed and signed
note, a credit report, and evidence of title and insurance, where applicable. In addition,
we verified the loan amount, debt ratio calculation, income/employment verification, and
substantiation of an ability to repay the Credit Union.
Overall, we found the loan files to be adequately documented. The results of our tests are
presented below:
1.
Our review of loans to officials, employees, and members yielded the following
exceptions:
Member
Sample
Acct. #
Sample
Loan Date
12/10/08
12/19/08
Collateral
Share
Auto
06/03/08
Auto
11/24/08
10/07/08
09/08/08
Sign
Sign
Sign
Comments
First payment date exceeds twelve months.
Proof of insurance has wrong CU address. No documentation of
collateral value.
No proof of current insurance. No documentation of collateral
value.
No income verification.
Most recent income verification dated 3/23/06.
Most recent income verification dated 7/31/04.
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AS OF AUDIT DATE
2.
08/25/08
11/28/08
10/06/08
Sign
Auto
Other
10/14/08
09/18/08
Auto
Other
09/26/08
Other
08/06/08
07/07/08
Auto
Other
07/16/08
Auto
04/14/08
Auto
No income verification.
Financed for six months over policy maximum.
Credit score = 164. Policy does not allow for RV loan with credit
score < 300.
No documentation of collateral value.
Additional income of $2000/month not verified. No proof of
current insurance.
No title or proof of lien. No proof of current insurance. No
documentation of collateral value.
No proof of current insurance.
Financed for twenty-nine months over policy maximum. Most
recent income verification dated 5/5/05. No proof of current
insurance. Could not determine if collateral value was sufficient
to secure loan.
No documentation of collateral value. Used income of spouse to
qualify for loan. Spouse had not signed an application of
Loanliner plan agreement.
Did not include mortgage payment in calculation of debt ratio.
Financed for six months over policy maximum. Co-owner of
collateral did not sign pledging collateral.
We obtained delinquent loan listings during the annual audit period to verify that
the proper amounts were being reported to the Board of Directors. We reviewed
the delinquent loan listing as of December 31, 2009 to determine the collectability
of loans two months or more delinquent. We also reviewed the collection
procedures on delinquent and charged-off loans used by the Credit Union to
determine their adequacy in protecting the best interests of the Credit Union.
Our review disclosed no exceptions.
3.
We reviewed the loan and share trial balance to ensure a sample of share secured
loans were correctly stated and adequately pledged as of December 31, 2009.
Share secured loans are granted at reduced interest rates based on the dollar-fordollar security offered by the member. When these loans are not adequately
pledged, the Credit Union is assuming an unnecessary risk of loan loss.
Our review disclosed no exceptions.
4.
We reviewed the loan and share trial balance for loans paid ahead. The objective
of reviewing loans paid ahead is to ensure that the next payment due dates for all
loans are correctly stated and in accordance with the specific terms of the loan
note for each loan type, and that potentially delinquent loans are not included in
these loans.
Our review disclosed no exceptions.
5.
We reviewed a sample of loan extensions granted during the twelve months ended
December 31, 2009. Our review included procedures to ensure that loan
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AS OF AUDIT DATE
extensions were granted in compliance with the Credit Union’s written loan
extension policy guidelines and limitations.
Our review disclosed no exceptions.
6.
The annual audit included a review of the Credit Union’s outstanding/pending
title process to ensure that the Credit Union is adequately monitoring uncollected
titles on secured loans.
Based on our review, the Credit Union appears to be adequately monitoring the
pending titles on secured loans.
7.
We reviewed the internal controls surrounding the loans and lending process to
ensure adequate measures are being taken within the Credit Union to safeguard its
assets, check the accuracy and reliability of its loan data, promote operational
efficiency, and encourage adherence to managerial policies.
Based on our review, the Credit Union’s internal controls surrounding the loans
and lending process appears to be adequate.
8.
We reviewed the Credit Union’s loan policies and procedures to gain an
understanding of the various loan programs and services offered by the Credit
Union and to ensure the continuation of prudent lending practices. The Credit
Union's loan policy should include such items as the requirement for completed
applications, current credit reports, debt ratio analysis, verification of income,
loan extensions, collection of delinquent loans, and when to charge off nonperforming loans.
Our review disclosed no exceptions.
INTERNAL CONTROLS
Internal controls comprise the plan of organization, operating procedures, and measures
within the Credit Union to safeguard its assets, check the accuracy and reliability of its
accounting data, promote operational efficiency, and encourage adherence to managerial
policies. We reviewed internal controls in order to obtain an understanding of the
internal control structure and to assess our level of control risk. Based on our level of
control risk, we determined the nature, timing, and extent of our substantive testing
detailed throughout this report. Our review of the Credit Union’s internal controls
disclosed the following:
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AS OF AUDIT DATE
1.
2.
We recommend that the Supervisory Committee, Board of Directors, or some
other third party continue to perform review procedures on a periodic basis (at
least quarterly) to compensate for the lack of segregation of duties and to
strengthen the internal controls. At a minimum, such procedures should include:

Regular review of the bank, investment, and Corporate Credit Union account
statements and reconcilements.

Regular review of employee statements. Such a review serves as a deterrent
to, and a mechanism for, the detection of unauthorized transactions.

Regular review of computer exception reports such as dormant account
activity, masterfile changes, and negative balance accounts. These reports
should be initialed and dated after review to evidence the performance of the
review.

Perform surprise cash counts and reconcile the results to the general ledger.

Review of new loans issued for proper documentation and authorization.

Perform account verifications, including closed accounts, as required by the
NCUA.
We reviewed certain areas of control over the Credit Union's (on-line) computer
system. Specifically, we reviewed the physical layout of the system and the
controls over it, controls over software and files, controls over computer
operators, access controls, controls over computer output (reports) processing and
distribution, input/output controls, supervisory controls, and security controls.
Our review disclosed no material weaknesses as of December 31, 2009.
3.
We reviewed certain areas of control over the Credit Union's teller controls.
Specifically, we reviewed controls over ATM balancing and replenishment,
controls over computer operators, access controls, controls over computer output
(reports) processing and distribution, input/output controls, supervisory controls,
and security controls. Management has adequately addressed all aspects of
security and control and our review did not disclose any material weaknesses
other than those discussed in conjunction with internal controls.
4.
We reviewed the Credit Union’s general operating policies and procedures to
ensure the effectiveness of internal controls.
Our review disclosed no material weaknesses as of December 31, 2009.
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OTHER COMMENTS
1.
We reviewed the Credit Union's surety bond coverage as of December 31, 2009,
to determine if the coverage complied with NCUA regulations.
Our review indicated that the coverage was adequate as of the annual audit date,
and no exceptions were noted.
2.
We reviewed the minutes of the Board of Directors to verify that the minutes were
properly signed, prior minutes were approved, dividends were approved, transfers
to and from undivided earnings and appropriated undivided earnings were
approved, loan charge-offs were approved, loans to officials (excluding sharesecured loans) in excess of $20,000 were approved, and material equipment and
building acquisitions were approved.
Based on our review, no exceptions were noted.
3.
We performed a review of the procedures used by the Supervisory Committee or
Board of Directors during their most recent verification of members’ accounts.
Our review disclosed the verification process was conducted in compliance with
regulatory requirements surrounding the verification of members’ accounts.
No exceptions were noted.
4.
We reviewed the Credit Union’s general operating policies and procedures to
ensure the continuation of current practices. Written policies also serve as
training tools and guidelines for employees.
No exceptions were noted.
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