After a thorough audit of the credit union’s records and internal controls, an oral and comprehensive written Supervisory Committee Audit Report is provided by certified examiners at LEVERAGE Audit & Consulting. The following areas are examined:

• Internal Control Structure, Policies, & Procedures
• General Ledger
• Loans to Members
• Allowance for Loan Losses & Collections
• Cash
• Investments
• Accrued Interest on Loans & Investments
• Accounts Receivable, Prepaid Expenses, Fixed Assets, NCUSIF Deposit, & Other Assets
• Accounts Payable, Accrued Dividends, Taxes Payable, Accrued Expenses, Suspense Accounts, or Other Liabilities
• Members Deposits
• Equity
• Income & Expense
• General Procedures

We utilize a comprehensive audit checklist and examines the following specific data and records:

INTERNAL CONTROL STRUCTURE, POLICIES & PROCEDURES

• Report findings, comments, or exceptions relative to the credit union’s internal controls
• Complete extensive internal control questionnaire

GENERAL LEDGER

• Obtain a copy of the trial balance and financial statements as of the engagement date,
• Recompute totals and determine whether the financial statements are in balance and agree to the trial balance as of the audit date
• Trace and agree all general ledger accounts with balances as of the audit date to supporting schedules or reconciliations

LOANS TO MEMBERS

• Verify the credit union’s Loan Policy, Collection Policy, and Charge off Policy were signed as approved during the audit period
• Reconcile the general ledger to the member trial balance and outside processor reports
• Reconcile the AIRES file obtained from credit union personnel to the general ledger
• Review a sample of loans, including a selection loans outstanding to employees and officials as of the audit date, selected loans originated during the audit period, and selected loans of various collateral codes and types, using the following criteria:
  • Approvals on loan documentation are in accord with Loan Policy
  • The note on file is signed by the member
  • Ensure the lien on collateral has been perfected
  • That fair value of collateral has been determined and that loan amounts do not exceed maximum loan-to-value ratios per Loan Policy
  • Compare interest rate, payment amount, loan date, and collateral code on the member trial balance with the terms on original note
  • Ensure loan applications are within the loan files
  • Verify that credit reports are within loan files
  • Ensure that collateralized loans have valid insurance
• Review the following loan exception reports, if available:
  • Non-Amortizing Loans or Loans With Unpaid Interest Greater Than Scheduled Payment
  • Loans Paid Ahead In Excess of 90-Days From The Audit Date
  • Loans By Interest Rate
  • Credit Cards with Balances Greater Than Approved Credit Limit

ALLOWANCE FOR LOAN LOSSES/COLLECTIONS

• Roll-forward the activity in the Allowance for Loan Losses account for the audit period, including the following:
  • Trace Provision for Loan Losses per the financial statements to the roll-forward
  • Trace all charge-offs to Board of Directors minutes
  • Document all entries not related to recoveries, charge-offs and Provision for Loan Losses expense
  • Trace selected recovery postings from the general ledger, attorney’s records, bankruptcy remittances, and other subsidiary collection records
• Question selected entries posted to the Allowance for Loan Losses general ledger account during the audit period
• Review the Credit union’s delinquent loan report as of the audit date for compliance with NCUA’s Letter to Credit union’s 03-CU-01
• Compare the delinquent loan report as of the audit date with a delinquent report 3-months prior to the audit date. Document the reason any loan drops from the previous delinquent report
• Obtain a listing of all Collateral in Process of Liquidation as of the audit date, or all repossessed collateral in the possession of the Credit union as of the audit date. Ensure that all Collateral in Process of Liquidation is recorded at lower of cost of fair market value
• Document any foreclosures during the audit period. Ensure that any recorded foreclosures on the general ledger as of the audit date are recorded at the lower or fair market value or outstanding loan balance. Trace subsequent disposition to Non-Operating Gain or Loss
• Obtain and review the credit union’s written policy and methodology for periodically determining the adequacy of the Allowance for Loan and Lease Losses account for compliance with GAAP and the credit union’s written policy

CASH

• Agree change fund and other cash accounts to appropriate documentation
• Document physical cash counts, such as teller, vault, and ATM, and consigned items, performed by the credit union during the audit period
• Obtain the wire transfer authorization record and report who has authority to perform wire transfers. Report if personnel who are authorized to perform wire transfers are prohibited from performing bank account reconciliations
• Obtain the credit union’s reconciliations of selected correspondent financial institution accounts and On-Us accounts. Perform the following:
  • Compare the noted balances per the credit union to the general ledger control accounts
  • Compare noted bank balances to the respective bank statements
  • Test the mathematical accuracy of the account reconciliation
  • Verify the completion date falls within the credit union’s policy
  • Review dates of reconciling items in excess of 90-days. Disclose violations in the report
  • Trace outstanding checks to subsequent clearing
  • Selected checks not subsequently cleared should be traced to origination
  • Select a sample of reconciling items and trace forward to subsequent bank statements, e.g., outstanding checks, deposits in transit, returned items, etc
  • Select a sample of reconciling items and trace backwards to source documents, e.g., check register, prior reconciliations
  • Identify outstanding checks older than 90-days and advise transferring to accounts payable
  • Review a selection of cancelled check copies for proper authorization, signatures, and endorsements
  • Obtain positive confirmations for selected correspondent financial accounts. Confirmations received subsequent to issuance of the audit report may require a restated final audit report
  • Verify bank reconcilements are signed and dated by the preparer and reviewer
• Prepare a schedule of cash receipts and deposits for the last 5-7 days of the audit period and first 5-7 days of the next accounting period
• Agree cash receipts per the general ledger and deposits per the bank statements
• Assure that all receipts are deposited in a timely manner
• Obtain a copy of the correspondent financial institutions signature cards and determine authorized signatures

INVESTMENTS

• Verify the Investment and Asset-Liability Management Policy were signed as reviewed during the audit period
• Review the credit union’s reconciliation, schedule or subsidiary ledgers of all investments (ACCU, HTM, AFS, etc.) and compare to general ledger balances including detail by security, par value, cost basis, fair market value, unrealized gains (losses), purchase date, maturity date and interest rate. Test the schedule for mathematical accuracy. Ensure that investments comply with NCUA investment regulations
• Compare the total balance of unrealized gains and losses on securities designated as available for sale to the related equity account
• Make a selection of investments and compare the market value per the listing or subsidiary ledger to an outside market value provided by the credit union (of which such sources may include broker advice, the Wall Street Journal, corporate credit union quotes, etc.)
• Inquire if different individuals perform the following functions. Report which individuals perform these functions:
  • Authorization of the purchase or sale of any type of investments
  • Accounting for investments (including general ledger and subsidiary ledger record keeping)
• Perform positive confirmations for selected investments as of the audit date and determine if investments are pledged or subject to repurchase agreement with other parties. Confirmations received subsequent to issuance of the audit report may require a restated final audit report
• For all investments outstanding as of the audit date that were purchased during the audit period, perform the following:
  • Compare the terms of the investment with the credit union Investment Policy and report terms that deviate from policy
  • Review investment purchase advices and other documentation, including the credit union’s name as investor, par value, purchase price, interest rate, maturity date, and premiums or discounts
  • Ensure appropriate classification of investments relative to FAS 115 and the credit union’s Investment Policy

ACCRUED INTEREST ON LOANS & INVESTMENTS

• Review the credit union’s reconciliation of accrued interest on loans and credit cards per the general ledger with available data processing reports. Ensure the credit union’s method of determining uncollectible interest and procedures for identifying non-performing loans complies with industry standards (90-days delinquent is industry standard for non-accrual status)
• Review the credit union’s reconciliation of accrued investment income and available subsidiary records with general ledger balances. Recalculate a selection of accrued interest on investments for accuracy. Trace a selection of accrued interest on investments to subsequent receipt of interest payments

OTHER ASSETS: Accounts Receivable, Prepaid Expenses, Fixed Assets, NCUSIF Deposit, etc.

• Reconcile selected general ledger balances with appropriate subsidiary records
• Ensure adequacy of subsidiary records
• Trace to original invoices or other source documentation, as necessary
• Test amortization and depreciation schedules for accuracy, as necessary
• Ensure appropriate useful lives and amortization periods, as necessary
• Trace to subsequent receipt of payments or other proceeds, as necessary
• Ensure all balances represent lower of cost or fair market value, if applicable
• Report any balances outstanding over 90-days
• Determine compliance with regulatory limitations for fixed assets
• Determine if the credit union had insurance coverage for fixed assets
• Confirm selected other assets as deemed necessary

LIABILITIES: Accounts Payable, Accrued Dividends, Taxes Payable, Accrued Expenses, Suspense Accounts or Other Liabilities

• Reconcile each significant liability general ledger balance with appropriate subsidiary records
• Ensure adequacy of subsidiary records
• Trace to original invoices or other source documentation
• Trace to subsequent payments or other disbursements
• Compare actual recorded liabilities to supporting documentation or data processing reports
• Report any liability outstanding over 90-days
• Report any items subject to accrual not recorded at the audit date
• Inquire about any unrecorded liabilities, including lawsuits, unprocessed invoices, unrecorded commitments, contingent liabilities, and disbursements subsequent to the audit date
• Report any lines of credit, long-term debt, capitalized lease obligations or other notes payable
• Confirm selected other liabilities as deemed necessary

MEMBERS’ DEPOSITS

• Reconcile all members’ deposits per the member trial balance with the general ledger balances for members’ deposits
• As of the audit date, obtain a detail of all negative balances. Report a detailed list of all negative balances outstanding over 10 days or any amounts in excess of any written policies the credit union has in place
• Review the Overdraft Privilege reports to ensure compliance with any written policy the credit union has in place, if applicable
• Document the date of the last Escheat Report filed with the State

EQUITY

• Roll-forward the activity in all equity accounts. Trace income closings to financial statements. Document all adjustments or prior period entries relative to FAS 16 requirements
• Report the credit union’s Net Worth Ratio according to the credit union’s last Call Report
• Recalculate statutory transfers, if applicable

INCOME & EXPENSE

• Recalculate dividends posted on individual deposit accounts and interest charged to individual loan accounts on a sample of members’ accounts during the audit period
• Perform a gross test of interest on loans based on loan balances outstanding during the audit period and average yields on the loan portfolio according to data processing reports. Ensure variances are not greater than 5%
• Perform a gross test of investment income based on investment balances outstanding during the audit period and actual income. Ensure that calculated yields are reasonable.
• Test any entries recorded to the Non-Operating Gain or Loss general ledger account during the audit period
• Perform cash disbursement test work on significant non-payroll and non-dividend expenses for 90-days prior to the audit date. Trace to supporting documentation, authorization, cancelled invoices and proper expense classification
• Support significant transactions in miscellaneous income and expense accounts, and in non-operating income and expense accounts for the audit period. Trace to supporting documentation, authorization, cancelled invoices and proper expense classification
• Reconcile compensation or salary expense for the audit period with supporting payroll subsidiary records or payroll tax returns
• Agree to the general ledger dividend expense accounts the total dividends paid during the audit period using data processing reports of dividends paid for the major categories
• Obtain a copy of the last Excise Tax Return

GENERAL PROCEDURES

• Obtain financial statements presented during the audit period
• Review all Board of Directors minutes for the audit period. Ensure the following were recorded or approved by the Board of Directors:
  • Interest rate changes for members’ deposits
  • Interest rate changes on loans
  • Review of all policies annually
  • Delinquent loan reports
  • Loan charge-offs
  • Ensure an annual review of all bond and property coverage is documented during the audit period
  • Previous month’s minutes
  • New and closed accounts
  • Minutes signed by both Board elected President and Secretary
  • Attendance of all members of the Board of Directors
  • Comparison of Financial Statements to prior period
  • Comparison of Budgeted items at least quarterly.
• Obtain the last examination report by the NCUA or ACUA and document any findings not yet resolved by the credit union
• Obtain the last Annual Audit Report performed by the credit union and document any findings not yet resolved by the credit union
• Ensure the credit union’s bond coverage is adequate according to NCUA Rules and Regulations, Section 713
• Report the year of the last ACH audit
• Report the date of the most recent Account Verification performed by the Supervisory Committee or their agent