Appendix A to Part 715 - Supervisory Committee Audit - Minimum Procedures
12:7.0.2.3.17.0.11.13.19 : Appendix A
Appendix A to Part 715 - Supervisory Committee Audit - Minimum
Procedures
This appendix presents minimum procedures which a supervisory
committee, its internal auditor, or other qualified person must
complete when a credit union chooses the Other Supervisory
Committee Audit option for completing its annual audit requirements
under § 715.7.
This option may not be adequate for all credit unions as it is
designed for smaller, less complex credit unions. The supervisory
committee, internal auditor, or other qualified person may also
need to perform additional procedures to supplement these minimum
procedures if the specific circumstances of a particular credit
union so dictate. The supervisory committee must apply its judgment
in determining the procedures necessary to meet audit requirements
in this part. The supervisory committee remains responsible to
ensure that a complete set of test procedures is performed. All
test procedures will be done using balances and samples for the
applicable audit period under review.
Any time the test or confirmation procedures include making a
sample or selection, the supervisory committee's report, its
internal auditor's report, or other qualified person's report on
minimum procedures should describe the method of selection and the
number of selected items.
For purposes of this appendix, the following definitions will
apply:
• Confirm or confirmation refers to a written verification with
a third-party (person or organization) pertaining to an account
balance or condition. Examples of confirmation letters are
bank/corporate credit union account confirmation, investment
account confirmation, borrowing or line of credit confirmation,
attorney letter confirmation, and member share/loan account
confirmation.
• Materiality refers to a statement, fact or item, which, giving
full consideration to the surrounding circumstances as they exist
at the time, it is of such a nature that its disclosure, or the
method of treating it, would be likely to influence or to make a
difference in the judgment and conduct of a reasonable person.
Materiality should take into account ending balances as well as the
volume of transactions in an account. Typically, balances or
transaction volume greater than 5 percent of the credit union's net
worth should be considered material for purposes of this
appendix.
• Review refers to the examination of Board minutes, policies
and procedures, and a review of a sample portion of
activities, rather than all of the activities.
• Test refers to procedures applied to the individual items that
compose an account balance or class of transactions. The tests
involve confirmation, inspection, or observation procedures to
provide evidence about the recorded amount.
The supervisory committee, internal auditor, or other qualified
person must perform and document the following minimum
procedures:
• Review Board of Director minutes to determine whether there are
any material changes to the credit union's activities or condition
that are relevant to the areas to be reviewed in the audit • Test
and confirm material asset and liability accounts including, at a
minimum:
○ Loans
○ Cash on deposit
○ Investments
○ Shares
○ Borrowings
• Test material equity, income, and expense accounts • Test for
unrecorded liabilities • Review key internal controls including, at
a minimum:
○ Bank reconciliation procedures
○ Cash controls
○ Dormant account controls
○ Wire and ACH transfer controls
○ Loan approval and disbursement procedures
○ Controls over accounts of employees and officials
○ Other real estate owned
○ Foreclosed and repossessed assets
• Test the mathematical accuracy of the allowance for loan and
lease loss account and ensure the methodology is properly applied •
Test loan delinquency and charge-offs [84 FR 53308, Oct. 7, 2019]