Inspector General: Examiners Did Not Raise Problems to Superiors

“Insanity: doing the same thing over and over again and expecting different results.” Albert Einstein

A common theme has emerged from the NCUA’s Office of Inspector General (IG) reports on the failures of New London Security FCU and High Desert FCU – examiners failed to elevate repeated problems to their superiors for stronger supervisory actions after the credit unions’ managements repeatedly did not take corrective actions.

In the case of New London Security FCU, examiners repeatedly expressed concerns over and provided recommended corrective actions regarding the lack of a safekeeping agreement and an inactive supervisory committee. In four of the six examinations reviewed by the IG, these issues were identified in Documents of Resolutions (DORs). But the IG found that examiners did not ensure the credit union took corrective action on these repeat DOR issues and examiners did not elevate these issues to their superiors for stronger supervisory actions such as a Regional Director’s Letter or a Letter of Understanding and Agreement. As a result, the IG concludes they missed an opportunity to uncover suspected investment fraud at the credit union.

In the case of High Desert FCU, examiners on more than one occasion issued DORs related to the credit union's member business loan and construction loan portfolios. Items of concern included underwriting of member business loans, impermissible member business loans, the training of credit union loan officers, and monitoring waivers associated with its construction loan portfolio. While these problems were repeatedly cited, they were not resolved. But the examiners never elevated these issues to their supervisors for stronger supervisory actions. “Consequently, examiners did not expand examination procedures when they should have done so, which could have mitigated the loss to the NCUSIF.”

How many second chances were these NCUA examiners going to give the management of these credit unions?

At the end of its report on the failure of High Desert FCU, the IG wrote that NCUA should consider giving examiners clearer “guidance on when a DOR is required, detailed follow-up procedures and documentation requirement on repeat findings, and a defined process to elevate issues within the NCUA that have not been appropriately resolved.”

It sounds like the IG believes that this is an issue across NCUA’s examiner force.

As a related thought, I suspect that the failure to elevate problems for stronger supervisory actions explains the dearth of enforcement actions being reported by NCUA. Unfortunately, this also means that credit union members are being kept in the dark about repeated problems at their credit unions.