It's in the Scope, or is It?
Posted by Mr. Chad Stanislav, VP Financial & Technology, Credit Union Resources, Inc on 6/14/2017

When I talk to credit union management about services, I am amused, befuddled, and somewhat disappointed.  If there is one fault in credit unions, it is that they are too trusting; trusting that the vendor will always do what is in the best interest of the credit union, the member, and the movement.  Sure they want the credit union to do well and succeed, because they want them long term as a client, but at the end of the day, the vendor is in it to make money.  Each of us, including credit unions and vendors, has to make money or we would not continue in business.  I am running into too many proposals with prospective clients where the scope from other vendors is not clearly defined.  Vendors often make the scope in their proposals vague to hide its limitations which probably maximize their own profits.

Many of these audit proposals, especially for financial agreed upon procedure audits, will only include the main areas of review, which includes:

  • Internal controls
  • Bank reconciliations
  • Allowance for Loan Loss
  • Reserves
  • Investments
  • Board Minutes
  • Share Accounts
  • General Loan Review
  • Teller Summary Sheets
  • Other Assets/Liabilities

This vague explanation may establish the main areas that will be reviewed, but does it establish the depth and expectations included in the scope?  No.  Even if the scope in your mind appears acceptable to you there are many questions you should be asking yourself and your audit firm.  What procedures are performed on the general ledger accounts not included their scope?  What about compliance concerns in those areas not included?  Even regarding the ten main areas mentioned above that are included, what are the audit steps to be performed?  Since audit scope is not refined, how can we be assured they are adequate in the review?  Are there certain audit steps performed on areas on the credit union that are not mentioned in the scope?  And finally, if procedures are not performed as part of your annual audit because they are not in the scope, who becomes responsible to ensuring they are being performed?  The answer to that question is your management and your Board of Directors and/or Supervisory Committee.  Do your credit union officials have the credit union knowledge to ensure they can provide a thorough general ledger account review, loan review and ensure the safety and soundness of your internal controls?  Although these types of audits will satisfy your audit requirement, be prepared to take on additional responsibilities to satisfy NCUA on all those additional procedures.

When generic scopes are presented in proposals, it allows vendors to be able to short scope and hide behind their vagueness.  Do not let price drive the scope.  Credit union management has a fiduciary responsibility to be good stewards of membership’s money.  Part of being a good steward is obtaining a thorough review of the general ledger, lending, and internal controls to ensure all are being properly handled.

Do not be too trusting with what these limited scope agreed upon procedure audits really cover. Remember, if certain audit steps or scope areas are not covered by your auditor in your annual audit, they become the full responsibility of credit union management, Board of Directors and/or Supervisory Committee.  There are so many variations of financial audits that are being offered, as we mentioned before, they will satisfy your examiners expectations for the audit.  However, it is beyond the audit you need to be thinking about.  Know your responsibilities after completion of the audit. The examiners will expect it.  Just keep this in mind; what is not in the scope may be more telling than what is in the scope.

Categories: Compliance, Financial & Auditing
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