Are Supervisory Committees Up to the Job?
by Henry Meier
Recently, the CEO of the now defunct Women’s Southwest FCU pleaded guilty to embezzling $3.4 million from the credit union over an 11 year period. This is quite the trick considering that the credit union had only $2 million in assets. Incidentally, the Credit Union Times reports that the CEO was going for her criminal justice degree, which will probably come in handy as she spends time in prison. To me, this case demonstrates an issue that the industry should proactively confront. With “small” credit unions about to get a lot bigger and all credit unions now interconnected with the largest financial institutions in the world, are supervisory committees up to the task of providing oversight of a credit union’s financial practices on behalf of a credit union’s members and its board? Don’t underestimate the importance of the supervisory committee. Its general responsibilities are intended to ensure that a credit union meets financial reporting requirements and, more importantly, has “practices and procedures sufficient to safeguard members’ assets.”
This is important stuff, but although NCUA’s guidelines outlined preferred qualifications, there are no formal requirements for membership in the supervisory committee other than the requirement that the members serve on a voluntary basis. In other words, even though the core responsibility of a supervisory committee is to be able to deal with a credit union’s outside auditor and understand the conclusions reached, there is absolutely no guarantee that the committee members will have the expertise to do so.
Credit unions have argued that the volunteer nature of their oversight structure effectively shields them from the type of structural temptations that necessitated the creation of independent review committees comprised of independent directors for banks under the Sarbanes-Oxley Act. This is half right, but if anything, mandating that volunteers make up the supervisory committee makes it more difficult to get individuals with an accounting or financial background to serve on these committees, particularly in smaller communities. So, with the reminder that the opinions that I express in this blog are mine and only mine, why not work for a system that:
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