Supervisory Committee Audits and Verifications

NATIONAL CREDIT UNION ADMINISTRATION <CFR>12 CFR Part 715</CFR> <RIN>RIN 3133-AF74</RIN> <SUBJECT>Supervisory Committee Audits and Verifications</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> National Credit Union Administration (NCUA). <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The NCUA Board is proposing to amend its regulations governing supervisory committee audits to eliminate unnecessary, redundant, and overly prescriptive provisions. This action is necessary to reduce regulatory burden, increase operational flexibility for credit unions, and streamline the rules by removing requirements that are outdated or duplicative of other authorities. The intended effect of this proposal is to simplify compliance for credit unions without compromising the integrity of the audit process. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received by February 9, 2026. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments may be submitted in one of the following ways. <E T="03">(Please send comments by one method only)</E> : • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> The docket number for this proposed rule is NCUA-2025-1303. Follow the “Submit a comment” instructions. If you are reading this document on <E T="03">federalregister.gov,</E> you may use the green “SUBMIT A PUBLIC COMMENT” button beneath this rulemaking's title to submit a comment to the <E T="03">regulations.gov</E> docket. A plain language summary of the proposed rule is also available on the docket website. • <E T="03">Mail:</E> Address to Melane Conyers-Ausbrooks, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. • <E T="03">Hand Delivery/Courier:</E> Same as mailing address. Mailed and hand-delivered comments must be received by the close of the comment period. <E T="03">Public inspection:</E> Please follow the search instructions on <E T="03">https://www.regulations.gov</E> to view the public comments. Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments are public records; they are publicly displayed exactly as received, and will not be deleted, modified, or redacted. Comments may be submitted anonymously. If you are unable to access public comments on the internet, you may contact the NCUA for alternative access by calling (703) 518-6540 or emailing <E T="03">OGCMail@ncua.gov.</E> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Ian Marenna, Associate General Counsel, Office of General Counsel, at (703) 518-6540 or at 1775 Duke Street, Alexandria, VA 22314. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Introduction</HD> <HD SOURCE="HD2">A. Background</HD> The NCUA Board proposes to amend its regulations at 12 CFR part 715, which govern the supervisory committee audit and verification responsibilities for federally insured credit unions (FICUs). The primary purpose of this regulation is to ensure that FICUs meet required financial reporting objectives and establish practices and procedures sufficient to safeguard members' assets from error, conflicts of interest, self-dealing, and fraud. The current proposal seeks to partially or wholly eliminate several sections of this part. The following is a description of the purpose and function of those sections as they currently exist. Section 715.2 defines key terms used throughout the part. It establishes the meaning of technical terms such as <E T="03">financial statements</E> , <E T="03">financial statement audit</E> , <E T="03">GAAP,</E> and <E T="03">GAAS.</E> It also defines terms specific to the rule's framework, such as <E T="03">compensated person,</E> which refers to an accounting or auditing professional compensated for performing more than one supervisory committee audit per year, and <E T="03">working papers</E> , which are the records supporting the auditor's findings. This section distinguishes a formal <E T="03">financial statement audit</E> from the broader <E T="03">supervisory committee audit</E> responsibility, which can be fulfilled through several alternative engagements. Section 715.8 sets forth the requirements for the verification of member accounts. This requirement is derived from 12 U.S.C. 1761d and obligates the supervisory committee to verify members' passbooks and accounts against the credit union's records at least once every two years. The regulation permits several methods for this verification, including a 100 percent controlled verification of all member share and loan accounts, a statistical sampling method, or a non-statistical sampling method consistent with GAAS when performed by a state-licensed independent person. Section 715.9 governs the engagement of an outside, compensated person to assist the supervisory committee. To ensure auditor independence, the section prohibits such a person from being related by blood or marriage to any management employee or official of the credit union. It also mandates that the engagement be formalized through a written engagement letter contracted directly with the supervisory committee. This letter must specify the terms, conditions, objectives, and compensation for the engagement; identify the basis of accounting to be used; and set a target date for the delivery of the written audit report. The engagement letter must also certify that regulators will be provided unconditional access to the complete set of original working papers and acknowledge that these papers will be retained for at least three years. Section 715.10 outlines the supervisory committee's responsibilities for the audit report and working papers. Upon receiving a written audit report, the committee must submit it to the board of directors and provide a summary of the audit to the members at the next annual meeting. If a member requests it, the committee must provide access to the full audit report. This section also holds the supervisory committee responsible for maintaining a complete set of original working papers for each audit and for providing the NCUA with unconditional access to these papers upon request. Section 715.12 provides statutory remedies for the NCUA Board to address non-compliance by a federal credit union (FCU). The Board may compel a credit union to obtain a supervisory committee audit performed by an independent, state-licensed person if the credit union's supervisory committee fails to obtain a required annual audit or obtains one that does not meet the requirements of part 715. The Board may also compel a full financial statement audit if the credit union has experienced “serious and persistent recordkeeping deficiencies.” The rule defines a deficiency as “serious” if financial reporting objectives are not met and member assets are not safeguarded, and “persistent” if it continues beyond a reasonable period. Section 741.202 applies supervisory committee audit and verification and other requirements of part 715 to all FICUs, which extends coverage to federally insured, state-chartered credit unions. The reasons for the proposed changes are discussed in the preamble, under the heading “Discussion.” <HD SOURCE="HD2">B. Legal Authority</HD> Sections 115 and 202(a)(6) of the FCU Act set forth provisions addressing auditing and accounting requirements. <SU>1</SU> <FTREF/> Section 115 of the FCU Act requires a FCU's supervisory committee to make an annual audit and submit a report of that audit to the FCU's board of directors and a summary of that report to the FCU's members at the next annual meeting. <SU>2</SU> <FTREF/> Further, the supervisory committee is required to make supplemental reports as it deems necessary. <FTNT> <SU>1</SU>  12 U.S.C. 1761d; 12 U.S.C. 1782(a)(6). </FTNT> <FTNT> <SU>2</SU>  12 U.S.C. 1761d. </FTNT> Section 202(a)(6)(A) of the FCU Act is a general grant of authority to the Board to prescribe audit standards that require an outside, independent audit by a certified public accountant for any fiscal year for which a FICU has not conducted an annual supervisory committee audit, has not received a complete and satisfactory supervisory committee audit, or during which the FICU has experienced persistent or serious recordkeeping deficiencies. <SU>3</SU> <FTREF/> <FTNT> <SU>3</SU>  12 U.S.C. 1782(a)(6)(C). </FTNT> Section 202(a)(6)(C) of the FCU Act generally requires FICUs having assets of $10 million or more to use accounting principles consistent with GAAP in all reports or statements required to be filed with the Board. The Board, and state credit union supervisors under applicable state law, may require credit unions having less than $10 million in assets to follow GAAP. Section 202(a)(6)(D) of the FCU Act imposes audit requirements for larger FICUs. Specifically, a FICU having assets of $500 million or more is required to obtain an annual independent audit of its financial statements performed in accordance with GAAS, hereafter referred to as a “financial statement audit.” That audit must be performed by an independent certified public accountant or public accountant licensed to do so by an appropriate state or jurisdiction. <SU>4</SU> <FTREF/> <FTNT> <SU>4</SU>  12 U.S.C. 1782(a)(6)(D). </FTNT> Additionally, if an FCU having total assets of less than $500 million but more than $10 million elects to obtain a financial statement audit, the audit must be performed consistent with the accountancy laws of the appropriate state or jurisdiction. <SU>5</SU> <FTREF/> <FTNT> <SU>5</SU>  12 U.S.C. 1782(a)(6)(D)(ii). </FTNT> <HD SOURCE="HD1">II. Proposed Rule</HD> The Board ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 26k characters. 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