in the late 1970’s Norman Gazer was a relatively new examiner in the Credit Union Division of the Department of Financial institutions (DFI) in Illinois. He had a bookkeeping background, understood accounting, and had a very quiet, reticent almost shy demeanor.
One of the DFI’s goals was that every one of the over 1,000 state charters must have an annual exam. This must be by the DFI examiners or completed by an independent CPA firm using our format.
An essential part of the annual exam was the verification of lndividual loan and share account balances. This was the primary function of the supervisory committee. In larger credit unions this would be done by an outside firm. When there was no record in smaller credit unions, the examiners would attempt to test the accounts.
Norman did this in two ways. He would run his own adding machine tape of the individual ledger balances to see if they equalled the general ledger total. Were their suspense accounts? Late entries etc? This was before computers. In some cases the cards were still hand posted.
I knew we verified external investments by sending out confirmation requests to firms holding these balances. But how did he verify members? He said it was simple. He just looked up the names in the telephone book and called.
It was this effort to verify accounts that led Norman to discover the credit union defalcation at Scott, Forseman and Company, the publisher of the children’s first reading books: “See Spot Run.” After repeated attempts to balance the share accounts, Norman determined the credit union manager of this $1 million single sponsor, was keeping two sets of books.
When confronted, the manager handed over the second set. The defalcation was almost $1.0 million.Norman’s documentation persuaded CUNA Mutual to cover most of the shortfall under the credit union’s fidelity bond.
Whose Voice Do You Listen to?
In America today almost anyone can set up a platform to share their views about any issue. Politicians routinely present themselves as the voice of the neglected, unheard or angry.
We often choose the voices to follow by two criteria. Do we generally agree with the person’s point of view whether the topic is professional, personal or political. Secondly, we tend to believe those in leadership, or individuals whose opinions are based on their professional experiences and credentials (professors, doctors, lawyers, or regulators)
One of the commentators i respect is Ancin Cooley. His succinct postings are well reasoned and from extensive on the ground interactions. His comment on the recommendations of America’s Credit Union lobbiests to reduce NCUA rules caught my attention. And reminded me of Norman’s story of why we have supervisory committees in the first place.
This is Cooley’s response to ACU’s proposal to eliminate supervisory committee and succession planning requirements by NCUA.
What are we doing?
“Now its eliminate succession planning and Supervisory Committee audits?
We’re literally watching member money be used to advocate against the very guardrails designed to protect them and the institutions they trust.
At some point, someone has to throw a flag on the play. Come on y’all….
Succession planning shouldn’t even be up for debate. It’s basic governance. It’s only an issue because if there is a succession plan in place, it makes it difficult to merge the credit union when a CEO retires.
And now, Supervisory Committees? Yes, they can be a pain, but the function must remain intact and unweakened.
This one’s been locked-and-loaded for a while, especially given the quiet, strategic push to weaken audit committees through legislative efforts over the last twenty years.
If we let this trend continue, the very banks we claim not to be will end up with stronger governance and audit protections for their shareholders than we offer our members.
I’ve been asking this question repeatedly: Who do our associations and leagues actually represent?
The members? The credit unions?
Or the CEOs who sign the check for the membership dues?
Because if you said members—if you truly represent the membership—let me be clear: this proposal is not in the interest of any member-owner.
No bank shareholder would vote to eliminate their audit committee. Why? Because they have their actual money at stake.
Our members deserve the same level of protection. Their collective capital deserves the same level of seriousness and protection.”
This is plain spoken common sense by a person who knows what he is talking about. But there is still a worse outcome than bad counsel.
What could be more disastrous? Complete silence. Especially by those in positions of responsibility for credit unions. Tomorrow I will show how voicelessness communicates approval of bad behavior in The Art of the Steal.