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NCUA’s Office of Inspection General (OIG) issued an alarming report on September 29, 2011 involving “unresolved” DOR items, which can be found here. Essentially, the report finds that NCUA examiners are routinely failing to follow up on “unresolved” DOR items, resulting in credit union failures and avoidable losses to the NCUSIF. With a forthcoming new National Supervision Policy Manual (NSPM) likely in early 2012, NCUA is clearly signaling a stepped up approach to DOR enforcement. How can your credit union better prepare itself? Understand The DOR Process And Your Rights Under the NCUA’s current Examiner’s Guide, a Document of Resolution is a negotiated document . . . no, really, that’s what the Guide says:
“Examiners use the Document of Resolution to outline plans and agreements reached with the officials to reduce areas of unacceptable risk. . . . Examiners should strive to reach agreements with the officials on needed corrective action. If the officials will not agree to a Document of Resolution, the examiner should work with them to develop alternative solutions or give them additional time to develop acceptable plans of their own.” (See page 20-4)
Given the heavy hand that appears to be forthcoming, now is the time to insist upon precise, achievable and accurate DOR items. Make sure that: (i) action items are consistent with the exam findings (and that the findings are accurate and support the DOR); (ii) time frames are reasonable; and (iii) action items are clear, and do not contain “evergreen” provisions. Clauses such as “keep reducing expenses to achieve results with your peers” and “perform risk assessments on your loan portfolio” are imprecise and potentially never ending. Based upon the many poorly drafted DORs we have encountered, we strongly suspect that the OIG’s findings regarding so many “unresolved” DOR items involve many of the types noted above. Educate Your Board and Supervisory Committee Management knows the rules have changed, and appear to be about to change again . . . but does your Board and Supervisory Committee? Accept Valid Constructive Criticism While challenging vague DOR items based upon questionable exam findings is entirely appropriate, we see too many occasions when a credit union management team (often backed by the Board) wants to challenge everything in an exam report. This approach is usually counterproductive and most often results in an overall harsher final exam report and DOR. Don’t Let DOR Items Go Unresolved Sounds simple, but many credit union managers turn their focus to pressing business needs once they get the regulators out the door. To assure timely response and compliance, a centralized approach is often best. Your credit union’s internal auditor, compliance officer or other managers can be tasked with making sure that credit union departments with outstanding DOR items address and respond in a timely matter. Maintaining thorough and accurate progress logs and evidence of communications with the regulator are essential. When the credit union believes it has completed a DOR item, evidence of completion along with a clear communication to the regulator that the credit union views the item as complete, is important. Prevention Is Even Better Talk to your peers at other shops, talk to your attorneys and accountants. Ask them what are examiners focusing on. Then, proactively address those items at your credit union before the examiners arrive. The easiest DOR item to handle is the one that never occurs.