Each credit union’s supervisory committee plays a crucial role in risk management.
According to National Credit Union Association (NCUA), "The supervisory committee's responsibilities and effectiveness impact all risk areas in the credit union, but most significantly, compliance, transaction, and reputation risks. Credit, interest rate, strategic, and liquidity risk oversight primarily relates to ensuring proper administration of board approved plans, policies, and control procedures for operating the credit union."
The supervisory committee's primary functions include ensuring accurate financial statements and verifying that management practices safeguard members' assets.
Internal controls are processes established to provide reasonable assurance over operational effectiveness, safeguard assets, maintain reliable data, promote efficiency, and ensure compliance. The supervisory committee is responsible for establishing and maintaining these internal controls.
"An internal control weakness occurs when management fails to correctly design or implement a control,” according to NCUA. Examples of internal control weaknesses include:
A supervisory committee member’s risk management role extends beyond setting policies. They must also create a strong risk management culture by leading by example and communicating the importance of risk management to the supervisory committee and board of directors. Ensuring that risk management is integrated into the credit union's strategic planning and decision-making processes is also critical.
Regular risk assessments are essential for identifying potential threats and vulnerabilities. The supervisory committee should ensure that these assessments are conducted and that the results are used to update and strengthen risk management policies and procedures. Additionally, the supervisory committee must oversee the development and implementation of incident response plans and be prepared to guide the credit union through potential crises.
Third-party vendors can introduce additional risks to the credit union. Supervisory committee members must oversee the implementation of vendor risk-management policies and procedures, including due diligence, contract review, and ongoing monitoring.
Ongoing supervisory committee education and training are crucial for staying current on emerging risks, regulatory changes, and best practices in risk management. Staying informed about evolving risks and best practices is essential for effective risk management. Events like the upcoming Supervisory Committee & Internal Audit Conference in December 2024 provide valuable opportunities to learn about relevant risk topics, such as credit risk, liquidity risk, and interest-rate risk.
Prioritizing risk management and attending relevant conferences equips leaders to make informed decisions and ensure the long-term success of their credit unions.