To help identify, measure and control risks that threaten net worth and earnings, boards must ensure credit unions implement a formal risk assessment process.

That was the advice shared by Ann Davidson, senior risk management consultant at CUNA Mutual Group, speaking at a CUES Directors Conference session Wednesday in Las Vegas.

“Risk can never be entirely eliminated, but using risk assessments as part of an enterprise-wide risk management strategy will help credit unions continue to provide meaningful products and services to members while including necessary safeguards to protect the credit union,” Davidson said.

A robust risk assessment process forms the foundation for an enterprise risk management process, which is becoming increasingly important due to increased regulatory requirements, Davidson noted.

She pointed to the Federal Financial Institutions Examination Council's new online authentication guidance in issued in June that stresses and reinforces the importance of performing periodic risk assessments. Examiners will start reviewing credit union controls under the updated guidance beginning in January 2012.

Davidson said risk assessments should answer these questions: What can go wrong? How can it go wrong? What is the potential impact? What preventative measures can be taken? And how can it be stopped from happening again or at all?

“It's the board's responsibility to determine their credit union's risk tolerance and formally establish it through approved policies,” Davidson said.