LAKE BUENA VISTA, Fla. — Talk to the executives of three different CUSOs and you'll get three widely different takes on their experiences with examiners.

Sitting on a NACUSO conference panel Tuesday titled "CUSO Exams, The Good, The Bad, and the Ugly," were Mark Bostock, CEO of Centennial Lending LLC, a mortgage and commercial lending CUSO in Longmont, Colo., Kirk Drake, president/CEO of business continuity and technology CUSO Ongoing Operations in Hagerstown, Md., and Bob Child, chief of staff of CU Direct, a lending services CUSO in Ontario, Calif.

Centennial Lending's last exam was about a year and a half ago, Bostock said. He got the call in June alerting the CUSO that examiners were coming in August, he recalled.

"They looked at everything and frankly, it was a little overkill, but we didn't have anything to hide," said Bostock. "From our point of view, the exam went kind of well. From the days of the very early exams to the more recent (ones), our examiners have improved in our region."

Bostock did note that examiners took a standard checklist for credit unions and modified it. After a series of sessions, the CUSO received a final report to which they had 90 days to respond.

"We won a few arguments and lost a few. They gave us a final report, came in for a final review and said they wouldn't have to come back probably for another four to five years," Bostock said.

Ongoing Operations' last exam was in the spring of 2013, Drake said.

"There was a huge educational gap. This was before they had official IT examiners," he recalled. "When we hire an IT person, it takes six to nine months to get someone up to speed. There were seven examiners onsite so we spent the better part of a week and a half on education."

Drake said there was very little feedback on policy-level information. Both corporate and natural person credit union examiners were onsite at Ongoing Operations.

"Quite frankly, I don't know why the natural person examiners were there. Some of things they asked didn't make sense in the grand scheme of things," Drake recalled.

Drake said he was surprised to learn that the CUSO's final report was mailed out to investors after being told it would not. He reiterated there was nothing to hide.

The examiners suggested things such as creating a formal vendor management program, which in Drake's IT world is more on the line of what credit unions would have in place, he said.

Read More: A pretty positive experience …

As a former credit union chief technology officer, Drake said he was familiar with the exam experience and knew that there were different complexities between credit unions and CUSOs when it came to vendor management.

Still, overall, he was pleased with the Ongoing Operation's last exam.

"We actually had a pretty positive experience," said Drake.

Child with CU Direct remembered the reaction when the CUSO first got the call from NCUA.

"We had a call across management on whether the NCUA had the authority to do (the exam) and initially, we were going to say, 'No,'" he recalled. "But we said, 'Let's go forward because we don't have anything to hide.'"

The process started six months before the actual exam that included a 15-page questionnaire similar to what is presented at a credit union's exam, said Child.

"It was asking for our deposits and other things you get at a credit union. We opted to do an open kimono approach."

Five examiners came onsite for three weeks. There was a conference room set up with dozen of crates of information to go through, said Child. The basic focus was operational. Questions were asked on everything from employment practices to, as in Drake's case, a vendor management program.

Internal controls and compliance policies were also examined. One examiner even asked if the CU Direct did call backs to any persons that filed complaints. The suggestion was made to keep a complaint log. Like Ongoing Operations, CU Direct's final report went out to all of the CUSO's investors.  He was expecting questions about things such as IT security but they never came.

"Record-keeping and documentation will be the key defining elements," Child said at the session packed with attendees. "We have financial statements going back 20 years. In our CUSO, we had a paragraph for vendor management. It's a little thing that gave them a layer of comfort. They're looking for manuals like you would see at a credit union – a three-ring binder."

There were several lessons learned.

"I would say don't expect them to know about your CUSO before they show up. One of the good things that came out of the exam was we got the opportunity to share with the NCUA in such great deal what we do as a business," said Child. "It was beneficial for us. It was beneficial for them because I think it cleared up some misperceptions."


 

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