Inspector General Reports 3 New Challenges Facing NCUA

In its annual letter, included in the NCUA’s 2021 Annual Report, the agency’s Office of Inspector General (IG) laid out what it sees as the highest priority of management and performance challenges facing the NCUA in 2022.

Included in the March 4 letter were seven challenges “based on our past and ongoing work; our knowledge of the NCUA’s programs and operations; and information from the U.S. Government Accountability Office and NCUA management and staff.” The seven challenges included:

1. Economic Outlook in a Pandemic Environment
2. Cybersecurity and IT Governance – Protecting Systems and Data
3. Risks Posed by Third-Party Service Providers
4. Managing Interest Rate Risk and Liquidity Risk
5. Industry Consolidation and Challenges Facing Small Credit Unions
6. Supporting Diversity in the Credit Union Industry
7. Human Capital and Planning for the Future Workforce

According to the IG report, three challenges were new to the list: Ensuring readiness in a pandemic environment, supporting diversity in the credit union industry and managing human resources.

Concerning the “Economic Outlook in a Pandemic Environment,” the IG stated the challenges revolved around the ongoing implications of the COVID-19 pandemic and rising interest rates.

“Higher-than-expected inflation for a prolonged period could spur Federal Reserve policymakers to raise the federal funds target rate more aggressively than currently expected. Tighter credit conditions typically constrain consumer and business borrowing and spending and cause economic growth to slow. If short-term rates rise more than long-term rates, the yield curve will flatten, putting downward pressure on credit union net interest margins,” the report stated.

The IG report found the challenge of “Supporting Diversity in the Credit Union Industry” concerned the future of how the NCUA supports Minority Depository Institutions (MDIs) that serve and promote minority and low- and moderate-income communities.

The report stated, “The primary challenge for the NCUA is to measure the effectiveness of its efforts in supporting MDIs. The NCUA plays an important role in preserving and promoting MDIs.” The IG report added, “This work can be enhanced with the NCUA’s continued commitment to diversity and inclusion in the federal regulatory process, which is critical for the NCUA to foster greater financial inclusion for all Americans.”

The issue of “Human Capital and Planning for the Future Workforce” was labeled as a significant challenge to the NCUA due to a dramatic rise in leadership retirements during the past year and a growing need for succession planning.

According to the IG report, the NCUA saw a 340% increase in the number of retirements in leadership positions in 2021, compared to only 5% in 2020.

“The NCUA’s workforce is changing and evolving and the Agency will need to continue to make critical investments in its human capital. This includes providing the Agency’s workforce with new training, developing and mentoring the next generation of agency leaders, and continuing to foster a diverse and inclusive environment,” the report stated.

The IG’s report warned of a pending wave of new retirements coming soon.

“The NCUA faces retirement rates of nearly 61% for executives and 55% for supervisors over that same period. Finding appropriate successors who can lead the Agency and employees who have the requisite skills and expertise is essential to ensuring that the NCUA can continue to achieve its mission effectively, especially given the significant investments in, and time required for, credit union examiner certification,” the report stated.

READ MORE: 2021 NCUA Annual Report. IG Report can be found on pages 174-184.