[Congressional Record Volume 143, Number 130 (Thursday, September 25, 1997)]
[Extensions of Remarks]
[Pages E1853-E1854]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 THE CREDIT UNION AUDIT IMPROVEMENT ACT

                                 ______
                                 

                           HON. BILL McCOLLUM

                               of florida

                    in the house of representatives

                      Thursday, September 25, 1997

  Mr. McCOLLUM. Mr. Speaker, I rise today in support of legislation, 
the Credit Union Audit Improvement Act of 1997, I am introducing with 
my colleague, Mr. Bachus of Alabama. As Members of this body know, our 
Nation's insured credit unions are a vital part of our financial 
services system. Therefore, the accuracy of their financial records is 
of utmost importance. It is important to the people trusting their 
money with these institutions, to the regulators doing their job and to 
the taxpayers who actually ensure these institutions.
  It is with this in mind that I introduce the Credit Union Audit 
Improvement Act. My legislation would do several things. It would amend 
the Federal Credit Union Act [the act] to require each federally 
insured Federal and State credit union to: prepare financial statements 
in accordance with generally accepted accounting principles [GAAP] and 
to have an independent audit performed by an independent licensed 
accountant in accordance with generally accepted auditing standards 
[GAAS]; prepare an annual written assertion about the effectiveness of 
the credit union's internal controls over financial reporting; obtain a 
written report--or attestation report--from an independent licensed 
accountant regarding management's report on internal controls; and 
prepare an annual written assertion about the credit union's compliance 
with specified laws and regulations.
  Under the legislation, the National Credit Union Administration 
[NCUA] would be able to exempt smaller credit unions with less than $10 
million in assets. The bill would also specifically require credit 
unions to engage only those external persons who meet applicable state 
licensing requirements to perform services subject to these 
requirements.
  This legislation is in response to a final ruling by the NCUA on 
financial audits of credit unions. The final rule, effective December 
31, 1996, allows compensated, nonlicensed persons to audit a credit 
union's financial information and internal controls. This is in direct 
contravention to most State accountancy statutes, which require 
auditors to be licensed. Several State boards of accountancy, including 
the one in my home State of Florida, have written in protest of this 
rule. Florida State law states that only certified public accountants 
can attest as an expert in accountancy to the reliability or fairness 
of presentation of financial information. The NCUA, in response to 
several States' inquiries, has made clear its intention to preempt 
these State laws, support a credit

[[Page E1854]]

union's right to hire anyone it deems qualified to perform the audit. 
This seems odd--after all, who is going to be a better judge of who is 
qualified? A credit union supervisory board made up of volunteers who 
may or may not have any background in financial statements or the State 
accountancy boards?
  Frankly, Mr. Speaker, I was a bit surprised to learn that the act 
lacks clear objectives and standards for audits and external auditors. 
The safety and soundness of untold numbers of credit unions--and 
therefore their insurance--could be jeopardized if credit union 
management and regulators do not have a reliable financial picture. 
Section 115 of the act says only that each Federal credit union's 
supervisory committee shall make or cause to be made an annual audit. 
NCUA rules require--in substance, though not in form--an audit of 
financial statements. But what does not make sense is that the audit 
does not have to be based on professional auditing standards followed 
by independent professional auditors.
  This makes no sense. I believe that such an audit should be performed 
only by independent licensed professional public accountants as 
virtually every State accountancy statute requires. Audits are 
important to ensure that financial data used by a credit union's 
members and by Federal and State regulators are reliable as well as to 
identify potential control weaknesses. But the audit loses its 
effectiveness when not performed according to the rigors of 
professional standards by persons who have had to demonstrate their 
competence and independence in auditing.
  Allowing nonlicensed individuals to perform audits poses a direct 
threat to the public interest by legitimizing work that is inadequate, 
lacks uniformity, and is void of definitive standards.
  Mr. Speaker, I am not alone in believing this. When talking to credit 
union managers, I was told that many credit unions already have audits 
performed by licensed professionals. When asked why, the purpose was 
clear: fiduciary reasons. The supervisory committees have an obligation 
to their depositors to ensure that the credit union is properly audited 
since an audit can pick up things that even the most thorough NCUA 
examination would not. But credit union managers are not alone in their 
thoughts. The GAO also recommended that credit unions above a minimum 
size should be required to obtain annual independent certified public 
accountant audits and to make annual management reports in internal 
controls and compliance with laws and regulations in a 1991 report. In 
1993, the NCUA itself proposed requiring credit unions with more than 
$50 million in assets to obtain annual independent audits of their 
financial statements. The NCUA not only cited the 1991 GAO report, but 
it also said that the requirement was necessary due to the increasing 
complexity of credit unions' financial statements. This proposal was 
modified into today's form due to pressure from the industry.
  In response to my request for comment on this bill, the NCUA gave 
several reasons, none satisfactory in my opinion, why unlicensed people 
should be allowed to perform audits outside of GAAP standards. Among 
them, it was pointed out that the NCUA would like to preserve the 
occasional GAAP/RAP differences. RAP standards proved ineffective long 
ago, most notably in the savings and loan failures. Elimination of RAP 
standards alone may be a good enough argument for this bill.
  The bottom line, Mr. Speaker, is that we cannot allow nonlicensed 
persons to do external auditing at insured credit unions. After all, 
what's the point if they do not provide the reliability that one 
performed by a licensed individual? There is no good reason why we 
should not ensure that credit union audits are as reliable as possible. 
I urge my colleagues to support this legislation.

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