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Could Your Next NCUA Examination Be....

Could Your Next NCUA Examination Be….Virtual?

At two presentation I made this week I addressed the Virtual Examination topic. Here is what we know:

In 2017, the NCUA Board approved the Virtual Examination project and provided funding to research methods to conduct offsite as many aspects of the examination and supervision processes as possible.

The NCUA is evaluating new ways to utilize:

· new and emerging data,

· advancements in analytical techniques,

· innovative technology, and

· improvements in supervisory approaches.

Around that same time a pilot program called FLEX began. The goal of the FLEX pilot was expand what tasks could feasibly be done offsite. Such improvements could save NCUA and credit unions money if done right.

Of course, along with the rest of society NCUA faced the challenge of COVID-19. In March of last year, as Executive Director, I made the decision to suspend onsite examinations. That remains the stance at NCUA today.

The pandemic is making NCUA and others rethink how and where work is done. I do not know when NCUA plans to go back onsite at credit unions. Undoubtedly, the pandemic has forcibly stretched the definition of what can be done offsite by NCUA. Expect NCUA to integrate lessons learned during the pandemic in planning for enhanced offsite procedures.

Per NCUA, the Virtual Examination team was to deliver to the NCUA Board by the end of 2020 an initial report discussing alternative methods identified to remotely analyze aspects of the financial and operational condition of a credit union. The Board is undoubtedly studying this before making any long term decisions. Whenever NCUA announces exams are back onsite – you will likely also hear an update on what NCUA is thinking about the future of the virtual exam.


IN NCUA’s 2021 ANNUAL PLAN – the Board States (emphasis added):

• “By identifying and adopting alternative methods to remotely analyze the financial and operational condition of a credit union, while maintaining or improving effectiveness relative to current examinations, it may be possible to significantly reduce the frequency and scope of onsite examinations. Onsite examination activities could potentially be limited to periodic data quality and governance reviews, interventions for material problems, and meetings or other examination activities that need to be handled in person. To be successful, examination staff will likely need to analyze more information about the credit union being examined and to communicate more frequently with management at the credit union. However, by conducting this analytic work offsite, the NCUA expects to have less impact on credit unions’ day-to-day operations.”

• The NCUA believes that effective Virtual Examinations should lead to greater use of standardized interaction protocols, advanced analytical capabilities, and better-informed subject matter experts. This should result in more consistent and accurate supervisory determinations, provide greater clarity and consistency with respect to how the agency conducts supervisory oversight, and reduce coordination challenges between agency and credit union staff.

My Thoughts

The key sentence in all of this above: “examination staff will likely need to analyze more information about the credit union being examined and to communicate more frequently with management at the credit union”

The Devil is in the Details

My clients are reporting that due to the offsite exam posture examiners are ALREADY expanding documentation requests. I am also hearing that communication efforts can be disjointed and slower than when face to face. These kinks can be worked out. But do not lose sight of the fact that NCUA career staff will want more data to do less onsite. Even the Board is now acknowledging that.

Expect bigger and longer 5300s. Expect more statistical analysis. If you are an outlier in certain areas, expect NCUA to drill down on that. This can be good for fraud detection at smaller institutions. In the end will providing more data lead to a lesser foot print or simply more questions than before? Less time onsite does not automatically mean easier examinations….


Remember that most of NCUA’s staff are represented by a union. Most staff do not work out of an office, rather (pre-pandemic) they normally work in credit unions doing exams. Once the dust of the pandemic disappears NCUA will need to negotiate with the union on what the new normal looks like. Prior to the pandemic, offsite work was fully optional. Said another way an NCUA examiner could decide that all work would be done onsite.

As NCUA assesses a Virtual Exam, it has several options all of which must consider the impact on its staff.

If NCUA mandates and negotiates use of a home office, this could have a material impact on NCUA’s budget that could offset any related gains in travel costs. How does less onsite work increase travel costs? Currently NCUA examiners homes are not considered their office. If they were, every time they left the office – even for local travel – NCUA would be required to allow all travel time to be charged for leaving the office. Currently much local travel time cannot be charged, essentially because they are leaving their home and not work site. This is a complicated and nuanced set of rules, but one that will have to be negotiated by NCUA. Travel time reduces productive time, meaning all other things being equal, NCUA needs more examiners to do the same amount of work. Offsite exam time cost savings would need to exceed “designation of home office” costs for NCUA to achieve true cost savings.

Instead of designation of an examiner’s home as office, NCUA could opt for the FDIC model and arrange for leased office works space for staff. Under this scenario, examiner staff leave the house every day with local travel to that leased NCUA office. Local travel time cannot be claimed– just like it works now for any NCUA staff who report to an office. This mileage is also not reimbursable – another savings for NCUA. Back when NCUA staff first unionized the agency negotiator at the time used this option as leverage during negotiations. I expect the same may happen this time and the threat of such offices will be used to negotiate better terms for NCUA to control costs.

In summary, a Virtual Examination doesn’t necessarily mean an easier or cheaper one.

If you are worried about your next examination and you would like to talk about possibly adding my experience to your team email me at , or schedule your FREE strategy session by clicking HERE

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