Key people need key financial data

There are a number of constituency groups within a credit union, the people of which have (or should have) an interest in their respective credit union’s financial health.  These constituency groups include regulators, managers, employees, committees and members.  Making sure these people understand the importance of being aware of a credit union’s financial standing and then keeping them informed can be daunting for CEOs.  The challenge becomes particularly acute when it comes to people who serve on a voluntary basis on a variety of credit union committees.  And yet, these volunteers often are the people regulators expect to assume the highest levels of responsibility for a credit union’s viability and compliance.   Credit union committees most likely to be manned wholly or partially by volunteers include boards of directors, supervisory committees and asset/liability management committees (ALCO).  These committees are critical to a credit union’s existence.  Yet, for volunteers, their credit union responsibilities are often secondary to their respective professions.  The most competent volunteers usually have a limited amount of time to devote to their credit union’s affairs.  

The purpose of this article is to focus on some critical credit union committees and the volunteers who make up these committees.  We’ll briefly delve into why volunteers should constantly be aware of their credit union’s financial standing.  Then we’ll explore how managers can help volunteers meet their mandated financial responsibilities with a minimum of time.

The Board of Directors May be Comprised of Volunteers but Responsibilities Are Still High

NCUA has made it clear that individuals serving on boards of directors are to be held to high standards and expectations as described in regulations (CODE OF FEDERAL REGULATIONS; Title 12 – BANKS AND BANKING; PART 701- ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS; §701.4 General authorities and duties of Federal credit union directors).

The board of directors is responsible for the general direction and control of affairs of their Federal credit union.  The ultimate responsibility of each Federal credit union’s board of directors for that Federal credit union’s direction and control is non-delegable.  Board members are expected to:

• Carry out their duties in good faith and in the best interests of the membership as a whole
• Administer affairs fairly and impartially
• Within six months of election, have a working knowledge of credit union finances and accounting practices
• Direct management’s operation in conformity with regulations

Among the key competencies board members are expected to master are basic financial literacy and financial analysis.

Boards are expected to make sure the credit union maintains its sound financial condition and boards should continually assess the credit union’s financial performance.

Volunteers Often Serve on ALCOs

A credit union’s Asset/Liability Management Committee (ALCO) is probably the most important operating task force that serves in a credit union.  A credit union’s ALCO is responsible for the coordinated oversight of its balance sheet.  Regulators expect a credit union’s ALCO to assume responsibility for recommending to the board of directors the amount of risk to which the credit union should be exposed.  ALCO membership should include representation from each major department within a credit union including the board of directors and the supervisory committee.   ALCOs should be tracking key financial data within a credit union to assure the ALCO is performing according to regulations and making effective recommendations to management and the board of directors.

For Volunteers, Quality Data over Quantity is Imperative

Every person in a credit union who serves in a leadership positon needs to be provided a number of reports to keep them aware of the performance of that credit union.  Because a credit union’s financial standing can shift quickly, it is best to provide reports monthly.  

Volunteers often serve on boards and other required committees within credit unions.  These volunteers usually have limited time to devote to their credit union duties.  It imperative they have critical financial data in a capsulated format that they and other leaders can scan quickly and determine if there are areas that  need to be  “drilled down on”.   

The best method to provide important financial data in a capsulated format is to utilize key financial indicators reports.   Key financial indicators that reflect the most significant areas leaders need to focus on need not make up a lengthy list.  An effective key financial indicator report can usually be fitted on one page and can be quickly scanned by a trained observer.  

Based on years of research and experience, this author makes the following recommendations regarding key financial indicators reports:

• A committee, or an experienced consulting firm,  be commissioned to create the list of key financial indicators
• Key financial indicators be tracked for three to five years
• Long-term goals for each indicator be reflected on the report
• Color coding be used in the report that highlights indicators according to the level they are within or outside parameters (i.e. green, yellow, red, etc.)  
• A stochastic, statistically-validated method be used to determine indicators that should be reflected on the report to assure the indicators represent data that are significant to the meeting of long-term objectives
• The list of key financial indicators be limited to no more than a dozen and a half

In Summary:

Credit unions are dependent on volunteers to serve in key positions.  Typically, turnover is high among competent volunteers because of their time constraints.  Keeping experienced volunteers in their respective positions is as important as keeping experienced employees.   Respecting the limited time volunteers have to devote to credit union affairs helps to assure they will stay in their positions longer.  Providing key data in a capsulated format will help to keep volunteers informed and effective with a minimal amount of their time.