Amerika Birleşik Devletleri`nde kredi birlikleri ve finansal denetimi

Abstract

Ill INTRODUCTION Credit Unions are cooperatives owned and directed by and dedicated to serving members who are united by a common bond of professional, geographical, or social identity. Credit Union movement began in the United States in 1909. The number of Credit Unions has grown rapidly since the enactment of the Federal Credit Union Act in 1934, Today the existence of credit unions apart from United States is almost nil. From the first day of operations Credit Unions have long played an important role in individual savings and consumers installment loans. As a result of recent.1 r.-gi si ative and regulatory changes, Credit Unions may since offer expanded services, such as long term real estate loans credit cards, electronic - based funds systems and automated teller machines. Volunteers make many decisions in most Credit Unions. In United States the law requires that the board ot directors and a supervisory committee of a credit union, be elected or appointed by its membership.-IV- CHAPTER I 1. CREDIT DNIONS 1.1. General Credit unions are nonprofit, cooperative organisations composed of individuals with a `common bond` who borrow from and lend to each other. Officers of credit unions are usually unpaid volunteers elected from the membership. In 1976 number of credit unions was 22,184. At the second half of 1970's %55.9 of total credit unions' members were industrial workers and %15.4 were government employees. In credit unions deposits are called as shares. Members of credit unions have share percentages in credit unions according to their total deposit amounts._v- 1.2. Credit Dnlon Performance In D.S.A 1961 - 1976 : Credit unions grew rapidly thoughout the 1961-76 period. Assets at credit unions rose at an annual rate of 12.8 percent, compared with %8. 6 at commercial banks. Over this same period, credit unions increased their share of total consumer installment credit from %Q. 3 to &16.1. While the number of credit unions did not increase substantially over this period, membership almost tripled, reaching to 34 million members by 1976. Despite substantial growth, the credit union industry remained small, compared with other financial institutions. Althought total credit union assets exceeded $45 billion by 1976, this was only about %5 of commercial bank assets. Most of the 22,533 credit unions operating in 1976 were small. This can be seen by the 60 largest credit unions which were holding %14.5 of all credit union assets. Table below summarizes the balance sheets of credit unions at the end of 1976 :-VI Balance Sheet for All Credit Unions, 197) Total Assets, USD 45 billion Distribution of Assets % Loans to members Cash Investments Other 76.0 2.6 19.1 2.3 Distribution of Liabilities and Capital % Members' savings Reserves and undistributed earnings Other 86.6 8.4 5.0 197 7 - 1983 : Total assets at credit unions more than doubled during the 1973-83 period, rising at an annual rate of %12. In the same period annual growth rate in commercial banks was %9. 9. While credit union membership rose to over 48 million by the end of 1983, the number of credit unions declined by %15, falling to 19,205. The size distribution of credit unions, however, did not change radically. The 60 largest credit unions still held about %14 of all assets. Table below summarizes the balance sheets of credit unions at the end of 1983 :-VII- As can be seen on table above the major change comparing with 1961-76 period is the decline in the loans to members. There are two major reasons for that :First the earning percentages of government securities reached t v. loans' earning level, second the increase in unemployment has increased the disbursement risk of the loans. 1983 - 1989 : Credit unions continued to improve in 1983-89 period. Total of credit unions assets has increased by &94 and reached to USD 194 billion. This significant improvement has increased the share of credit unions' assets in total eni. cial banks' assets from %5 (1976) to %1 (1983).-VIII- 1.3. General Powers and Management Structure of Credit Unions 1.3.1. General Powers of Credit unions Seven or more persons employed or residing in the same location may form a credit union. Credit union has below general powers after its constitution : * To issue shares to persons qualified for membership. * To charge an entrance fee to subscribers for such shares. * To charge a reasonable fee for the transfer of its shares. * To lend money to its members upon such terms and conditions as the by-laws provide and as the credit committee shall approve. * To deposit any moneys received to other financial institutions. * To borrow money to an amount not exceeding forty per centum of the capital. Apart above powers credit unions has certain limitations. The major of such limitations are as follows :-IX- * Maximum loan provided to any members is USD 2,000 If member's deposit balance is less than USD 25,000 maximum loan limit is USD 500. * Share holders may have maximum % 5 of total shares. 1.3.2. Management Structure of Credit Dnions There are three major management environments in credit union. These are Board of Directors, Credit Committee and Supervisory Committee. Major duties of board of directors are : the evaluation of new membership applications, decision taking of interest and loan rates, the announcement of dividend percentage, the placement of credit union's funds. Major duty of credit committee is the evaluation of new loan requisitions. For this purpose credit committee has the power to make all kind of investigations. Major duty of supervisory committee is to control if all credit union operations are made as they have to be For this purpose supervisory committee periodically inspects board of directors' and credit committee's minutes, controls at least two times in a year credit union ledgers, performs at least an audit in a year.-X- CHAPTER II 2. AUDITING IH A CREDIT UNION ENVIRONMENT The term audit refers to an examination made by an auditor in accordance with the generally accepted auditing standards for the purpose of expressing an opinion on a credit union's financial statements. 2.1. Planning the Audit In planning the audit of financial statements of a credit union, the auditor usually performs a preliminary review of financial data and reviews internal audit reports. As a result of the preliminary review and prior years audit experiences, following information is assembled when planning the audit: General : * Engagement letter * Location of offices * Office hours of employees * Use of computercharts. -XI- Internal Control: * Policy and procedure manuals and organization * Report samples * Samples of forms * Internal control system Information on accounts: * Number of bank accounts * Transaction volume Investment Securities: Loans : *? Classifications of loans * Collateral and supporting documents of loans * Interest receipt dates * Interest accrual policies Savings Accounts: Others : * Access to minutes * Related parties of credit unions * Borrowed funds * Circularization-XII- 2.2. Tiaipg of the Audit The nature, timing and extent of the audit procedures to be performed and the resulting reports to be issued are determined by the auditor and are included in the engagement letter. Based on several factors, the auditor may determine that a portion of the audit can be performed at an interim date. 2.3. Risk in the Credit Dnion Industry The auditor should determine risks in the credit union industry for the accuracy of the audit. The following factors may cause risks in the credit union: * Improper credit extension procedures * Insufficient methods for customer evaluation * Changes in the national economy or in the economy of the credit union's region. * Changes in a particular industry 2.4. Audit Objectives In obtaining evidential matter in support of financial statement assertions, the auditor develops-XIII- specific audit objectives in the light of those assertions. In developing the audit objectives of a particular engagement, the auditor should consider the specific circumstances of the entity, including the nature of its economic activity and the accounting practices unique to its industry. These assertions can be classified into five broad categories: Existence or occurrence: Do assets or liabilities of the entiry exist at audit date, and have recorded transactions occurred during the period subject to the audit ? Completeness: Are all transactions and accounts that should be presented in the financial statements.included ? Rights and obligations: Do all assets belong to the entity, and are all liabilities abligations of the entity at a given date ? Valuation: Have all asset, liability, revenue and expense components been included in the financial statements at their oppropriate amounts ? Presentation and disclosure: Are components of the financial statements properly classified, described, and disclosed ? 2.5. Application of Audit Sampling-XIV- During the audit in credit unions sampling are used in several audit procedures. These samplings are checked by various tests. We can summarize them in two main categories: Compliance test: To determine the compliance of transactions with the procedures specified before. Substantive test: Substantive test can be summarized in two categories. These are tests of transactions and balances and analytical review on financial statements. Test of transactions and balances generally include following procedures and their combinations : * Reconciliation of third parties * Observation of assets * Reconciliation of accounts * Test of forms and supporting documents * Recomputations * Review of accounts for unusual events * Cut-off works * Minute review Analytical review procedures can be determined as fol lows : * Comparison of financial the data with prior years. * Comparison of financial the data with budget and estimations. * Comparison of financial the data with comparable unions data.-XV- * Analysis of the relations between financial and non financial data. 2.7. General Representation Letter As part of the audit, certain written representations should be obtained from credit unions, management. These represantations generally include: * All contingent assets and liabilities have been adequately disclosed in the financial statements where appropriate. * Adequate provision has been made for any losses that may be incurred on securities or loans. * Liabilities are adequate for interest on deposits and borrowed funds. * Permanent declines in value of securities and other investments have been properly reflected in the financial statements. * Commitments to purchase or sell securities have been adequately disclosed in the financial s'.atements, where approqriate. Certain representations other than above ones can be obtained according to the nature of the audit.-XVI- CHAPTER III 3- AUDITS OF FINANCIAL STATEMENTS 3.1. Cash Cash generally includes cash on deposit in other depository institutions and cash on hand. It is generally unnecessary to distinguish among the various elements included within the `cash' captions; therefore, the financial statement caption for cash includes deposits in the financial institutons, deposits in transit and cash on hand. The significant audit objectives for cash are to consider whether the balances are fairly stated in conformity with the generally accepted accounting principles and whether cash items held will clear in the normal course of business. Cash is a significant item to a credit union because of the large volume of cash receipt and disbursement transactions.-XVII- Typical audit procedures include the following: * Count cash * Test bank reconciliations * Test interbank transfers * Test tellers proof sheets * Test propriety of authorized signatures * Reconcile subsidiary ledgers to general ledgers. 3.2. Investment Securities The management of credit union funds allows alternatives in the choice of assets, with the investment objective being on optimum balance of credit quality, liquidity, and income. This objective is attained through the investment portfolio, which typically is the credit union's second most significant asset after loans. Types of investments available to credit unions are generally treasury bills, goverment and private bonds. Investment securities should be disclosed, either in the satement of financial condition or in the i:;tes to the financial satements in their market values. This helps a render of the credit union's financial statement evaluate the potential earning power of those investments.-XVIII- The significant objectives of tests of a credit union's investment securities are to obtain reasonable assurance that; * All required disclosures have been made * The physical securities are on hand or held in custody for safekeeping by others for the account of the credit union. * investments and the related income, gains, and losses are fairly presented in conformity with the generally accepted accounting principles in the financial statements, including disolosure of amounts pledged and market value. 3.3. Loans Loans are generally the largest asset of a credit union and may be classified as follows: * Consumer loans - Collateralized loans - Unsecured loans * Loans collateralized by savings accounts * Agricultural loans * Business loans Loans historically have been presented in the statement of financial condition in an aggregate amount. Note disclosures should include a breakdown of loans by major types of lending activities.-XIX- Significant audit objectives include evidential matter to support the assertions that * Loan balances are reasonably stated as of the date of the financial statements under examination. * The allowance for loan losses is adequate. * Income and related accrued interest receivable are stated in conformity with the generally accepted accounting principles. * Loans are owned by the credit union 3.4. Fixed Assets Fixed assets include the following: * Land * Buildings * Machinery and equipment * Motor vehi cles * Furniture and fixtures * Leasehold improvements * Construction in progress Property acquired in satisfaction of members loan obligations should not be included in fixed assets, but rather under the other assets caption. Typical depreciation methods used by credit unions include the following: * Straight- line-XX- * Sum-of-the years' digits * Declining balance Fixed assets are normally shown as a single caption on the statement of financial conditon, net of accumulated depreciation. Typical audit procedures for fixed assets include the following: * Examine supporting documents for major additions, sales, retirements. * Examine deals and title insurance policies. * Test computation of depreciation amounts 3.5. Other Assets The following items many constitute other assets in a credit union: * Real astate or other property acquired in satisfaction of members loan obligations. *Prepaid experses * Accrued income accounts * Accounts receivable * Transitory accounts Other assets are presented as a single amount on the statement of financial condition. However items that are individually material in amount should be presented separately under that caption. Items classified as 'other-XXI- assets1 are generally presented last in the asset section of the statement of financial condition. 3.6. Savings Accounts A credit union is funded primarily by members' savings deposits, which may be referred to as share drafts, or share certificates. The members of a credit union are also its owners. The savings of the owners-members are frequently referred to as share accounts; the interest paid on the accounts is often called a dividend. Credit unions are cooperative organisations, with each member entitled to one vote in the election of officials and other matters presented to the membership. Savings accounts of credit union members should appear in the liabilities section of the statement of financial condition. The classes of savings should be reported in a note to the financial statements. Interest paid or accrued commonly referred as dividends, should be treatet as an expense in the statement of income, and interest (dividends) payable to members should be shown as a liability. The principal objective in testing a credit union's savings accounts is to obtain reasonable assurance that the saving account balances and related expense-XXII- accounts are fairly stated in conformity with the generally accepted accounting principles and that the accounts are properly classified in the financial statements. 3.7. Borrowed Funds There are several categories of borrowed funds including the following: * Borrowing from Central Bank * Promissory notes * Mortgages payable * Repurchase agreements. Individual borrowed fund types should be presented separately in the liability section of the statement of financial condition if their amount are material. Notes to the financial statements should disclose the following: * Interes rates * Due dates * Pledged collateral or compensating balance agreements The principal audit objective for borrowed funds is to obtain reasonable assurance that liabilities and related expense accounts are fairly presented in conformity with generally accepted accounting principles and that required disclosures have been made in the-XXIII- financial statements or in the notes. The extent of audit procedures for borrowed funds depends on the circumtances of the engagament. Certain auditing procedures that may be considered when examining borrowed funds are the following: * Request confirmation of the terms of borrowing with the lender (including, for example, current balance, interest rate, and pledged property). * Test interest expense and accrued interest payable. * Read the financial statements to determine if required disclosures have been made. 3.8. Other Liabilities Other liabilities of credit unions may include the following: * Accounts payable * Accrued interest, /(dividend) payable * Accrued wages * Accrrued audit and consultancy agency fees. * Liability for traveller's checks * Other accrued expenses * Transitory accounts If material, each of the above accounts should be stated separately in the statement of financial-XXIV- condition or in the related notes. Accrual accounts should be audited in conjunction with the examination of the realed statement of financial contition account. Other accounts may be audited by compliance test methods since they are generally composed of various and immaterial balances. 3.9. Equity The equity section of a credit union's statements of financial condition typically consists only of retained earnings. Retained earnings represent accumulated undistributed earnings available to * Comply with regulatory reserve requirements. * Benefit members by offering below-market rates on loans. * Benefit members by offering above-market rates on savings. * Provide an equity base. The following classifications earnings may exist in a credit union. * Regular reserve * Appropriated retained earnings, * Undistributed profit reserve of retained-XXV- * Donated equity Retained earnings should be shown as a single item on the statement of financial condition. The auditor should become familiar with the reserve requirements of the credit union's bylaws. The auditor should review the retained earnings accounts for compliance with applicable rules and regulations and should consider whether deviations should be disclosed. 3.10. Operating Revenue and Expense Income and expenses of a credit union are accumulated in revenue and expense accounts for the current accounting period until they are close into retained earnings. The statement of income may be prepared under either of two concepts: Net interest: Interest (dividends) on savings and interest on borrowed funds are separately disclosed and subtracted from income from loans and investments to arrive at net interest income. Other expense and income items are then subtracted from and added to net interest income to arrive at net income. Gross income and expense: All income items are grouped and all expense items are grouped. Total expense-XXVI- is deducted from total income to arrive at net income The major audit objectives for operating revenue and expense are to determine that income and expenses are both accumulated properly and presented in conformity with generally accepted accounting principles, including adequate disclosures.-XXVII CHAPTER IV 4. AUDIT REPORT As a result of audit works a report is prepared and presented to credit union management. Audit report can be divided into three sections. These are: * Opinion page * Financial statements * Notes to financial statements Opinion page is the expression of the auditors on credit union's financial statements. This expression can be either qualified on unqualified according to credit union's current situation. Unqualified expression means that credit union's financial statements present fairly the financial condition of the credit union as of the audit date. Generally financial statements are composed of statement of financial condition, statements of income, statements of retained earnings and statements of changes in financial position.-XXVIII- To be more comprehensive, financial statements in the audit report are supported with additional notes which gives information related to financial balances.