Credit Unions Should be Ready to Live up to a Sarbanes-Oxley Standard

Life under Sarb-Ox will require new capabilities and resources. Now is the time for both commenting and planning.


On February 16, NCUA released an Advanced Notice of Proposed Rulemaking (ANPR) focused on credit union supervisory committees and internal controls. If enacted, credit unions would be required to follow practices similar to those found in Section 404 of the Sarbanes-Oxley Act (Sarb-Ox), which placed a heavy compliance burden on public companies.

Credit unions have until April 24 to respond to the ANPR with comments. The paramount issue NCUA is looking for feedback on is whether credit unions should be subject to a rule requiring management and their external auditors to attest to the effectiveness of the internal controls over financial reporting, which approaches the requirements of Section 404. Currently, the FDIC requires banks and thrifts over $1B in assets to present an attestation and the GAO has recommended that NCUA consider establishing regulatory parity.

Few credit union managers, staff, directors and supervisory committee members have experience managing in a Sarb-Ox Section 404 environment. The experience of other companies illustrates that conforming to Section 404 is expensive and time-consuming. It requires increased staffing, improved internal systems, and additional outside auditor time. In fact, a 2005 Independent Community Bankers Association of America study found that it cost banks more than 2,000 staff hours and over $200,000 on average to comply with Section 404. However, stronger internal controls could potentially lead to reduced stress on the NCUA’s insurance fund, meaning lower contributions in the future. Additionally, credit unions could make enhanced internal controls another element of risk-based capital calculations.

The most important thing credit unions can do at this point is estimate the impact on their credit unions and for the industry as a whole, balanced against potential benefits to members, safety and soundness. To learn more about the issues credit unions may face, view the recording titled: Is Your Credit Union Ready for a Sarbanes-Oxley Standard? Understanding Internal Controls



March 6, 2006


  • The enactment of Sarbanes-Oxley has been a boon to the accounting profession. If they had been doing their jobs effectively and monitoring themselves, this would not have been necessary. To properly implement this is very costly and would in all likely hood cause Credit Unions to reduce Dividends to them. It seems that the cost benefit is out of proportion, especially if this is required of all Credit Unions, regardless of asset size. It may be feasible for Credit Unions with over a billion dollars in assets, as they could afford and probably have the staff to manage the process.