Bulletin No. 2005-10-CU

In the matter of Reimbursement of Officials' Travel and Other Expenses

Issued and entered this 10th day of June 2005

By Linda A. Watters, Commissioner

This bulletin supersedes Bulletin 91-1.

The purpose of this bulletin is to address safety and soundness issues related to the expenses of credit union officials. Several credit unions have asked the Commissioner to clarify her position regarding expense reimbursement for credit union officials and possibly members of their families, when the official is attending credit union business or educational functions.

Section 342(6) of the Michigan Credit Union Act, 2003 PA 215, as amended, MCL 490.342(6), states, "An individual elected or appointed to serve as a director, supervisory committee member, or credit committee member of a domestic credit union, or as a member of any other committee that performs significant ongoing functions relating to the ongoing operations of a domestic credit union, shall not receive compensation for his or her service as a board or committee member."

The Commissioner interprets this provision to prohibit a credit union from paying members of its Board of Directors or members of it supervisory or credit committees any type of wages, stipends, or remuneration for attending meetings or otherwise acting in their official capacity.

The Commissioner does not interpret the statute to prohibit a credit union from reimbursing board members for legitimate expenses incurred by the board members while conducting credit union business. Certain travel expenses incurred for bona fide credit union business or training sessions would be legitimate reimbursable items, provided the Board of Directors has adopted a written policy identifying and authorizing such expenditures.

A credit union's written policy for official travel expense reimbursements must:

• Identify permissible credit union functions where reimbursement is allowed.
• Identify persons eligible for reimbursement.
• Establish maximum limitations on lodging, meals, travel, and other expenses.
• Require proof of cost incurred by requiring receipts for all listed expenditures, and
• Require that all documentation and supporting receipts be maintained for examiner review.

The Board of Directors should seek appropriate professional counsel regarding tax consequences and reporting requirements. The reimbursement for costs associated with a family member accompanying an official on bona fide credit union business requires special attention by the Board of Directors. No specific authority exists in the Michigan Credit Union Act or Rules for reimbursement of expenses for an official's family members. On the other hand, the membership of the credit union could allow or specifically authorize such reimbursement for expenses of officials' family members. If the Board of Directors, acting on delegated authority, decides to authorize this practice, the Board of Directors is put in the precarious position of appearing to have a "conflict of interest." If a Board of Directors elects to have a policy whereby anyone other than an official receives reimbursement for official expenses, the policy must specifically address this practice, and the policy should be provided to the credit union's membership before being implemented. It is not necessary that the membership vote on the policy, but the membership should be specifically notified of the policy before formal adoption by the Board of Directors in order that comments may be received by the Board of Directors.

OFIS examiners may review written reimbursement policies and the procedure for adoption of the policies during the course of the regular examination. Examiners may also review the documentation supporting specific reimbursements.

Reimbursement for an official's actual lost wages when conducting credit union business would also be allowable. Reimbursement should be limited to actual lost wages. Authorization, documentation requirements, and procedures for payment of lost wages must be contained in written policies adopted by the Board of Directors.

A credit union may provide reasonable health, accident, and related types of personal insurance protection covering officials at the expense of the credit union. Such insurance coverage must exclude life insurance and must be limited to areas of risk, including accidental death and dismemberment, to which the official is exposed by reason of carrying out the duties or responsibilities of the official's credit union position. All credit union paid insurance must cease immediately upon the insured person's leaving office, without providing residual benefits other than for pending claims.

The Board of Directors must consider the credit union's financial condition when determining whether to provide officials with reimbursements. Those expenses, if paid, must be included in a credit union's annual budget and be paid only if a credit union has adequate operating income and capital.

Any questions regarding this bulletin should be directed to:

Office of Financial and Insurance Services
Credit Union Division
611 West Ottawa Street
P.O. Box 30220
Lansing, Michigan 48909-7720

Phone: (517) 373-6930
Toll Free: (877) 999-6442

Signed: Linda A. Watters
Commissioner of Financial and Insurance Services