Employee fraud and dishonesty does not discriminate. It can and does happen at credit unions of every size.
Therefore, credit unions of every size must approach risk and internal controls from every angle to stay more secure, Ken Otsuka, senior consultant, risk management, at CUNA Mutual Group said during a presentation Tuesday at the CUNA Bank Secrecy Act Conference.
While only about 13% of the claims credit unions file with CUNA Mutual involve employee dishonesty, the associated losses are “very, very severe,” Otsuka says.
The dollar amount paid on such claims is about 49 cents to every $1 of claims. What’s more concerning, he adds, is that embezzlement schemes seem to last longer, which translates into more money stolen per fraud.
Otsuka told conference attendees to steer clear of these “famous last words” related to employee fraud:
The financial services industry is the top industry victimized by this type of crime and, Otsuka says, due mainly to a lack of internal controls. He shared these findings related to 368 cases:
Factors that create a powerful temptation for employees include financial need, weak or nonexistent controls, and rationalization, or a “just this once” mindset.
Otsuka advises having appropriate internal controls in place to address unauthorized or fictitious loans, bondability verification, and background checks.
“Internal controls make it much harder for an employee to steal and will lessen the duration of a scheme,” Otsuka says, although even strict internal controls cannot eliminate the possibility of employee dishonesty.
The CUNA Bank Secrecy Act Conference, held in partnership with the National Association of State Credit Union Supervisors, continues through Wednesday in San Antonio.