Credit union board members who are informed and engaged help protect their credit unions, members—and the credit union system as a whole, NCUA Board Vice Chairman Rick Metsger said last week during the National Directors Roundtable Conference in San Diego.
Covering subjects ranging from regulatory relief and risk-based capital rule to credit unions’ advantages for consumers, Metsger stressed one area in particular: internal fraud.
“You are the first line of defense,” said Metsger, a former director at Teachers Credit Union in Portland, Ore. “Your job is to know what’s going on, to be engaged, and to ask questions. That’s how you lead your credit union, that’s how you protect it, protect your members, protect the system, and protect the share insurance fund.”
While National Credit Union Share Insurance Fund losses overall have been declining, Metsger said internal fraud is a continuing problem, particularly at smaller credit unions.
“Internal fraud is a major contributor in more than half of the losses to the share insurance fund,” Metsger said, “and it poses a significant reputation risk for credit unions. However, it can be difficult to find, often because credit union boards and supervisory committees are not as strong and active as they should be.”
He cited a recent case in Hawaii where three credit union employees, none of them aware of what the others were doing, bilked a credit union out of $500,000. “Now, that’s a lack of internal controls.”
In 2009 and 2013, estimated losses actually exceeded the assets of the credit unions driven into liquidation by internal fraud. He added that when fraud is detected, it is nearly always the result of work by an examiner, auditor, or outside party.
In the last 12 years, Metsger said, not one case of internal fraud leading to the failure of a credit union has ever been detected by a single board member or supervisory committee member.
With more supervisory focus on larger credit unions, it’s more important for directors of small institutions—which are more likely to be targets of fraud—to be vigilant.
Metsger pointed to several “red flags” that should alert directors to possible internal fraud, including:
“Credit unions offer great value to their members and are important to offering an affordable, nonprofit alternative in financial services,” Metsger said. “It’s also important that we keep the public’s faith in their safety and soundness.”