SAN DIEGO (10/16/14)--Informed and engaged credit union board members are the first line of defense against internal fraud, said National Credit Union Administration Vice Chair Rick Metsger, who addressed the National Directors Roundtable Conference in San Diego Wednesday.
"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," said Metsger, who served on the board of directors of Teachers CU, Portland, Ore., from 1993 to 2001.
He said that while Share Insurance Fund losses overall have been declining, 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. In one recent case in Hawaii, 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."
Metsger pointed to several red flags of possible internal fraud, including:
In 2009 and 2013, estimated losses actually exceeded the assets of the credit unions driven into liquidation by internal fraud. Metsger 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, he 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.