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NCUA Board Vice Chair Discusses Red Flags for Internal Fraud
Friday, October 17, 2014 6:35 AM

Credit union board members who are informed and engaged help protect their credit unions, members, and the credit union system, National Credit Union Administration Board Vice Chairman Rick Metsger said yesterday at the National Directors Roundtable Conference in San Diego.

Metsger's talk stressed internal fraud. "You are the first line of defense," he said. "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."

"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."

Metsger said 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, not one case of internal fraud leading to the failure of a credit union has been detected by a single board member or supervisory committee member.

Internal fraud is especially prevalent in smaller credit unions. Metsger pointed to several red flags that should alert directors to possible internal fraud, including:

  • Missing records and signature cards, which has occurred in every case of fraud uncovered since 2002,
  • Recordkeeping problems and items off the balance sheet,
  • A manager has outside business interests,
  • Management delays in providing information,
  • Backdated transactions, and
  • Large deposits flowing through an account.

"Credit unions offer great value to their members and are important to offering an affordable, non-profit alternative in financial services," Metsger said. "It's also important that we keep the public's faith in their safety and soundness."