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NCUA Webinar Covers Fraud Signs, Solutions
ALEXANDRIA, Va. (11/15/13)--Why credit union employees commit fraud, and how proper supervision and strong internal controls can help fight fraud were discussed during a Thursday National Credit Union Administration webinar.

The webinar, titled "Deterring Employee Fraud," featured fraud detection and prevention tips from Joni Lovingood, a senior consultant with CUNA Mutual Group, and Scott Butterfield of Your Credit Union Partner. The webinar was hosted by NCUA Office of Small Credit Unions Initiatives Economic Development Specialist Lauren Bethea.

The median loss in financial institution fraud cases is $140,000, according to an Association of Certified Fraud Examiners report.

Any credit union employee, including vice presidents, managers, collectors, data processors, tellers, loan officers and accountants, can commit an act of financial fraud, Lovingood said. Signs to look out for in the event of potential fraud include employee attitude changes and lifestyle, and spending and borrowing changes.

Credit unions can also inadvertently aid fraudsters by having inactive supervisory committees and internal auditors, performing inadequate background checks and maintaining lax internal controls.

An inactive and/or poorly trained supervisory committee, a weak internal control culture, and poor follow up of past audit findings are among the common internal control weaknesses cited by Butterfield. To remedy these issues, Butterfield suggested credit unions can:
  • Establish clear expectations for the supervisory committee and clarify the committee's audit framework, policies, protocol and audit specifications;
  • Provide risk, control and compliance training; and
  • Create an audit calendar that includes review and reporting for past audit findings.
Accountability and a system of checks and balances also can defend credit unions against employee dishonesty, Lovingood said. Surprise cash audits, loan reviews and file maintenance report reviews are among other steps credit unions can take to detect instances of fraud. And, Lovingood noted, insurance should not be a substitute for effective internal controls. The cost of insuring predictable losses will usually be more than the cost of retaining them, she emphasized.

Other tips to avoid fraud included:
  • Comprehensive audits;
  • Dual control of vaults; and
  • Frequent cash counts.
Stated credit union fraud policies can set the tone for the entire organization. CUNA Mutual Group has a sample fraud policy that can be made available to its policyholders, Lovingood said.


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