Segregation of Lending Duties Is Key
The timing of a collaboration between two of the industry’s well-known entities to fight employee dishonesty could not have come soon enough.
The NCUA and CUNA Mutual Group recently announced that they will include fraud mitigation sessions for a series of workshops and round tables the regulator will host this year. Among the hot button topics credit unions, particularly the smaller ones, will learn more about are fraudulent deposits and wire transfers and employee dishonesty.
The red flags that fly over internal controls run the gamut, but there are a few that are common and may be easier to spot. With loan approvals, an increase in fictitious or unauthorized loans results when loan approval and disbursement are handled by the same employee. To minimize exposure, credit unions should separate loan approval and disbursement duties.
Mundine is a proponent of segregation of duties. Most transactions can be broken down into the origination, posting and audit, according to a CUNA Mutual white paper on risk management. One employee should not have complete control over the entire transaction.
That outside pair of eyes can go far especially for smaller credit unions that may not have the resources to be as diligent as they would like. In the end, regardless of size, credit unions may have a shared instinct when it comes to fraud detection.
“Even in smaller organizations, there is a commonality in lending–there’s a gut thing,” Simon said. “The nice thing about loan committees is there are several channels that are reviewing loans.”
With all of its benefits of speed and accessibility, technology can still be another outlet to commit fraud. According to CUNA Mutual, data processing facilities easily accessible to unauthorized persons create more internal control problems. To thwart those potential invasions, buffer zones, which are those areas around data processing facilities restricted to authorized employees, provide an effective enhancement to a credit union’s access control efforts.
The beauty with technology is there is an inherent deterrent to dishonesty when a reliable and visible audit trail can be traced back to individual operators, CUNA Mutual said. Still, credit unions should know that the dangers can also come from another direction.