Examiner Safety, Taxes and Fraud: Executive Editor's Column
The job duties of an NCUA examiner have some similarities to those of Credit Union Times reporters.
We spend a lot of time combing through financials, looking for anomalies.
Casual discussions among credit union executives usually stop when we walk into the room.
And, at times, our jobs can be dangerous.
However, I’ve never experienced the terror NCUA examiners who seized the $23.6 million Taupa Lithuanian Credit Union must have felt when they discovered 10,000 rounds of ammunition and several semi-automatic weapons stashed in store room. Fugitive CEO Alex Spirikaitis, who stands accused of embezzling as much as $10 million from the failed institution, had also hidden a go bag filled with a change of clothes, fake IDs and cash.
It’s assumed Spirikaitis was merely stashing the items at the credit union, and did not intend the bullets for NCUA employees.
However, that is just an assumption.
We can also assume that take over branch robbers don’t intend to shoot employees. However, sometimes they do.
It gives a whole new meaning to employee safety for the NCUA. It’s my understanding police officers do not accompany examiners when they seize credit unions. If I were an examiner, I’d want that policy revised. I’d imagine the liability insurance firm that covers employees would agree.
Credit Union Times will investigate this question over the next week, so stay tuned for a story on the topic.
We are also following up on two recent developments on the tax reform front: statements by Canadian credit union executives at the CU Watercooler Symposium in Nashville that American credit unions are wasting their time and resources fighting to maintain the credit union tax exemption; and, a story in Politico that focused on the efforts by the banking lobby to eliminate the tax break.
Does the tax exemption, as the Canadian executives said, diminish credit union influence among lawmakers? And would the presumed lifting of the member business lending cap and other regulatory restrictions credit unions would receive in exchange for taxation enable them to recover the cost of their tax bill?
Reaction is mixed. Some credit unions tell us taxation would be worth it. However, others say there is no way they could recover taxes with increased business lending volume and looser membership eligibility standards.
Over the next week, we will examine credit union financial reports to determine whether or not that is the case. I have a hunch it will depend upon individual credit union product and service mixes. Obviously, a credit union that already has a robust member business lending program will be more likely to benefit from the lifting of the MBL cap. Likewise, a SEG-based credit union would stand to gain more from open membership rules compared to a credit union that has had a community charter for some time.
Another topic we are investigating at Credit Union Times is something I call the fraud tipping point. Sometime over the past two years, the number of credit unions that failed due to loan losses or other credit risks has been exceeded by fraud-driven failures. In some cases, the amount stolen is equal to or even exceeds the credit union’s total asset size, which blows my mind.
Despite these cases, the NCUA has decreased the amount of time it spends on-site at small credit unions. The rationale is that small institutions present much less of a threat to the share insurance fund than large one. From an insurer’s standpoint, that makes sense.
However, I don’t think the NCUA is considering the chilling effect reputation risk could have on the industry. When a credit union fails due to fraud, it leaves behind a field of membership whose trust in credit unions has been rocked. And, it results in local news headlines that include the words credit union and fraud, which to me, seems like a public relations nightmare for other cooperatives in the market.
To the NCUA’s credit, as we reported in this issue (Fraud Fuels Reputation Risk), the regulator is working on strengthening exam procedures and approaches to improve detection of fraud risk indicators. Those new procedures are expected to be rolled out next year, the NCUA said.
We will also report ways credit unions and = volunteers can manage the fraud risk.
As always, if you have any comments, I’m all ears. Please drop me a line.