Experts Offer Business Fraud Red Flags
Industry experts say due diligence can help credit unions avoid losses like those suffered by the $620 million Alabama One Credit Union in Tuscaloosa, Ala., and the Small Business Administration, which were defrauded of more than $3 million by a businessman.
Danny Ray Butler allegedly engaged in a check-kiting scheme that led to a $1.275 million loss at Alabama One. He also allegedly defrauded the SBA of $1.76 million through a loan to build a grocery store, according to a 51-count indictment and statements made Oct. 4 by U.S. Attorney Joyce White and FBI Special Agent in Charge Richard D. Schwein Jr., in Birmingham, Ala.
Otsuka said he is a firm believer in business members qualifying for certain products such as remote deposit capture and ACH origination. Written policies should specify the type of businesses a credit union wishes to attract and identify undesirable businesses, he suggested. Due diligence should always include evaluating a business's financial condition and requesting updated financial statements and tax returns on an annual basis to help detect any negative changes in a business member's life.
In their efforts to attract more businesses, some credit unions are offering RDC. Unfortunately, the remote service can help a business member maintain his or her check kiting scheme, especially if a credit union employee doesn't review the check image, Otsuka said. By qualifying members for RDC based on their financial condition and requiring annual checkups of financials, credit unions can spot any downward trends.