As cases of credit union employee embezzlement and fraud continue to make headlines, many financial cooperatives are searching for ways to better identify risks and detect fraud.
Fighting fraud requires a team effort, starting with active boards, strong supervisory committees and stiffer internal controls, experts say, and volunteers need to be more diligent in screening CEOs, performing verifications and completing audits.
The NCUA’s Office of Small Credit Union Initiatives will present a webinar entitled Deterring Employee Fraud at 2 p.m. EST on Thursday, Nov. 14. The event will feature Joni Lovingood, a senior consultant with CUNA Mutual Group, and other participants. Through the Credit Union Protection Response Center, CUNA Mutual also offers webinars and white papers on topics such as “Developing a Credit Union Fraud Policy.”
“There are many steps that credit unions can take to help deter and detect fraud,” said Joette Colletts, senior manager of risk management for CUNA Mutual.
To further assist credit unions, CUNA Mutual’s 20 risk management consultants across the country are available to conduct on-site analysis and education at credit unions, Colletts said.
The NCUA also offers an array of risk management tools on its website, such as instructions for review procedures.
The first step to fighting fraud is for the board to draft a formal fraud policy, with the assistance of legal counsel, experts say, and the policy should be updated annually and signed by all employees upon hiring.
“The deterrent effect upon an employee, who is made aware of the policy on the first day of employment and periodically reminded that such a policy exists, cannot be underestimated,” the NCUA said.
To be effective, a fraud policy should address specific items, establish guidelines for investigations and explain consequences, because credit unions can risk litigation if proper procedures are not followed during fraud investigations, the NCUA said.
Credit unions should also scrutinize applicants, according to the NCUA, which recommends that the hiring process includes these steps:
- Conduct bondability verification;
- Complete criminal background checks;
- Check previous employment; and
- Verify references.
Other tips include watching for red flags among employees, such as:
- Attitude changes, such as acting obsessive or territorial;
- Not taking vacations;
- Keeping records in disarray; and
- Lifestyle changes such as excessive spending or borrowing.
The NCUA also urges credit unions to establish a whistleblower program to encourage employees to report concerns regarding suspected wrongdoing to appropriate senior management staff or the supervisory committee.
Fraud policies should clearly state that concerns of potential wrongdoing reported by an employee will be held in strict confidence and that the credit union will not retaliate against the employee, the NCUA said.