As cases of credit union employee embezzlement and fraudcontinue to make headlines, many financial cooperatives aresearching for ways to better identify risks and detect fraud.

Fighting fraud requires a team effort, starting with activeboards, strong supervisory committees and stiffer internalcontrols, experts say, and volunteers need to be more diligent inscreening CEOs, performing verifications and completing audits.

The NCUA's Office of Small Credit Union Initiatives will presenta webinar entitled Deterring Employee Fraud at 2 p.m. EST onThursday, Nov. 14. The event will feature Joni Lovingood, a seniorconsultant with CUNA Mutual Group, and other participants. Throughthe Credit Union Protection Response Center, CUNA Mutual alsooffers webinars and white papers on topics such as “Developing aCredit Union Fraud Policy.”

“There are many steps that credit unions can take to help deterand detect fraud,” said Joette Colletts, senior manager of riskmanagement for CUNA Mutual.

To further assist credit unions, CUNA Mutual's 20 riskmanagement consultants across the country are available to conducton-site analysis and education at credit unions, Colletts said.

The NCUA also offers an array of risk management tools on itswebsite, such as instructions for review procedures.

The first step to fighting fraud is for the board to draft aformal fraud policy, with the assistance of legal counsel, expertssay, and the policy should be updated annually and signed by allemployees upon hiring.

“The deterrent effect upon an employee, who is made aware of thepolicy on the first day of employment and periodically remindedthat such a policy exists, cannot be underestimated,” the NCUAsaid.

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 arenot followed during fraud investigations, the NCUA said.

Credit unions should also scrutinize applicants, according tothe NCUA, which recommends that the hiring process includes thesesteps:

• Conduct bondability verification;
• Complete criminal background checks;
• Check previous employment; and
• Verify references.

Other tips include watching for red flags among employees, suchas:

• 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 whistleblowerprogram to encourage employees to report concerns regardingsuspected wrongdoing to appropriate senior management staff or thesupervisory committee.

Fraud policies should clearly state that concerns of potentialwrongdoing reported by an employee will be held in strictconfidence and that the credit union will not retaliate against theemployee, the NCUA said.