During the last 25 years, I have been involved in the investigation of many fraud cases. Some theft was for only small amounts used to purchase personal goods like booze, underwear, jewelry and car repairs. Other cases resulted in millions stolen over long periods of time exceeding 10, 20 or 30 years for such things as gambling, personal living expenses and vacations.

Checks and balances sometimes fail in credit unions. Employees sometimes get away with fraud for years without detection because of insufficient internal controls. Common characteristics that we often see include:

1. Inactive supervisory committees

2. Insufficient internal controls

3. Insufficient segregation of duties

4. Insufficient verification of member accounts

5. Insufficient audits

6. Extravagant lifestyles or living beyond their means; some common indicators are automobiles, clothing, lifestyle, jewelry, travel, etc.

7. Drastic life events or challenges, i.e., death, divorce, medical issues, drug abuse, gambling, etc.

8. Significant recordkeeping issues

9. Fraudulent loan and / or share accounts

10. Theft through a share draft account or a debit card

11. Theft of funds from inactive, elderly or child accounts

12. Theft of petty, teller or vault cash

The supervisory committee is the single most important element in a credit union's internal control structure. If it is inactive, an internal control structure is generally weak or nonexistent. A system of internal controls is not necessarily designed to entrap staff or catch anybody doing anything wrong nor will it ever catch everything. However, cumulative internal controls are plans, procedures, and measures to help:

• Safeguard assets

• Check Accounting Accuracy and Reliability

• Promote Operational Efficiency

• Ensure Compliance With Policies, Procedures & Regulations

Internal controls should help reduce temptation so that people would not do something they would not normally. The biggest tips that I can provide include:

1. Have an active supervisory committee

2. Obtain periodic and ongoing training for committee members

3. Develop and implement an annual work plan

4. Outsource internal control work if the credit union's supervisory committee does not have sufficient resources (knowledge, skills, abilities, time, etc.) for its to perform periodic duties &responsibilities, etc.

5. Read auditor and examiner reports while verifying that concerns are resolved

6. Ensure independence of the audit firms, that auditors provide reports directly to the supervisory committee

7. Have a mandatory vacation policy

8. Have a working budget and variance analysis where expenses are reviewed month-to-month.

Our firm has probably discovered more fraud cases by performing account verifications and a cumulative month-to-month financial review than other methods. The best I remember, statistics from the Association of Certified Fraud Examiners reflected that a very small percentage of fraud cases—in the single digits—are discovered by auditors or examiners.

I remember the The Wall Street Journal reporting several years ago that this was the toughest economy since the Great Depression. This is a reason why more credit union fraud cases have surfaced. It is simply more difficult to hide fraud. Many credit unions' financial statements have been squeezed with lower income and higher expenses, drawing attention to fraud that may have otherwise not surfaced. Remember, numbers and statistics do not lie and will always tell the story.