Identifying internal fraud risks became a hot topic in 2013 as groups presented webinars and published articles on the topic.
CUNA Mutual Group and the NCUA’s Office of Small Credit Union Initiatives produced a Nov. 14 webinar titled “Deterring Employee Fraud,” and Joette Colletts, senior manager of risk management for CUNA Mutual, offered advice to help deter and detect fraud. Colletts’ tips included implementing a fraud policy and encouraging board members to ask more questions and surprise audits by supervisory committees.
Many experts pointed out that the war on dishonesty needs to start at the top.
Tom Glatt Jr., a credit union consultant in Wilmington, N.C., wrote an article in early 2013 titled “Fooling the Board: The Embezzlement Bonanza,” which emphasized the importance of having a strong CEO and an active board.
“Boards should not accept consistently poor performance,” Glatt said. “Board members need to develop proficiency in governing to include fully understanding the quality and scale of financial results.”
Other experts offered additional guidance during CU Times' series on mitigating internal fraud.
Mike Mossel, a managing director at the consulting firm McGladrey, said credit unions should “create an internal culture that deters dishonest acts, detects those that do occur, and follows a disciplined investigation and correction process.”
In several cases in 2013, small credit unions were looted by managers who were sole employees.
“The most important internal fraud prevention policy is separation of duties,” said Christopher Marquet, founder of Marquet International Ltd. in Wellesley, Mass. “If a single individual has control over both authorization and execution of funds transfers, for example, you have a recipe for fraud to occur.”
Other risk management advice included drafting a formal fraud policy, updating it annually and getting employee signoff. Also, watch for red flags, like records in disarray and excessive spending or borrowing.