In 2011, an NCUA examiner-in-charge reviewed a 2010 stateexamination of the failed $23.6 million Taupa Lithuanian CreditUnion, and noted an ominous comparison.

“[M]BLs, policy updates, investment and record keeping errors,NO delinquency and NO charge offs in over 10 years, this creditunion looks, sounds and acts like St. Paul Croatian waiting tohappen all over again,” wrote the EIC, according to the NCUA Officeof Inspector General's material loss report, released Friday.

About two dozen people, including former president/CEO AnthonyRaguz, were convicted for embezzling more than $71 million from theSaint Paul Croatian Federal Credit Union, anotherCleveland-area cooperative that was shuttered by NCUA in 2010.

As for Taupa Lithuanian, the material loss report concluded thata lack of management integrity, inaccurate financial reporting andinadequate board oversight led to its collapse in July 2013.

But the 24-page report was also critical of examiners, notingthey could have mitigated an estimated $33.5 million loss toNCUSIF.

The report said examiners failed to adequately identifytransaction risks and address multiple red flags, such as excessiveamounts of cash on deposit, the discovery of an unaccounted for bagof coins, an overdrawn employee account for an extended period, anoverdrawn line of credit at the corporate credit union and anevasive CEO.

What's more, had examiners investigated the credit union's lowratio of investments to total assets, coupled with the high ratioof cash to total assets, they may have detected the fraud earlier,according to the report.

Read more: Faked financial statements looked genuine…

The $33.5 million hit to the share insurance fund was caused byformer Taupa Lithuanian CEO Alex Spirikaitis overstating assets by$15.5 million, erroneously reported as cash on deposit at CorporateOne Federal Credit Union in Columbus, Ohio. The NCUA's AssetManagement Assistance Center also noted issues with members shareaccounts and other suspicious transactions resulted in member sharedeposits being understated by $18 million.

On July 12, 2013, Ohio State Supervisory Authority and NCUAexaminers went to Taupa Lithuanian CU to confront the CEO anddiscovered numerous items, including Corporate One stamps andsoftware that produced phantom fonts to generate statements, wereused by Spirikaitis to forge fake statements and records.Spirikaitis kept these items in a locked room to which only he hadaccess, credit union employees told the NCUA.

“Through our review of examination working papers, and latercorroborated in interviews, we determined NCUA and Ohio SSAexaminers agreed that the falsified statements allegedly preparedby Taupa management looked convincing,” according to thereport.

Moreover, the OIG, after conducting a comparative documentsreview, agreed with examiners that the faked financial statementslooked genuine.

Additionally, Spirikaitis intercepted communication betweenexternal auditors and Corporate One seeking to confirm statementbalances.

“Examiners later discovered that Taupa's CEO had intercepted andaltered the address on the confirmation sent by external auditors,and had them mailed to a P.O. Box he controlled rather than toCorporate One.”

The report also said Taupa Lithuanian's board of directorsfailed in their duties to adequately oversee the activities ofmanagement.

Board minutes were missing for some months and there were nominutes from the board's supervisory committee. Additionally,Spirikaitis was frequently absent from board meetings, thoughfinancial reports were consistently presented by the boardtreasurer.

The OIG also noted the board failed to challenge large swings inincome, projections and operating results.

Examiners cited board deficiencies in 2006, 2007, 2009, 2010,2011 and 2012.

“We found the board had not signed off on some minutes, andboard discussion notes were very limited with regard to audit andexam results or follow-up,” the report stated. “We also found nosubstantive discussion related to policy reviews, risk managementor strategy.”

As a result of the findings of this report, the OIG made threerecommendations:

• Implement a more comprehensive strategy for responding to redflags, including examiner fraud training programs, specificprocedures to address fraud risks and building fraud specificresources and tools;
• Update policies and procedure to require third partyconfirmations for all accounts where the balance or activity issignificant to the operations of the credit union; and,
• Review policies and procedures to require that examiners gainan understanding through direct communications with externalauditors of procedures performed to verify account balances,specifically the cash, investments, brokered CDs and memberaccounts. Examiners should document the results within the relevantexamination working paper sections.

Spirikaitis pleaded guilty in February to one count ofconspiracy to commit bank fraud and could face up to 30 years infederal prison. His sentencing hearing is scheduled for May 9.

Former Teller Michael Ruksenas, who embezzled more than $480,000from the failed credit union, was sentenced to 17 months in federalprison in February. His father, Algis Ruksenas, served as presidentof the credit union's board from 2009 to 2011, according to IRS 990forms.

Former Bookkeeper Vytas Apanavicius pleaded guilty to one countof conspiracy to commit embezzlement and also faces a May 9sentencing hearing. He admitted to stealing nearly one milliondollars the credit unions with help from Spirikaitis.

Cases against the other three individuals are pending.