Inaccurate financial reporting and accounting, weak board oversight, inadequate risk management and inadequate supervision by NCUA examiners caused the failure of the $50 million Certified FCU.

That's the conclusion of the material loss review by the NCUA's Office of Inspector of General released on Wednesday.

The Commerce, Calif., credit union was liquidated in July 2010 and its assets were purchased and assumed by Vons Employees FCU, with the NCUSIF taking a loss of approximately $9 million.

The report concluded said the financial reporting problems included a system that allowed CEO Jeffrey Weinstein to override internal controls and that he “knowingly prepared and directed the posting of monthly journal entries that had no support or rationale other than to inflate earnings and mask serious loan quality, liquidity and profitability issues.''

The credit union's board also was “weak and unresponsive to financial risks  and ethical issues,'' and failed to provide adequate responses and follow up to issues raised by auditors and examiners, the IG report said.

The board also didn't take action after NCUA examiners brought “unusual and suspicious accounting practices” by Weinstein to their attention. According to the report, the NCUA examiners, meanwhile, failed to adequately assess the management component of the CAMEL system and failed to adequately consider audit findings and reviews when developing examination methods. 

The examiners also didn't apply appropriate remedies when their fraud investigation raised safety and soundness concerns because of the CEO's actions.

The report recommended that the NCUA make three changes in supervisory methods: Require examiners to document their consideration of external audit findings; expand procedures to ensure that amounts reported for material accounts reconcile to ledgers and to the Call Report; and issue guidance to improve  the evaluation of management, specifically a greater focus on management integrity.

The NCUA said it had already implemented the first two recommendations and plans to take corrective action on the third recommendation.