Inaccurate financial reporting and accounting, weak boardoversight, inadequate risk management and inadequate supervision byNCUA examiners caused the failure of the $50 million CertifiedFCU.

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

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

The report concluded said the financial reporting problemsincluded a system that allowed CEO Jeffrey Weinstein to overrideinternal controls and that he “knowingly prepared and directed theposting of monthly journal entries that had no support or rationaleother than to inflate earnings and mask serious loan quality,liquidity and profitability issues.''

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

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

The examiners also didn't apply appropriate remedies when theirfraud investigation raised safety and soundness concerns because ofthe CEO's actions.

The report recommended that the NCUA make three changes insupervisory methods: Require examiners to document theirconsideration of external audit findings; expand procedures toensure that amounts reported for material accounts reconcile toledgers and to the Call Report; and issue guidance to improve the evaluation of management, specifically a greater focus onmanagement integrity.

The NCUA said it had already implemented the first tworecommendations and plans to take corrective action on the thirdrecommendation.