Identifying internal fraud risks became a hot topic in 2013 asgroups presented webinars and published articles on the topic.

CUNA Mutual Group and the NCUA's Office of Small Credit UnionInitiatives produced a Nov. 14 webinar titled “Deterring EmployeeFraud,” and Joette Colletts, senior manager of risk management forCUNA Mutual, offered advice to help deter and detect fraud.Colletts' tips included implementing a fraud policy and encouragingboard members to ask more questions and surprise audits bysupervisory committees.

Many experts pointed out that the war on dishonesty needs tostart at the top.

Tom Glatt Jr., a credit union consultant in Wilmington, N.C.,wrote an article in early 2013 titled “Foolingthe Board: The Embezzlement Bonanza,” which emphasized theimportance of having a strong CEO and an active board.

“Boards should not accept consistently poor performance,” Glattsaid. “Board members need to develop proficiency in governing toinclude fully understanding the quality and scale of financialresults.”

Other experts offered additional guidance during CUTimes' series on mitigating internal fraud.

Mike Mossel, a managing director at the consulting firmMcGladrey, said credit unions should “create an internal culturethat deters dishonest acts, detects those that do occur, andfollows a disciplined investigation and correction process.”

In several cases in 2013, small credit unions were looted bymanagers who were sole employees.

“The most important internal fraud prevention policy isseparation of duties,” said Christopher Marquet, founder of MarquetInternational Ltd. in Wellesley, Mass. “If a single individual hascontrol 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 fraudpolicy, updating it annually and getting employee signoff. Also,watch for red flags, like records in disarray and excessivespending or borrowing.