Hartman was the CEO of Muddy River Credit Union (MRCU) for more than 30 years. She told federal investigators that the first time she made a false payment on a family member's loan or deposited cash into a family member's account when no actual funds supported the transaction was approximately 15 years ago. For almost the entirety of her employment at MRCU, she exclusively maintained, by hand, MRCU's books and records.

When asked if she was sorry for giving the credit union's money away, the defendant replied, "yeah," according to the plea agreement.

It wasn’t until 2020 when a state regulator’s annual examination found unusual items in the general ledger, particularly in the reconciliation of cash and investments. A significant amount of cash on hand was reported in the general ledger, raising concerns because it was atypical for a credit union of that size to physically hold such an amount. The state’s findings were conveyed to the NCUA, which hired a CPA to perform an audit.

This audit and the subsequent FBI investigation revealed Hartman embezzled the credit union’s fund in three ways: She stole members’ deposits, generated fraudulent deposits and made fake loan payments. Hartman concealed the embezzlement by altering books and records to make it seem like MRCU held certain assets when, in reality, no such assets existed.

When cash was deposited by a member, Hartman correctly electronically credited the member’s account. However, the physical cash deposited by the member was not deposited into MRCU's deposit account at Exchange Bank and Trust (MBT). This inflated MRCU's cash on hand balance. In other words, MRCU's actual cash on deposit at EBT did not support MRCU's inflated cash on hand balance listed in MRCU's books, because the defendant did not deposit the member's cash at EBT.

For example, in 2017, MRCU records indicated about $197,000 cash in and $17,000 in cash out to members, which left a balance of approximately $180,000 of net cash. However, records from MRCU's deposit account held at EBT indicated that only $138,000 in cash was deposited during 2017, leaving $42,000 in cash that was never deposited.

The total amount of cash not deposited from 2010 to 2021 amounted to $346,473.

Although there were other employees at MRCU who came and went, the only constant was Hartman.

The former CEO also generated phony deposits in a relative's account without any corresponding deposit of the funds to MRCU's bank account. This left the deposit debit sitting in the cash on hand general ledger account, artificially inflating the balance. Actual deposits, on the other hand, could be reconciled and had a corresponding deposit into MRCU's EBT bank account. The process was observed starting in 2007, the start of when computerized records became available.

The total amount of such fraudulent credits to the defendant and her family members' accounts totaled $376,764, according to court documents.

Hartman also credited loan payments on her own loans or those of relatives when no payments had actually been made. This falsely inflated the recorded cash on hand balance in MRCU’s books. Because no transaction supported the loan payment, no corresponding deposit was ever made at EBT.

The total amount of fraudulent credits to her or family members' loan obligations totaled $86,600, court documents showed.

Hartman managed to conceal her theft by altering the credit union’s books and records. For example, MRCU’s account balance at EBT on Dec. 31, 2020, was not $1,297,199 as reported on the Call Report, but actually $1,037,183, creating a cash on deposit imbalance of
$260,016 that helped her hide the fraud scheme. This imbalance roughly correlated with the difference between the reported amount of cash on hand on the general ledger ($281,528.45) and the reported cash on hand on the Call Report ($670).

Federal prosecutors said that over the years this was Hartman’s consistent, historical pattern of reporting a significantly larger cash on hand balance on the general ledger than the cash on hand reported on Call Reports. If she had reported the inflated general ledger balance for cash on hand – amounts that were in the hundreds of thousands of dollars – it would have been a red flag to the regulators, who would have expected no more than a couple of thousand dollars in cash maintained at the credit union, prosecutors noted in the plea deal.

Another way Hartman concealed the embezzlement was by inflating on Call Reports and the general ledger the amount of Security Repurchase Agreements (SRAs) MRCU had at EBT. She was able to hide the increasingly large cash on hand balance listed in the general ledger
by offsetting the amount embezzled through non-existent SRA assets.

For example, on May 20, 2014, Hartman inflated the SRA balance on MCRU's books by falsely recording the purchase of three SRAs totaling $250,000 in MRCU’s general ledger, artificially increasing the total balance from $600,000 to $850,000.

During the second quarter of 2021, the NCUA approved MRCU consolidation because of its poor financial condition. The credit union was merged into the $200 million Frontier Community Credit Union in Fort Leavenworth, Kan.

READ MORE: Rita Hartman’s Plea Agreement.

Contact Peter Strozniak at [email protected]