COEUR D'ALENE, Idaho-In addition to NCUA's proposal to stress test large credit unions, the agency is also rolling out new initiatives related to investigating fraud.
NCUA Chairman Debbie Matz noted the agency has already liquidated 11 federal CUs in 2013 due to fraud (representing $69 million), up from nine in 2012.
In addition, 47 prohibition orders have already been issued this year, vs. 49 for all of 2012. While much of that fraud has occurred at smaller institutions where internal controls are often lacking, Matz emphasized that small asset size doesn't mean small losses.
"I can't tell you how frustrating it is to liquidate a $2 million credit union and find $7 million in losses," said Matz at the NASCUS conference here.
The chairman acknowledged NCUA has wrestled with how to respond to fraud within CUs even though in some cases, such as St. Paul Croatian FCU, the losses have been staggering. The agency has frequently stated in the past that its job is not to investigate fraud. But that is now changing, according to Matz, who shared plans to better monitor fraud during NASCUS' Summit here last week.
"This is really a threat to the entire CU system-especially reputation risk," said Matz. "The local press are all over [cases of fraud], and people get concerned not just about that credit union but all credit unions."
In response, NCUA is taking steps to formalize the fraud investigation process.
"We are trying to develop red flags so that even before they go into a credit union an examiner can look at call reports and if they see certain trends they can move more aggressively," said Matz. "But we do not want to turn every exam into a fraud investigation. It's costly in time and money. There's little cost-benefit there. So when we see these red flags we are going to send in a special team who have received special training in fraud investigation and have been certified as fraud examiners who know how to detect and deal with fraud at the earliest possible time. We are going to develop certain fraud procedures."
Though NCUA has moved to shorten time spent in exams at smaller credit unions, Matz said extra time looking for fraud will be included in exams at those CUs. Also being discussed are requiring external reviews of supervisory committee audits.
"We don't want to add to small CUs' burden or affect their ROA any more than we have to," she said. "But we are also at the end of our line with these CUs. They are financial institutions and they need to behave like financial institutions. It's a very difficult balancing act. Obviously when there is a loss the loss is borne by the entire industry so we are looking for input from
