MADISON, Wis. — A number of dramatic cases recently, including one in which a pastor and several accomplices stole more than $400,000 from a Flordia credit union where he worked as a branch manager, have thrust into the spotlight the question of whether insider fraud is on the rise during the economic downturn.
But the answer won't be known for several years, according to CUNA Mutual, which is reminding that CUs must remain vigilant to internal threats. "Employee dishonesty is always going to be there," said Joette Colletts, regional manager, CUNA Mutual Credit Union Protection Risk Management division. "It's one of those things we are going to always have to deal with."
It will be at least a year before there is enough data to determine if the recession has led to a spike in internal fraud activities and even those statistics can be a misleading, Colletts noted, as the time the acts are committed until they are discovered and prosecuted can be months or even years.
First Step: Background Checks
"The best way to deal with it is controls in the credit union starting with background checks when you're employing people. That doesn't always mean that person isn't going to turn bad, [but] it certainly helps if you feel you hire someone who is a good person with nothing in his background that would prove otherwise," Colletts explained.
Once an individual is hired, it is important to have that person sign off on a fraud policy and to ensure that all employees sign such a policy on an annual basis. Colletts said the policy should clearly describe strictly prohibited activities, such as manipulation of accounts and data, theft, or fictitious lending, and name them as fraudulent practices. Such a policy not only acts as a deterrent by letting employees know that the credit union is watching for those activities, but it also provides cover in the event of a dispute. "If [an individual] is found doing something dishonest and he is terminated for it, and that person seeks legal counsel, it is a good tool for the credit union to have in its hands for its defense," noted Colletts.
The problem is not confined to one type of institution either."Size plays a role both ways-in a large CU there may be more opportunities for fraud; there may be more volume so that fraud may be easier to hide," said Olivia Fried, VP-Internal Audit with Empower FCU in Syracuse, N.Y. "In smaller CUs, employees may wear more than one hat, so that sufficient internal controls such as segregation of duties are harder to institute. However, no matter the size, if an employee has the need, the opportunity and the justification, they will commit fraud."
Trouble at Home
"You may hear something that a spouse is unemployed or they have a sick child at home or hear that they have so much stress in their lives that they are turning to drugs or alcohol," Colletts added. "A lot of times if an employee is going to do something dishonest it may start with one of their accounts or a family member's accounts."
She pointed to one situation where more than $40,000 had been stolen by a 20-plus year employee with a child that had gotten into some trouble. Surprise monthly cash counts with tellers and frequent central cash fund verification can both deter dishonesty and discover it before the losses become very significant, the analysts added.
