MADISON, Wis.-Over the last two decades Joette Colletts, regional manager of risk management for CUNA Mutual Group, has seen attitudes change at credit unions when it comes to internal fraud.
"Credit unions are being more proactive and are looking for help," said Colletts. "Looking back 20 years, the attitude was 'That's why we have insurance.' Whereas today most credit unions are asking us to come in, look at their practices and make recommendations. Helping credit unions implement fraud controls is something CUNA Mutual emphasizes-we want to help credit union avoid claims. There are still some that feel their employees are honest and theft will never happen to them, but many have implemented a number of internal controls."
CUNA Mutual's Risk Management Department includes consultants in the field all over the country, with one manager for each half of the country. Colletts, who is a Certified Fraud Examiner, said she has uncovered hundreds of embezzlements during her career.
"Employee dishonesty is never going to stop," she declared. "We help credit unions implement good internal controls, especially around cash handling and storage, lending and expenses."
Lending fraud is on the increase at CUs, especially with delinquencies not being reported correctly to the board of directors, Colletts continued. She said in some cases bonuses or performance reviews are based on delinquencies going down, so employees perform a file maintenance transaction, manipulating the next payment due date to a later date. If this report is not being reviewed properly, meaning by a person other than the one who changed the date, the delinquency is not reported.
"The delinquency number appears to be going down, and it is not caught if the board is not performing its oversight role correctly by auditing the collections numbers," she observed. "Credit unions should make sure somebody without transaction authority is reviewing the non-financial transaction report, sometimes called the file maintenance report."
According to Colletts, one problem with oversight is boards do not always know what questions to ask, which is why board training is important.
Supervising Supervisory Committees
Many small credit unions (less than $10 million in assets) use their supervisory committees as their external audit functions. Colletts said this practice is "acceptable," as long as the committee members know what they are doing.
"We recommend periodically throughout the year the supervisory committee performs other checks and balances. Over a certain asset size-about $100 million in assets-credit unions should consider hiring an internal auditor on staff. Because the complexity of regulations is increasing, and the need for an outside set of eyes, the cutoff point has grown smaller over the years."
One low-cost but "really important" step Colletts recommended is having a fraud policy that employees must sign on an annual basis.
"This is a statement that says, 'I understand the following list of 15 items are samples of dishonesty and I agree to not partake in any of these.' CUNA Mutual has a sample fraud policy credit unions can use. This helps deter against dishonesty and it helps if someone is caught-they cannot claim they did not know they could not do the act in question."
