MISSOULA, Mont.-Surprise audits and dual controls are powerful weapons for credit unions seeking to prevent employee fraud, according to Roberta Smith.
Smith, who is SVP of human resources for $350-million Missoula FCU and a member of the CUNA Human Resources/Training & Development Council executive committee, told Credit Union Journal her credit union has implemented several procedures involving dual controls that go beyond the preventative measures seen in most financial institutions. She said the two areas under the most scrutiny are the teller windows, where cash is handled, and in lending, where fictitious members and loans can be created.
"On cash handling, our tellers have many procedures that require dual control," she explained. "In addition to signing a sheet every time a teller buys cash from the vault or sells cash to the vault, one process we added was dual control when accessing and entering the vault. We require both people to sign a sheet we control outside the vault that acknowledges they are entering and exiting. Otherwise someone could just go into the vault and have another person sign the sheet later."
Loan officers and tellers at Missoula FCU are subject to quarterly surprise audits, Smith continued. The teller supervisor and loan supervisor can check drawers or ask to examine files at any time.
"We feel surprise audits are the best means of being preventative," she said.
When the teller supervisor asks a teller to step away from his or her drawer for a surprise audit, the person does not return to teller work until the drawer has been balanced and audited, which Smith said takes 30 minutes to 45 minutes. The teller supervisor pulls all the paperwork for that day and prints out the activity for that drawer.
"Paper trails can be manipulated later, with white-out or an eraser, or simply by throwing something away, so it is important to pull the reports directly off the processing system, which cannot be manipulated," she said.
How Trusting Is The Employee?
Even before someone is hired to work at Missoula FCU, he or she is subject to a pre-assessment profile. Smith said the person's "service mentality" is examined closely.
"One thing we evaluate is their level of being trusting of the people around them," she said. "Are they trusting enough that if they see something suspicious would they not report it? We don't want someone who is too trusting; they need to be a little bit on guard."
Written into the credit union's terms of employment practices are words such as "integrity" and "acting in an ethical manner," Smith continued. She said the employee handbook includes a section on fraud and dishonesty.
"The handbook spells out what actions will lead to termination depending on the severity. Written policies protect us if fraud is discovered."
In addition to signing the employee handbook, all employees must read and sign a fraud and conflict-of-interest form. Smith said the latter spells out the expectations of working for a financial institution and being responsible for the security of the members' money.
"Therefore, any conflict of interest or fraud must be reported," she said. "If fraud or conflict of interest is not reported and later discovered, we let them know there will be consequences of the most severe type."
Missoula FCU employs "several" strategies to help prevent fraud, Smith continued. She said management has dealt with a handful of situations that prompted red flags and made them realize they needed to handle certain procedures in a proactive manner.
"If we find any fraud, we are quite willing to prosecute," she declared. "If there were to be a prosecution, that would be the best deterrent to other employees. We have never had to prosecute a fraud; we only have had to dismiss people for suspected fraud. We had the paperwork and we felt sure they had committed fraud, but given the small dollar values involved it did not make sense to prosecute so we simply dismissed them."
