LANSING, Mich.-Thinner margins and decreased separation of duties at credit unions has made the board's role in fighting internal fraud that much more crucial-particularly at smaller credit unions.
John Kolhoff, deputy commissioner for Michigan's Office of Financial and Insurance Regulation, noted that boards are often the "greatest weakness" at small institutions with limited oversight.
"This is true for all board members, but particularly in small institutions, they have to be the checks and balances on that system," Kolhoff observed. "They have to feel comfortable with those numbers and feel that the financials they're being provided are accurate and meet their fiduciary duties as a board member, and also meet their regulatory duties."
Kolhoff-who is also chairman-elect of NASCUS-noted that state leagues and NASCUS provide training for credit union board members to help prevent fraud.
Additionally, the state of Michigan is preparing to implement free training sessions for financial institutions with $5 million in assets and below with a focus on fraud prevention and the importance of accurate financials.
No specific agenda has been outlined yet and dates are still not yet determined, though he said the plan is to hold training sessions in late spring and early fall of this year.
Are Boards Up To Task?
While some have suggested that volunteer boards may not be sophisticated enough to properly oversee today's full-service credit unions ("Filene Study Explores Board Accountability, Level Of Expertise," Oct. 8, 2012), many sources dismissed that view.
Joseph Zito, a shareholder with Troy, Mich.-based auditing firm Doeren Mayhew, noted that NCUA has tried to account for that by instituting financial literacy requirements for board members at federal credit unions.
Still, Zito said, it is incumbent upon credit union boards to do their due-diligence and hire audit professionals that can properly interpret and explain financial data presented by executive staff.
Orla Beth Peck, Utah's credit union supervisor and current NASCUS chair, reminded that institutional cultures begin at the board level, rather than the executive level.
"Where I've seen fraud occur, the board ... is almost traumatized, because they trusted this individual. As part of a top-down culture, the board has to set those standards of zero tolerance, and they have to abide by that themselves."
Madison, Wis.-based CUNA Mutual Group's Joette Colletts, regional manager, risk management, noted that more training opportunities exist for boards today than 30 years ago, but those still tend to be underutilized. "I think we've expanded to the extent that (boards) are asking more questions, but not to the extent that they should be."
Positives Out of A Negative
No institution wants to be the victim of internal fraud, but Zito also noted that it can ultimately have some positive effects.
"When those things happen to a credit union, it changes the whole culture and perspective of a credit union," he suggested. "It helps them because they have to go through that process, and the whole employee structure really has a different perspective on controls, fiduciary responsibilities and accountability. I've seen it be a teachable moment, and it really changed the culture of that institution."
