Why It Took 40 Years To Discover Fraud Scheme

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Internal fraud is nothing new to any financial institution.

But the now-concluded case of Barbara Coward here may be the longest-running fraud in history. Coward has been sentenced to four years in prison after creating false loans to steal from Utah Cooper Employees Credit Union for the past 40 years.

According to two people familiar with the case, it was a perfect storm: the combination of a small credit union, a seemingly trustworthy, lifelong employee, and breakdowns in the oversight process.

Barbara Coward began working for Utah Copper Employees Credit Union in 1963, during her senior year in high school. Over the next 40 years, she allegedly stole more than $2.6 million - one small loan at a time - before the house of cards collapsed in 2003.

Last month, Coward, 73, pleaded guilty to one count of obtaining a loan under a false name as part of a plea deal. She was sentenced to almost four years in prison and ordered to pay $2.3 million in restitution.

The Final Step

Coward's conviction was the last step in the four-decade fraud. When Coward's fraud was revealed two summers ago, NCUA approached Mountain America FCU and asked that Utah Copper Employees CU be merged into the larger credit union. David Kwant, Mountain America FCU's chief financial officer, told The Credit Union Journal that process was resolved fairly quickly. "From start to finish, it was about 90 days," he recalled. "We met with the members and told them about the products and services that were available to them."

Kwant, who served as a credit union regulator during part of the time Coward was defrauding UCECU, said he did not have first-hand knowledge of all of the details of the case, but he pieced together a picture of the activity by talking with other people.

"She would make these false loans, then create another false loan to pay it off, or say the person skipped out, which would cause the credit union to write off the loan. If an examiner wanted to see the files, she would say the supervisory committee had them."

"She was very good at it," Kwant continued. "She was one of the last people one would suspect because she seemed dedicated and loyal."

Utah Copper Employees was a small CU, which, Kwant said, made it more vulnerable to a case of inside fraud.

"The smaller the organization, the fewer the employees, and less separation of duties. She would submit an application to the loan committee, which didn't know all the employees, which allowed her to fill in the blanks."

Accidental Discovery

Orla Beth Peck, supervisor of credit unions for the Utah Department of Financial Institutions, provided The Credit Union Journal with further details of the Coward case.

According to Peck, the fraud was discovered during a routine examination. When Coward attempted to put off the examination by saying the files were in someone else's hands, the examiner insisted on seeing them.

Part of the reason Coward was able to get away with fraud for so long was her use of share-secured loans, Peck explained. "This type of loan is seen as less risky, and therefore is not scrutinized as closely," she said.

Coward took out loans in the name of UCECU members who had share accounts, but no loans. The loans looked "reasonable," Peck said, because they were for small amounts and seemed to be secured by the members' accounts.

Covering Tracks

From there, Coward had multiple methods of covering her tracks, Peck said. In many cases, she simply kept moving the next due date of the loan forward one month, as if a payment had been received. Also, because of her trusted position, she "assisted" in the process of verifying shares and deposits.

"She would intercept the loan notices before they went out, or suppress them," Peck explained. "That was the breakdown on the credit union's part - allowing her to have access. All supervisory committees need to be aware that while they want to trust their employees, they can't get too comfortable with someone."

According to Peck, Coward did not display the signs of someone who is embezzling funds. She did not live in a big house, nor did she use the money for herself. "She gave some to her nieces and nephews and some to her church. She was almost like Robin Hood."

Coward did not take expensive vacations, or any long vacations, for that matter. "This is why financial institutions should require their employees to take vacations of at least a week and, while the person is out, have someone else do his or her job."

"Hopefully, other credit unions can learn from this experience," Peck continued. "There needs to be constant oversight by the supervisory committee. Anyone can be tempted to take money, and they usually start small."

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