Board Vice Chairman Discusses Fraud, Regulatory Relief and Risk-Based Capital
ALEXANDRIA, Va. (Oct. 15, 2014) – Credit union board members who are informed and engaged help protect their credit unions, members and the credit union system, National Credit Union Administration Board Vice Chairman Rick Metsger said today.
Metsger, who served on the board of directors of the Portland, Oregon, Teachers Credit Union from 1993 to 2001, spoke to the National Directors Roundtable Conference in San Diego.
Covering subjects ranging from NCUA’s efforts to provide regulatory relief and the agency’s proposed risk-based capital rule to credit unions’ advantages for consumers, Metsger stressed one area in particular: internal fraud.
“You are the first line of defense,” Metsger said. “Your job is to know what’s going on, to be engaged and to ask questions. That’s how you lead your credit union, that’s how you protect it, protect your members, protect the system and protect the Share Insurance Fund.”
While Share Insurance Fund losses overall have been declining, Metsger said, internal fraud is a continuing problem, particularly at smaller credit unions.
“Internal fraud is a major contributor in more than half of the losses to the Share Insurance Fund,” Metsger said, “and it poses a significant reputation risk for credit unions. However, it can be difficult to find, often because credit union boards and supervisory committees are not as strong and active as they should be. In one recent case in Hawaii, three credit union employees, none of them aware of what the others were doing, bilked a credit union out of $500,000. Now, that’s a lack of internal controls.”
Metsger said that in 2009 and 2013, estimated losses actually exceeded the assets of the credit unions driven into liquidation by internal fraud. He added that when fraud is detected, it is nearly always the result of work by an examiner, auditor or outside party. In the last 12 years, he said, not one case of internal fraud leading to the failure of a credit union has ever been detected by a single board member or supervisory committee member. With more supervisory focus on larger credit unions, it’s more important for directors of small institutions, which are more likely to be targets of fraud, to be vigilant.
Metsger pointed to several “red flags” that should alert directors to possible internal fraud, including:
- Missing records and signature cards, which has occurred in every case of fraud uncovered since 2002,
- Recordkeeping problems and items off the balance sheet,
- A manager has outside business interests,
- Management delays in providing information,
- Backdated transactions, and
- Large deposits flowing through an account.
“Credit unions offer great value to their members and are important to offering an affordable, non-profit alternative in financial services,” Metsger said. “It’s also important that we keep the public’s faith in their safety and soundness.”
NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the United States, NCUA operates and manages the National Credit Union Share
Insurance Fund, insuring the deposits of account holders in all federal credit unions and the overwhelming majority of
state-chartered credit unions. At MyCreditUnion.gov, NCUA also educates the public on consumer protection and financial literacy issues.