Don't Become the Next Wells Fargo: Prevent Internal Credit Union Fraud

Identifying and preventing internal credit union fraud shouldn't rest solely on the shoulders of senior management, Wells Fargo taught us that last week. Certainly, your board and senior management are vital in this process, but credit unions should be using a combination of technology tools in conjunction with their data processing system, including data analytics, reporting and robust “trust, but verify” employee policies. Experts say that most fraud cases could have been detected early or perhaps prevented had credit unions maintained fundamental internal controls.

It’s been reinforced over the years from industry news that internal credit union fraud cannot be taken lightly. According to CreditUnionTimes, fraud had caused 11 of 16 small credit union closures last year alone. Here are a few suggestions that were detailed from industry experts.

• Review Employee Accounts and Their Relatives

Most CUs will block employees from processing their own share drafts, ACH, card exceptions, and transactions, but that could still allow them access to conduct transactions on accounts for which they are the joint owner.

• Forced Dual Control

Ensure no one can get in the vault alone. Credit unions should divide the vault combination or have a combination key so that no one has both components.

• Reconcile Those Suspense Accounts

Actually balance those flagged accounts because they make for a great hiding spot for fraudulent transactions to be dumped.

• Divvy Up Work on Loans

When one employee is both the approver and also the disburser of loans, it can open the door for embezzlement via fictitious loans.

• Regularly Review the File Maintenance Transaction Report

Embezzlers can manipulate the data on the file maintenance report in ways to make fake loans never post as delinquent or the next payment due dates are advanced to conceal phony loans. Look for these red flags also: changing interest rates on any account, changing the payment amount, several address changes to the same address, changing the payment frequency and changing the collateral codes.

• Watch for Employee Red Flags

Embezzlers will never take vacation time. They need to have constant monitoring and manipulation of internal information to keep concealing their fraud. If State law permits, look into a job candidate's credit report. A person with a bad credit history may be a red flag. 

Fraud detection and prevention should be a topic at annual training opportunities for employees. Allowing employees a confidential outlet to report suspected fraud is beneficial and permits staff voice concerns without feeling they are telling on their sibling.