The NCUA’s September Report addresses warning signs that examiners should look for when reviewing credit unions’ indirect loan portfolios. The red flags include:
Poor dealer management, including relying on dealers to obtain credit reports; accepting loan payments from dealers; dealer-created down payments through dealer incentives, inflated or fraudulent trade-in values or purchase prices; and continuous overdrafts in dealer-reserve accounts
The article also provides items that can increase a credit union’s unintended risk exposure. The article indicates that credit union management should complete a static pool profitability analysis to ensure its indirect loan pools are profitable for the credit union and verify returns are higher than less risky credit union investments.
The NCUA also addresses the importance of internal controls in reducing credit union risk. Specifically, it mentions that credit unions should establish appropriate internal controls for all positions and programs necessary to protect the credit union and the membership. The article provides credit unions with examples of policies and procedures that can be implemented at the credit union to detect and deter internal fraud.
There is also guidance for the board of directors and their responsibility to establish and maintain an effective organizational structure that encompasses necessary principles such as an adequate reporting mechanism and appropriate authority level limitations, making sure there is not a single staff member who controls or has access to all phases of the credit union’s operations. The article also provides credit unions with resources to research additional tools to assist with internal controls.