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Michigan Credit Union League

AC&E Panel Outlines Fraud Prevention Strategies for CUs

DETROIT—A standing-room-only crowd packed an early-morning session on credit union fraud and internal controls at the Annual Convention & Exposition (AC&E) from the Michigan Credit Union League (MCUL) and CU Solutions Group (CUSG).

“Safeguards: Tools for Preventing, Identifying and Dealing With Fraud” was the culmination of a months-long taskforce from MCUL and a variety of credit union professionals and experts to put together a white paper examining current trends in fraud and how credit unions of all sizes can better protect themselves. All attendees were given a copy of the white paper, and heard from a panel of experts moderated by MCUL EVP/COO Ken Ross.

According to attorney Chuck Holzman, a panelist and a member of the taskforce, the most concerning issue about fraud today is the “overall general lack of awareness about how pervasive fraud is within credit unions.”

“Something I wasn’t quite aware of before I joined the taskforce is that just about every credit union in Michigan and in the country has been impacted by internal fraud of one sort or another at one time or another,” he told the crowd. “It’s an issue that credit unions—especially their boards of directors—need to be thinking more about and more concerned about, and not say to themselves ‘It’s not going to happen in my shop.’ They need to say to themselves ‘When is it going to happen in my shop?’”

One of the keys to that, he said, is strengthening internal controls and knowing how the institution will deal with fraud when it occurs.

The panelists—who also included Robin Hoag and Dan Mahalak—also suggested that CUs engage in internal controls audits, thought they cautioned that a financial audit that may contain some emphasis on internal controls, but not to the same degree as an audit focused specifically on internal controls.

“Your annual financial audit does not test, by and large, internal controls from a fraud perspective,” reminded Ross.

Whistleblower Protections

Included in the white paper are nearly ten case capsules of what happened in fraud incidents at a variety of institutions and what the weakness was that led to the fraud so that credit unions can examine their own policies and procedures and how they can better protect themselves.

Additionally, said Ross, the document also includes common themes and recommendations that come from looking at fraudulent activities after the fact, including:

  • Make yourself aware of fraud trends and what has gone wrong at other institutions so you can protect your credit union
  • Examine internal controls at your institution from the perspective of senior management and the board
  • Perform the required financial audits as well as the occasional internal controls audit
  • Ensure that staff gets training to detect fraud and keep current on fraud trends

“Having policies is just not enough,” said Ross. “People have to understand what they are and how they’re implemented.” He added that credit union management also need to give staff the ability to report suspected fraud anonymously. The taskforce white paper includes information on an 800 number (staffed by MCUL) where CU staff can act as whistleblowers.

Holzman added that credit union management should also ensure that staff at all levels are aware of the legal protections they have as whistleblowers, while also providing training so that staff at all levels understand internal controls and why those controls are important.

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