On Compliance: Fraud costs and controls

Since internal fraud losses are not slowing down, credit unions will need to demonstrate to examiners that they have an adequate prevention program in place.

Financial loss due to internal fraud continues to be a problem despite increased examiner focus on the issue in 2017. According to the National Credit Union Administration’s NCUA Report, from 2012 to September 2016, fraud-related losses cost the National Credit Union Share Insurance Fund $146.8 million. It is no surprise that internal controls and fraud prevention are among NCUA’s supervisory priorities for 2018.

NCUA Prohibition Orders were issued in 11 of the 12 months of 2017, prohibiting 46 individuals across 24 states from participating in the affairs of any federally insured financial institution. These individuals pleaded guilty to such crimes as mail fraud, grand theft, misappropriation of funds, bank fraud, money laundering, racketeering and embezzlement.

The total restitution amount published in the prohibition orders for 2017 totaled $39,494,437.60. This amount is larger than the asset size of 2,344 of the 5,757 credit unions in the United States as of the third quarter of 2017, which represents just over 40 percent of the total number of credit unions, according to the Credit Union National Association’s “U.S. Credit Union Profile, Third Quarter 2017.”


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