Emerging Loss Trends Threaten Credit Unions’ Financial Health
Credit unions are becoming more susceptible to emerging loss exposures that can cause immediate losses or result in third-party claims, litigation, and subsequent losses, according to a CUNA Mutual Group risk management specialist.
Speaking to an America’s Credit Union Conference Discovery breakout session recently, Roger Nettie, senior risk management consultant, said credit unions face a two-pronged loss threat – by fraudulent acts committed directly against the institution and through litigation by third parties.
Direct losses can result from myriad reasons, including employee dishonesty, illegal funds transfers and electronic crime. Employee dishonesty is universal but the most commonly victimized organizations are in banking and financial services, according to the 2012 Global Fraud Study conducted by the Association of Certified Fraud Examiners.
The study indicated employee frauds lasted a median of 18 months before detection, with a median loss of $140,000. The study showed more than one-fifth of these caused losses of at least $1 million. “The longer a perpetrator works for an organization, the higher fraud losses tend to be,” Nettie said. “CUNA Mutual Group claims records show that over a five-year period, employee dishonesty represented just 13 percent of fraud claims, but 45 percent of fraud losses.”
Many credit unions believe their employees are all trustworthy and that they have strong enough internal controls to prevent internal theft from occurring. Yet, it still occurs.
“Fraud does not discriminate. There is no immunity to this exposure based on geography, asset size, employee tenure, or past experience,” he added.
Another growing area of direct losses is wire fraud, especially from HELOC accounts, with credit unions reporting more than $25 million in losses from 2007 to 2012. The average reported loss in 2012 was $175,000, with some approaching $1 million. “Credit unions experiencing losses generally had inadequate security for large dollar transfers, enabling crooks to easily defeat callback security measures,” Nettie said.
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