Compliance Blog

Written by Anthony Demangone

I try to read as many “credit union” publications as I can.  I’ve been amazed regarding how many stories or items involve fraud or embezzlement by a credit union employee.

Just “Google” “embezzle” and “credit union” and you get this.  Ouch.

NCUA is on to this as well.  In their Material Loss Review Capping Report, they noted this:

Our MLR reports confirm overwhelmingly that credit union management’s actions greatly contributed to the failure of each of the ten institutions reviewed by the OIG. Specifically, we found three significant actions that management was either unwilling or unable to effectively manage or mitigate that exposed these credit unions to significant amounts of risk: (1) poor strategic planning and decision making; (2) inadequate oversight (policies and internal controls); and (3) fraud.

All this fraud is related to transaction risk.  NCUA defines transaction risk as:

The risk to earnings or capital arising from fraud or error that results in an inability to deliver products or services, maintain a competitive position, and manage information. This risk (also referred to as operating or fraud risk) is a function of internal controls, information systems, employee integrity, and operating processes. This risk arises on a daily basis in all credit unions as they process transactions. (Emphasis added)

How can you measure where your credit union stands with reputation risk expectations?  NCUA has a wonderful chart in its Examiner’s Guide.  Through the magic of technology, here’s the portion of that chart that talks about transaction risk.  Run through this chart and see where your credit union measures up.