By Reginald Watson, NCCO, Regulatory Compliance Counsel, NAFCU
Both external and internal fraud represent major risk areas for credit unions and can cause huge economic losses. A lack of an effective system of internal controls can lead to larger overall problems by undermining a credit union’s ability to assess risks and identify fraud. Risk-monitoring systems sometimes do not adequately consider whether an employee will act to sabotage the system; however, we have learned this is not always the case.
A 2016 Credit Union Times survey of 141 credit unions indicated that just over 16 percent of fraud losses were caused by some sort of internal fraud. In addition, the survey showed that internal fraud played a role in the closure of 11 out of 16 small credit unions in 2015. While it is difficult to anticipate the threat of external forces in this modern age of decentralized branches, virtual banking and teleworking employees, certain fraud risks and vulnerabilities can often be diminished by having an adequately robust system of internal controls.
From the November-December 2018 edition of The NAFCU Journal magazine.