NAFCU Services Blog

May 15, 2013 by Jay
Categories: Security

Five Fraud-Fighting Tips for Credit Unions

Originally posted on

Guest post written by Jay Slagel, President and CEO, Allied Solutions.

Allied Solutions is the NAFCU Services Preferred Partner for Insurance—Bond, Creditor Placed (CPI), Guaranteed Auto Protection (GAP), and Mechanical Breakdown (MBP); iSolutions; rateGenius.

It is not surprising that fraud in the workplace increases during an economic crisis or recession and small businesses (including large and small credit unions) may be vulnerable. Internal fraud typically occurs when someone has an incentive, such as a financial or economic hardship, plus the opportunity. National statistics show that it typically takes two years from the time fraud begins to the time of discovery. As a result, while some entities have already discovered fraud born of the recession, many more are likely to uncover problems in the coming years.

Management staff may be wearing multiple hats to keep up with more work, giving them less time to monitor employees, keep an eye on expenses and oversee their internal operation. During these periods, there might be the potential for a credit union to drop the ball in areas of oversight. Below are several ways to help fight fraud:

Establish fraud controls. Conduct a quick assessment of your fraud controls and determine who is responsible for fraud detection and reported misconduct. Credit unions should clearly establish this oversight which could be assigned to a senior manager, an internal auditor or the supervisory committee. Basically, this individual or group would perform periodic reviews of employee accounts and other areas where fraud might occur so as to detect and act early if a problem surfaces.

Screen and monitor those who have access to money. A background check on each new employee is a necessity for financial business. Employees who have access to teller drawers, the night depository or cash deliveries, etc., all have the opportunity so this exposure must be controlled. Maintaining dual control on all internal processes involving cash is strongly suggested. Employees in this role should be forced to take vacations and during that time, someone should oversee or check their work, including their personal accounts. An employee involved in fraud will be reluctant to take time off because a substitute employee may quickly discover an employee’s fraudulent scheme.

Conduct basic fraud awareness training. Develop a formal Fraud Policy that is acknowledged and signed annually by each employee. This sets the tone from management as to all expectations on the conduct of employees. This is Awareness 101, and it lets employees know that management is watching. It serves as a detection element in and of itself.

Periodically remind employees to be vigilant. Setting forth an expectation of awareness and the need to report any suspicious activity is critical to early detection. This “whistle blower” policy should be part of your Employee Handbook and should include a defined process of how to report any suspicious activity, and to whom. Also, the policy should strongly prohibit any retaliation for reporting any questionable incidents. Basically, all employees are responsible for preventing and detecting fraud, including “blowing the whistle” if a problem is discovered.

Monitor your vendors. Managing and overseeing your vendors is very important and employees also need to be vigilant and report any questionable activity. Previous history has shown that some employees, especially those who are new, might not be as knowledgeable about what constitutes fraud. For instance, if a new employee receives an invoice, they may likely pay it without as much scrutiny as a more experienced employee. Training and awareness is important and helps to provide early detection.

Credit unions should approach fraud prevention with a critical eye and not take anything for granted. Always take a questioning view to help guide the internal audit process in the utilization of a risk-based analysis and probe broader and deeper into areas warranting closer scrutiny. In other words, if you smell smoke, there is probably a fire burning somewhere.

A regular discussion of known fraud risk factors, management override of internal controls, fraud risk assessments, results of employee surveys or hotline calls, and publicized fraudulent activities from other companies all lead to productive brainstorming sessions among the credit union Management Team, the Internal Auditor and Supervisory Committee. With good communication and teamwork, risk of loss through internal fraud can be minimized.

Allied Solutions is the NAFCU Services Preferred Partner for Insurance—Bond, Creditor Placed (CPI), Guaranteed Auto Protection (GAP), and Mechanical Breakdown (MBP); iSolutions; rateGenius.

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