Two news reports in one day on credit union failures suggest these events are merely different sides of the same coin.
First Story:
ALEXANDRIA, Va. (May 24, 2021) – “The National Credit Union Administration today placed Empire Financial Federal Credit Union in Jackson, New Jersey, into conservatorship.
Empire Financial Federal Credit Union is a federally insured credit union with 343 members and assets of more than $3.04 million, according to the credit union’s most recent Call Report. Empire Financial Federal Credit Union serves multiple faith, occupational, and associational groups, and communities primarily located in New York, New York, and New Jersey.”
Second Story:
Former CU Service Center Co-founder Sentenced for $1M Embezzlement By Peter Strozniak, Credit Union Times
“Joan Brown stole funds to keep her business and the six CUs it served afloat, prosecutors and defense lawyer say. . .
Starting in 2010 and through 2016, Brown embezzled more than $1 million, which was drawn on accounts of Cardozo Lodge FCU; O.P.S. Employees FCU; Chester Upland School Employees FCU; Triangle Interests FCU; Electrical Inspectors FCU and Servco FCU.”
NCUA liquidated all six credit unions in April 2016.
The Same Coin
These two events, I believe, are related. The failure of six credit unions resulted from an embezzlement conducted over six years. Six times six means that examiners had 36 chances to discover wrongdoing.
By moving Empire Financial FCU’s office 77 miles away to the main office of Municipal Credit Union, still in conservatorship, means a forced merger is underway. Any doubt there might have been fraud in this case as well?
These repeated credit union failures due to embezzlements that occurring over years or for decades in the case of CBS Employees FCU, suggest that examiners are either inadequately trained or just not up to the job of conducting routine reviews of general ledger activity and the accounts of key personnel.
In small credit unions with only one or two employees these reviews are straight forward and critical because there is little or no separation of duties.
The coin involved is the same: the members’ money in direct losses or via NCUSIF liquidations.
Hiding Shortcomings
The lack of transparency around these events enables NCUA to hide internal shortcomings until the facts are revealed in court cases years later-five in the Times example above. Post examination reviews are either not done because of the small amounts involved or the problem has been “resolved,” that is merged or liquidated.
The temptation for money handlers to commit fraud is endemic with the role. That is why field exam contacts are necessary. Simple audit steps and verifications help keep honest people honest.
These coincidental events suggest something is lacking in NCUA’s oversight of its smallest institutions. If shortcomings exist in this segment, one must wonder about examinations of larger, more complex credit unions whose activities include buying banks and purchasing other credit unions.
Is NCUA’s exam program up to the job whether the credit union be small or large? Whether the review is simply balancing clearing accounts or complicated, such as using derivatives to mitigate risk?
Someone at the agency needs to own this challenge. The first step would be to bring light to these failures as they occur, not in legal proceedings years later. That public comment would put the agency’s examiners, credit unions and dishonest employees on notice that NCUA is alert for bad actors.