Internal fraud is an uncomfortable subject; no organization wants to assume their employees and staff would ever cross that line. But it does happen, and you should be prepared.
In a National Credit Union Administration postmortem review, 13 of 16 failed credit unions cited insider fraud as a contributing factor to their failure. To prevent harm to the credit union and members, you should get serious about implementing processes and procedures for detecting and dealing with internal fraud. Insider fraud most often occurs because an individual is faced with some type of stressor and then is presented with the right opportunity. Areas like sales, accounting, and positions of power tend to see more insider fraud. Typically, the fraud is conducted through falsified financial statements, such as manipulated accounts or records, misappropriation of assets like fake invoices, or corruption. Detecting Internal Fraud: Know the Types There are three common methods of detecting internal fraud:
Whether you are management or staff, you can catch internal fraud by paying attention to company culture characteristics and ethics. For instance, does your organization not have bank bribery, fraud or whistleblower policies, or are policies controlled by one or two members of management? Are certain employees provided “perks” like expensive vehicles, trips or houses? How are these situations defined in policy? Who is responsible for oversight of internal audits and determining who the external auditors should be? No CEO should have control over both areas. Requests to abruptly change your external auditors or legal counsel, trying to control which groups are audited, or dictate who the auditors can speak to could also be red flags. While knowing what behaviors and actions to look for and how to identify internal fraud is important, it is also important for everyone at your organization to know how to handle it when they see it. Investigating Internal Fraud: Be Deliberate & Thorough When a credit union suspects internal fraud, these are the steps to take. 1. Assess the Situation:
Preventing Internal Fraud: Make Changes Now to Protect the Credit Union in the Future One of the most impactful steps you can take is to put controls in place to prevent internal fraud from happening in the first place. This also means educating your staff on fraud awareness, so they are prepared to identify and report on suspicious behavior if they suspect it. By taking the right steps to prevent and handle internal fraud, your credit union reduces the risk to members, your reputation, and even potential credit union failure. The Dakota Credit Union Association’s dues-supported compliance solution – ViClarity – is a world leader in credit union compliance. If you have questions about establishing your members-only account with ViClarity, click here for detailed instructions or contact John Alexander in the DakCU office. Comments are closed.
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