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BACKGROUND
EXAM PROCEDURES
ACTIONS to Take
ADDITIONAL Guidance
EXAMPLES
100
Between years 2004 and 2013, __ __ __ __ __-related losses cost the NCUSIF about $680 million.
What is FRAUD?
100
Increasing interaction with staff at all levels; Adopting a heightened level of professional skepticism; and Performing expanded transaction-level testing. Follow these strategies when _____________________
What is "when fraudulent activity is suspected" and to help "verify or disprove the suspicion"?
100
Field staff must consult with a supervisor first, regarding next steps during an exam, when this is discovered.
What is the first step when fraud is discovered during an exam?
100
The _________ _________ is the most important single element in the internal control structure.
What is the supervisory committee?
100
In 2010, this $250.9 million credit union cost the NCUSIF $174.5 million.
What is St. Paul Croatian?
200
Pressure or Motive, Opportunity, Rationalization, and Capability are all present when this occurs.
What are the characteristics common to most "INSIDER" Fraud? or What is the "Fraud Triangle" plus the recently identified characteristic addressing an individual's personality traits that permit them to exploit weaknesses in the system?
200
An examiner performs this procedure in order to detect these indicators of potential fraud: mismatch between AIRES loan download and the GL, multiple members with same address, loans with interest rates <5% and >18%, paid ahead loans, an unchanged balance after 90 days of the loan date, accrued interest >payment or balance, loans with $0 balance within 15 days of exam, and share accounts with negative balances.
What is a the AIRES Queries? or What is the AIRES Queries tab in the Fraud Indicators workbook for scope steps?
200
This may cause the perpetrator to destroy records to protect him or herself.
Why should examiners not reveal their suspicions too early and proceed in a way that doesn’t put the perpetrator on defense?
200
NCUA Instruction 5000.20 requires the ________ _________ questionnaire to be completed for all credit unions that are part of the Small Credit Union Examination Program (SCUEP).
What is the red flags questionnaire?
200
In 2014, this now merged credit union experienced insider fraud when one person controlled the approving and paying of all credit union expenses.
What is 49er FCU?
300
Lax management, domineering manager, weak internal controls, excuses for not addressing prior exam concerns, long-time trusted manager having little oversight, limited staff, weak SC, inadequate audit program, reluctance to produce information, and recordkeeping problems.
What are red flags indicating an environment with a heightened potential for insider fraud?
300
Insiders with fraudulent motives, who can control the statements for these types of accounts, can divert funds without detection.
What are "dormant accounts"? What are "dormant accounts with loans"? What are "withdrawals from dormant accounts?
300
The amount of fraudulent activity, the time period over which the fraud was committed, and the identities of the individuals involved.
What should field staff focus efforts on once fraud has been confirmed?
300
If bank reconcilements are ____ or more months in arrears, the credit union is deemed to have serious and persistent recordkeeping problems.
What is six?
300
In 2014, the CEO of this $95 million credit union wrote himself an unauthorized $1.6 million bonus check.
What is "Shell Western States FCU"? (Unauthorized or Fraudulent Expenses)
400
Strong ethical culture, strong internal controls, segregation of duties, accurate records with clear audit trail, prompt responses to exam concerns, active SC, independent audit and verification, and provides access to records and information.
What types of measures can be taken by the credit union to deter insider fraud?
400
To detect this scheme, examiners trace selected wires from the bank statement to a member's or non-member's account and the corresponding general ledger entries.
What is "unrecorded deposit schemes"?
400
Prior to doing this, ensure you have obtained and copied all applicable records, exhausted all leads & avenues of investigation.
What is interviewing officials and credit union staff about the fraud activity discovered?
400
NCUA has setup the ________ _________ ________ to assist credit unions and consumers in the effort to recognize, prevent, and report fraud.
What is the Fraud Information Center?
400
In 2013, an employee removed $606,000 in cash from this $250 million credit union by taking money from two ATMs and by taking the accumulated cash deposits from three ATMs. Though the CU had a large staff, there was no dual cash controls over the ATM function. All ATM responsibilities were entrusted to this one individual.
What is "UNCLE CU"? (Theft of Cash)
500
Fraudulent loans, theft using member accounts, misappropriated deposits, insider accounts, unauthorized expenses, and/or unauthorized use of assets.
What are common insider fraud schemes in credit unions?
500
Either a high number of transactions and/or any number of high-value transactions that are inconsistent with the size of the credit union should alert the examiner to do this procedure.
What is to "assist in establishing insider's culpability and/or guilt"? What is the procedure of "reviewing bank reconciliations and verifying balances from source documents"? What is "the general ledger tab in the Fraud Indicators workbook for scope steps"?
500
It is important to document the comparison of how the insider’s activities strayed from established policies, procedures, and practices, to demonstrate this.
What is the insider's culpability and/or guilt?
500
Certain chapters of the Examiner's Guide, NCUA's Fraud Information Center, the Supervisory Committee Interim Audit Procedures Workbook, various Postmortem Reports and Material Loss Reviews, NCUA Supervisory Letters on The Cost of Poor Recordkeeping and Internal Controls, Letters to Credit Unions on Internal Control Structure, and Fraud Related Presentations and Videos from OSCUI, CUNA, NCUA and various NCUA Regions are all additional guidance relevant to _______ _____.
What is Insider Fraud?
500
In 2007, this $285 million credit union in our group failed, causing a $205 million loss to the NCUSIF.
What is "Cal State 9 CU"? (Fraudulent Loans) Management used a third party to originate indirect HELOCs, growing the indirect HELOC portfolio to $314 million. Most loans were made to sub-prime borrowers and the senior #1 deed of trust in many cases were Option ARM (aka "Pick-a-Payment") loans that accrued massive negative amortization. The CFO had the ability to underwrite and approve loans, and to perform collections, creating the opportunity for fraudulent loans. Management also borrowed funds and issued high-rate, short-term certificates of deposit to fund the loans. Also, management sold non-recourse participations to three other credit unions. The fraud? It's likely the CEO and CFO perpetrated fraud by using "straw" borrowers (borrowers whose names and credit histories were used to obtain loans for other members). Following conservatorship, OGC began an investigation into these alleged activities.