"We believe an enhanced examination procedure designed to focus in on high fraud risk areas combined with training on the new procedures is a key step to mitigate risk," he said.

The NCUA is in the process of re-structuring its exam approach and tailoring exams according to the varying risk characteristics of credit unions based on size and sophistication, including enhanced fraud detection techniques in smaller institutions.

"Staff training is currently underway on the enhanced exam procedures for small credit unions," Fairbanks said. "Those procedures include enhanced procedures to help detect fraud earlier. The exam process is not a fraud exam but with enhanced procedures, we expect to improve early detection. All staff will be trained on these procedures and they can be applied in all situations where fraud is a concern, but are especially targeted for small institutions."

Fairbanks added that credit union fraud is a relatively rare occurrence, but small institutions have less capacity to keep in place controls that could reduce fraud or aid in its detection.

There are approximately 4,400 credit unions that fall under NCUA's definition of a small credit union with assets below $50 million, the agency said.

"Of those, only a small handful experience fraud," Fairbanks said. "Some of those cases result in a loss to the share insurance fund; others are covered by the bond and the credit union continues operation."

The NCUA already has procedures in place to continuously improve the monitoring and exam process, he said.

"We learn from every incidence of fraud and make appropriate adjustments," Fairbanks added. "The NCUA continuously re-evaluates our ongoing monitoring to include enhanced analysis to identify irregularities where appropriate. We also moved to an annual exam cycle, which puts examiners on-site at federal credit unions more frequently. This will also help to reduce the size of fraud and possibly detect fraud earlier. "

NCUA is also evaluating approaches toward establishing a specialist team for the most significant fraud risks, the agency said.

"In the meantime, it's important to remember that local oversight is important," Fairbanks said. "Management, directors, and supervisory committee members can take steps to deter and detect fraud."

Several sources interviewed for this article spoke only on the condition of anonymity, saying they feared possible retaliation by the NCUA for their credit unions or clients.

"In recent years especially, the agency seems to have experienced tremendous turnover which is leaving a huge experience gap," said a vendor who spoke on the condition of anonymity. "Having and hiring non-accountants that do not sufficiently understand credit unions or how to examine financial institutions is hurting the industry also. There seems to be a lot of validity to the industry complaints I've heard over the years about examiner inexperience, turnover, inconsistency among examiners, etc."

Some say it seems wise for NCUA to stiffen up exams for credit unions of all sizes.

"What we hear from our customers, which tend to be smaller credit unions, is that the examiners spend almost no time in the books," said an executive at a vendor that works with small credit unions. "They spend most of their time on reviewing policies. They review a few loans."

"Unfortunately, we have seen fraud at a couple of our customers," the executive continued. "It was missed during multiple exam cycles, but was very obvious."