The report is the OIG's most recent material loss review.

Former Taupa President/CEO Alex R. Spirikaitis was arrested on October 21, 2013 for suspicion of fraud and pleaded guilty to one count of conspiracy to commit bank fraud. Two Ohio business partners have pleaded guilty to conspiracy to commit embezzlement. Taupa served 1,150 members and had $24 million in assets.

"I don't know that there's anything specifically different before Taupa and after Taupa," Komyathy told CU Times. "As we've increased our surveillance systems, as we have more information on the call reports, as we have more information that we can trend, we can look at different things. I don't want to go into what specific red flags we look at – that's part of our exam process. All of our examiners were trained at our national conference last year on detecting fraud."

According to the NCUA, all examiners were trained on specific fraud procedures at last year's agency national conference, which was held April 28 to May 9. The agency also said it offers a variety of training on fraud every year.

Komyathy said the agency's new examiner training program has been enhanced with transactional testing.

"We give them specific things to look at depending on the size of the credit union, the sophistication of the credit union and what internal controls are available in the credit union," she said. "Depending on all of those different things, there are different levels of testing that examiners can do."

She added, "Are there things that are specifically different in the exam program? Yes there are, but I don't really want to go into what the specific steps are – it's part of the exam process, and we really don't discuss that in detail."

Although the examinations identified inadequate board oversight, the OIG found there was no indication of appropriate follow-up from NCUA examiners. The OIG also said examiners failed to adequately identify the transaction risks. If examiners had identified red flags and expanded procedures to address those issues, the OIG said the $33.5 million loss to the NCUSIF could have been mitigated.

"Based on our review of examiner working papers for the scope period of our review, we determined there were multiple red flags present in the accounting records and practices of Taupa," the report read. "For example, we found excessive amounts of cash on deposit, which was consistently far outside of the peer group average. We also found no discussion of the excess liquidity as a red flag, only as a concentration risk."

While examiners followed current NCUA policies and procedures to gain assurance over cash balances, the OIG reported that the agency does not require examiners to confirm significant balances directly with institutions.

"As a result, management was able to manipulate and falsify statements that allowed the cash on deposit misstatement to remain undetected by examiners," the report read.

Read more: The OIG said examiners relied on statements from Taupa…

The OIG learned that examiners relied on statements provided to them by Taupa management as evidence of cash balances, instead of performing a confirmation of cash balances held at correspondent institutions.

"We found nothing to indicate that examiners did not follow NCUA policy; however, given that the cash on deposit was so far above the peer group averages, we believe an independent confirmation of the balances would have been an appropriate expanded procedure," the OIG concluded.

Komyathy said examiners always had the ability to confirm balances, and there have not been specific changes made to the procedures.

"We've reminded examiners that they need to not just look at one set of data, but to look at trend data and what industry data is telling them," she said. "It's really highly dependent on every single exam and what the situation is there, and part of our training was that they have to think about what the testing is showing them and determine the appropriate steps to take."

Komyathy said examiners are not required to compare the cash on deposit at the institution with the peer group average.

"Sometimes just looking at peers and asset size is not really appropriate, because a $100 million credit union in one place might not be the same as a $100 million credit union somewhere else," she said. "So, really we give examiners a wealth of tools to use to come to a comfort level with the information they are getting and the findings that they have."

The OIG concluded that Taupa's Board of Directors should have held meetings more often. The review revealed that the CEO was frequently absent from board meetings, so the treasurer consistently presented the financial reports instead. The report mentioned that there was no substantive discussion related to policy reviews, risk management or strategy at the board meetings.

"Examiners cited board deficiencies in examinations effective June 30, 2006; December 31, 2007; March 31, 2009; June 30, 2010; December 31, 2011; and December 31, 2012," the report read. "Our review of the Board minutes concluded that minutes were missing for some months and we received no minutes related to the activities of the Supervisory Committee."

The OIG also said, "Large swings in income, projections and operating results went unchallenged at the meetings. We found the board had not signed off on some minutes, and board discussion notes were very limited with regard to audit and exam results or follow-up."

CU Times asked Komyathy if there have been any changes to exam requirements related to acting upon discrepancies in documentation such as board meeting minutes.

"We really train our examiners to look at all of the different pieces of an operation to make a determination of how they are going to assess the credit union," she said in response. "We look at a variety of different things. They are taught to not take things at face value and that when you get something and you find it odd, do more digging and do more talking."

Read more: Komyathy said examiners are trained to investigate …

She said the agency encourages its examiners to talk to people in the credit union to find out more about its operations.

"It's very highly dependent on what they find, who they have access to, what the conversations are, and what people are going to share with them," she said. "In many cases it is very hard to detect fraud from one or two separate things. Typically the detection of fraud comes because we've gotten a tip or because the financial condition has deteriorated so rapidly that it's the only explanation."

Komyathy stressed that signs of fraud are different in each case.

"Sometimes a board member not being there is because there's something going on and it's perfectly innocent," she said. "Other times a board member not being there is because there's something not perfectly innocent. Every situation is different and we try to give examiners the tools and judgment they need. There's nothing different specifically from that report as far as reviewing board minutes or talking to people. Those steps have always been part of the process."

During examiner interviews, the OIG said it learned the CEO exhibited behaviors that examiners should have addressed. The report said multiple interviewees described the CEO as evasive, staying away from the credit union often and being unavailable to answer questions.

"Interviewees also described the CEO as appearing to have complete control of the financial accounting and reporting practices of the credit union," the OIG found. "We believe individually and in aggregate, examiners should have identified these issues as red flags, which should have prompted examiners to perform additional procedures that may have identified the fictitious assets sooner."

Komyathy said that it's easy to go back after the fraud occurred and point out signs examiners should have seen.

The OIG repeated previous recommendations on fraud for the NCUA's management, such as implementing a more comprehensive strategy for responding to red flags. The OIG suggested examiner fraud training programs, implementing procedures to address fraud risks, and establishing fraud resources and tools.

In response to the OIG report, NCUA Executive Director Mark Treichel said examiners are required to take a core class on fraud detection, which identifies the examiner's role in preventing fraud including evaluation of internal controls. He also said the NCUA LearnCenter has training programs available that include identifying red flags for fraud.

When asked if any examiners were fired over the failure of Taupa, NCUA Public Affairs Specialist John Fairbanks said he is not able to comment on personnel matters.