A recent article in CU Times addressed the failure of Taupa Lithuanian Credit Union and the report issued by the NCUA Inspector General (IG). It keyed on the examination process, what the IG said could have been done better, and how the NCUA responded to the findings.
Financial regulators are and should be very cognizant of the fact that when an institution over which they have regulatory authority fails; they bear the burden of responding to why such an event occurred. In addition, they are mandated to put in place the steps necessary to correct any missteps on their part that contributed to the failure.
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The CU Times article contains quotes from a high-level NCUA employee who when asked what action has been taken to prevent another Taupa, stated that steps have been taken but would not get into specifics, saying, "It's part of the exam process and we really don't discuss that in detail." This response is somewhat concerning, since the report on the failure issued by the IG is specific on areas where the NCUA could have done a better job.
One can appreciate the NCUA not wanting to publically talk about all the methods and tools they use to detect fraud. However, they need to go beyond saying they are doing things and instill a confidence within the industry that they have a handle on the problem. In addition, it would help to know that the members of the NCUA Board are satisfied that the criticisms and failures have been adequately addressed. It would help to know that they have been briefed on the "specifics" of fraud detection and are satisfied that everything possible is being done to uncover and control this abuse. It would help to know that they are the ones making the decisions that the procedures put in place are adequate to handle the problem.
The ways to detect fraud and the procedures used by examiners are not state secrets. The books and records that should be reviewed, the questions that should be asked, as well as the verifications that should be made are regulatory "best practices." The NCUA must be open, honest and transparent on what they do and how they do it.
Perhaps everything possible is being done, but it is up to the NCUA Board to verify that and show the industry they are in charge.
Michael Fryzel
Attorney, former NCUA Board Member
Chicago
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