Credit Union Insider Fraud Cases Plummet in 2020

Credit union insider fraud cases did not take a holiday in 2020, but they substantially declined presumably because of the economic and health crisis caused by the pandemic.

There were 10 internal fraud cases and three former credit union employees who were convicted and sentenced for embezzlement/theft crimes for a total of 13 fraud cases this year that were prosecuted in federal, state or local courts. That number is quite low compared to 2019 when there were an estimated 15 insider fraud cases and 17 former credit union employees who were convicted and sentenced for embezzlement/theft crimes for a total of 32 criminal cases.

External fraud cases that victimized credit unions were not counted in these totals.

Henry Wirz, retired President/CEO of the $3.6 billion SAFE Federal Credit Union in Folsom, Calif., who frequently comments on credit union fraud, speculated that this year’s cases may have dropped because COVID-19 shifted more member activity to online. What’s more, a lot of credit union fraud involves tellers and vault cash transactions so the opportunity for each may have been reduced because credit unions had to temporarily shut down or reduce the operational hours of some branches.

But this year’s significant decline in fraud cases may just be a temporary lull.

David Legge, president of the Manassa, Va.-based Legge Group, which investigates internal fraud cases for credit unions and other businesses, said employees working from home will create problems that may not get discovered until everyone returns to their work sites.

“Some employees because of the losing of controls, and lack of oversight, when also presented with financial difficulties, could have led to the rationalization that they were entitled to the use of business assets,” Legge said. “They also could conclude with no oversight, no one would ever know. Because the computers were being used from home, the physical access controls would be reduced. Management would not have a way of knowing if someone else was using the computer if quick timeout controls were not in place.”

Wirz also pointed out that examiners practicing social distancing and other protective practices will, in his opinion, reduce the effectiveness of exams.

“Exams will also be more difficult given the number of employees working from home,” he said. “This impact may not be seen until later.”

He also noted since COVID-19 has increased the number of employees working from home, it may increase fraud if the credit union does not randomly test transactions and if members do not monitor activity on their accounts.

Another issue is that the number of families with financial problems has increased because of the pandemic.

“Credit union employees may be in financial distress and this raises the motive for fraud,” Wirz said. “If credit unions have proactive programs to help employees (and members) in financial distress they may minimize fraud caused by financial need.”

Read more about 2020’s top insider fraud cases in the Dec. 23 print edition of CU Times.