Judge Rules Against NCUA in $13 Million Embezzlement Case & CU Liquidation

A judge ruled against the NCUA to sue a Louisiana CPA firm in federal court over accounting malpractice allegations involving a $13 million embezzlement case that led to the liquidation of Shreveport Federal Credit Union.

U.S. District Court Judge Terry A. Doughty in Shreveport ordered on July 13 that the case be sent back to a Louisiana state court. The NCUA also was ordered to pay the CPA firm, Heard, McElroy & Vestal (HMV), $7,500 in attorney fees and other costs.

In April, the NCUA moved its lawsuit from the first Judicial District Court for Caddo Parish to U.S. District Court for the Western District of Louisiana. But Judge Doughty ruled the NCUA’s removal of its lawsuit from state court to federal court was “procedurally defective.” Federal law does not provide for a plaintiff, in this case the NCUA, to remove its lawsuit to federal court when it has already been filed in a state court.

According to court documents, the case was remanded to state court on July 23.

The NCUA alleged that HMV, based in Shreveport, failed to properly conduct annual financial statement audits of Shreveport FCU. Because of the CPA firm’s alleged errors and omissions, the NCUA claimed it was damaged and suffered a significant financial loss.

In Louisiana, state law requires a public accountant review panel by the Society of Louisiana Certified Accountants to review all claims against certified accounting firms before any civil lawsuit can be filed.

On Sept. 29, 2020, the NCUA filed its claims against HMV and asked the SLCA to review them. That review was initiated and is pending, according to court documents.

HMV, however, said the NCUA’s review panel proceeding and its allegations must be dismissed because the three-year statute of limitations expired after April 13, 2020. The NCUA became the conservator of Shreveport FCU on April 13, 2017, which is when the clock on the statute of limitations began, but the federal agency didn’t file its claims against the CPA firm until September 2020.

Shreveport FCU was liquidated in October 2017 after NCUA auditors determined its former de facto CFO allegedly embezzled more than $13 million, according to the NCUA’s court documents.

During phone interviews and email conversations with CU Times in May, Helen Godfrey-Smith, who served as Shreveport FCU’s president/CEO for 34 years, growing it from $1.9 million to $102 million in assets, said she did not have any knowledge about what she described as a rogue CFO’s “horrible dishonesty.” The CFO was fired immediately after Godfrey-Smith said she discovered the embezzlement in February/March 2017.

In addition to the $13 million embezzlement that led to the liquidation of SFCU in October 2017, it posted a total loss of $17.6 million at the end of the third quarter of 2017, according to NCUA financial performance reports.

Alesia Smith Cummings served as Shreveport FCU’s de facto CFO and died at the age of 51 on April 12, 2017, the day before the NCUA conserved the credit union for “safety and soundness” issues.

The NCUA claimed that Cummings was a long-time friend and associate of former CEO Godfrey-Smith. To be clear, the NCUA did not accuse Godfrey-Smith of any wrongdoing in its findings that were reported in court documents.

Cummings was allegedly the only person engaged in a long-term embezzlement scheme, which the NCUA claimed its examiners independently uncovered during the spring of 2017.

The alleged fraud included posting phony deposits to an array of automated clearing house receivable accounts such as undistributed payroll, accrued vacation and 401(k) match accounts. Cummings also allegedly created fake fees that were used to pay bonuses to employees, including large bonuses to Smith. The federal agency also claimed Cummings embezzled funds by making transfers from the ACH clearing accounts to her account, an account she jointly owned with her father to other accounts owned by Smith.

In response to the NCUA’s allegation that Cummings allegedly created fake fees that were used to pay bonuses to employees, including large bonuses to Godfrey-Smith, the former CEO said the credit union had an incentive and bonus plan for all employees based on their performance and years of service, but they were not exorbitant or unreasonable. She said she does not believe Cummings used these phony fees to pay for employee incentives and bonuses, but only to cover up her alleged embezzlement.

Shreveport FCU’s issues first surfaced in 2014 when examiners noted in their reports that the credit union accessed two lines of credit at its corporate credit union several times a year to cover expenses even though the credit union’s books showed adequate operating liquidity. However, management assured examiners that the credit union had ceased such borrowings.