More Needs To Be Done To Prevent Insider Abuse

January 11, 2016 at 9:21 am Leave a comment

Late Friday evening as I was settling down for an end –of- week drink, the CU Times sent out a news alert about yet another credit union executive charged with ripping off his credit union. So it goes.

This news wouldn’t be all that unusual, but for its audacity . Thirty six  year-old Michael LaJoice, CFO of the Clarkton-Brandon Community Credit Union in Michigan, is accused of stealing a mere $20 million from the $68 million credit union over a 12 year period.   LaJoice, who started working with the credit union when  he was 23, is charged with 14 counts of embezzling $100,000 or more from the credit union on 9 different occasions. He walked into a sheriff’s office last week and confessed his crimes  According to an Oakland County prosecutor, he did all this while  living a life-style of the rich and famous.

With the caveat that Mr. LaJoice is innocent until  proven guilty. Stories like this are all too common, and they have real life consequences. In fact,  NCUA estimates that fraud was a factor in 41% of credit union failures between 2005 and 2015.

What’s going on here? On paper, supervisory committees are well positioned to mitigate this type of criminal activity. For example, one of their primary goals is to establish policies and control procedures “that safeguard against error, carelessness, conflict-of-interest, self-dealing and fraud.”  (Supervisory Committee Guide, Section 4.01).  The most important way they  accomplish  this goal is by overseeing a yearly outside audit of the credit union’s books.

But let’s be honest.   Credit unions are having a tough enough time recruiting board members, let alone recruiting individuals to supervisory committees who have the type of skills necessary to properly scrutinize the financial conduct of credit union employees. At many institutions the committees have atrophied,

To be clear, I am not suggesting that credit unions are any more susceptible to financial abuse than  other  types  of financial institutions ;  nor am I suggesting that credit union executives are more susceptible to wrong-doing than their counterparts.  In fact, I believe that, since the vast majority of credit unions are overseen by  volunteer boards  and  many credit union executives  have forgone the potential of bigger paychecks elsewhere , there are many structural benefits that encourage honest dealing.  That being said, it is time for the industry and NCUA to examine what steps can be taken to strengthen financial oversight of  credit unions.

Bad apples are inevitable but if they are left to fester long enough they can ruin the whole bushel.

Here are some additional articles.

http://www.freep.com/story/news/local/michigan/oakland/2016/01/08/credit-union-embezzlement-oakland-county-20-million/78517556/

http://www.theoaklandpress.com/article/OP/20160108/NEWS/160109584

Entry filed under: General. Tags: , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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