Credit Union National Assoc Stress Fraud Prevention at Annual Conference

The Credit Union National Association Lending Council had its fifteenth annual conference last November and the major presentation at the conference was Fraud Prevention. A key speaker at the conference was Mark McDuffie, a risk manager for the Credit Union National Association Mutual Group and Joanne Robinson, vice president of lending at Smart Financial Credit Union in Houston.

Mr. McDuffie and Ms. Robinson delivered a presentation about the challenges credit unions face as the work to maintain bottom lines and deliver superior service to their members. McDuffie stressed that a lot of the challenges could be overcome by performing due diligence against the different forms of fraud out in the market today.

The most common forms of fraud according to Mr. McDuffie are mortgage fraud, loan fraud derived from employee dishonesty, and indirect fraud. He stressed that would be fraudsters are coming up with new schemes to defraud the systems already in place. He warned the members attending the conference that they need to be aware of the new schemes and what actions to take to prevent them from happening.

McDuffie refer to the CUMIS Insurance Society reports on bond loss figures that revealed an increase in claims and dollar amounts. The study covered a period between 2004 and 2008. Fraudulent deposits represented the highest amount of claims at forty eight percent however fraudulent deposits only represented nineteen percent of the monies paid out. Employee dishonesty represented ten percent of claims but accounted for thirty six percent of the bond loss monies.

Loan fraud in today’s economy equates to loan fraud and is becoming more frequent as more individuals are getting laid off. The common theme is one individual in the household loses their job and in today’s economy almost immediately go into debt. People become desperate and resort to measures that reflect that desperation. If that individual happens to work for a credit union they are aware of how the inside systems work and been to seek ways in which to scam the security in place to obtain financial gain.

Mr. McDuffie talked about a loan officer who used his knowledge of the systems in place to process a share secured loan against an elderly credit union member’s account. The loan officer used another employee’s security password to avoid drawing attention to him. The password was obtained by fraudulent means as well. The loan officer disbursed the funds obtained into his own family member’s accounts in order to avoid detection; thus laundering the funds. The amount that his loan officer fraudulently obtained was eighty thousand dollars. The loan officer was catch when the elderly credit union member reviewed a monthly statement and then called the credit union.  The example that Mr. Duffie gave was just a small case in relation to the scale and scope involved. Controls need to be in place that discourages employees from taking the risk and thus preventing the fraud from happening.

Economy conditions have increase mortgage fraud as well as many homeowners are in situations of unemployment or over-mortgaged. The most common scam in regard to mortgage fraud is fraud rescue scams. Fraudsters contact homeowners who are in distress and tell them they are foreclosure specialists. The fraudsters tell the homeowner that they will pay off the mortgage and other debt. The homeowner then titles the property off to the fraudster and the fraudster refinance on the mortgage or sells the property. The homeowners are often told they can rent the home and often do but the fraudsters never pay on the mortgage and the property goes into foreclosure.

These actions are acts of desperation and the fraudsters work fast to do as many transactions simultaneously in order to defraud the mortgage lender before they are detected. The fraud is becoming more sophisticated and credit unions across the nation need to be aware of how to prevent, detect and have procedures in place to ensure continued strength in credit unions as a whole.