MADISON, Wis. (10/6/11)--The future sustainability of small credit unions in today’s challenging economic environment will require improved decision-making strategies, proficient and proactive risk assessment, and more efficient operational execution, a CUNA Mutual Group risk manager told Online Discovery Conference attendees Tuesday. Online Discovery is CUNA Mutual Group’s free Web-based conference. The one-day event attracted a national and international audience of more than 1,800 credit union and league staff. Risk can be managed effectively in all credit unions, and smaller ones are not necessarily at a disadvantage, said Joette Colletts, regional manager of credit union protection risk management. “In fact, smaller credit unions have several advantages in managing risk,” Colletts said. “With fewer employees and close relationships, their culture readily promotes open communication and a willingness to share suggestions. This agile atmosphere lends itself well to reviewing, re-evaluating and upgrading planning to promote a healthy risk culture.” Credit unions must assume some risk to innovate and grow. That means having a culture that aligns risk with goals and properly managing the process to optimize return, she said. “Too little risk taking hinders innovation, which can threaten a credit union’s survival, while too much risk taking can be just as crippling by uncontrollably expending resources, leading to losses,” she added. Colletts focused on two challenges facing credit unions: employee dishonesty and vendor fraud. “The common denominator in my 27 years as a risk manager has been that the credit union either lacked the controls to help prevent the fraud from occurring in the first place, or became more relaxed about its controls over time,” Colletts said. “If you think you don’t need to implement controls or tighten existing controls, please think again. I assure you, you’re providing the ideal environment for a dishonest employee.” Among the best practices for thwarting employee fraud:
* Implementing dual control for currency shipments and cash replenishments; * Controlling access to data, information, checks and cash; * Maintaining an active supervisory committee; * Conducting surprise audits, and * Performing bondability verification and background checks.
Third-party vendors play an increasingly important role in helping credit unions compete and expand member services. While outsourcing generally creates member value and improves the bottom line, it can create significant risk if due diligence is improperly performed when selecting and managing vendor relationships, Colletts noted. Understand a third-party’s organization, business model, financial health and program risks, she added. “Remember due diligence never stops. It’s an ongoing process,” she said. Colletts recommended implementing an enterprise risk management (ERM) program to improve strategic decision making and risk communication. “ERM integrates risk management with strategic planning and is a systematic approach to managing all your credit union’s key risks,” she said. ERM can be implemented in any size credit union and can be scaled down if needed and implemented in incremental steps.