WASHINGTON (12/10/13)--The systemic losses created by the failure of G.I.C. FCU, Euclid, Ohio, could have been mitigated with more aggressive National Credit Union Administration oversight, the NCUA Office of the Inspector General (OIG) wrote in a recent material loss review.
G.I.C. FCU served 3,476 members and had assets of approximately $15.5 million before it was closed in December 2012. The agency said it liquidated the credit union after determining it was insolvent and had no prospect for restoring viable operations.
The OIG material loss review reported that G.I.C. FCU failed due to an overstatement of $8.1 million in assets, primarily investments in certificates of deposit and cash, allegedly due to fraud.
Questionable management integrity and performance, weak supervisory committee oversight and weak board oversight "created an environment in which assets could be vastly overstated," the review said. Specifically, the review found that:
G.I.C. FCU senior management displayed a lack of integrity and did not manage the credit union in the best interest of its members;
The credit union's supervisory committee failed to obtain supervisory committee audits for fiscal years 2009, 2010, and 2011; and
G.I.C. FCU's board failed to keep complete and accurate minutes, did not to obtain board packets with information sufficient to execute its duties, and did not act as control over the supervisory committee by providing a forum for receiving the audit report and minutes of the Committee meetings.
The above issues could have been detected, and losses could have been prevented, if the NCUA had been more aggressive in requiring the completion of supervisory committee audits, confirmed account balances directly with institutions, and addressed risks related to supervisory committee and board of director failures, the OIG wrote in the review.
To prevent similar situations in the future, the NCUA OIG recommended the agency:
Reinforce certain policies and procedures to ensure examiners document, communicate, and follow-up on incomplete or otherwise unacceptable external auditor reports;
Revise policies and procedures to require that examiners gain an understanding through direct communication with external auditors of procedures performed to verify account balances, specifically the cash, investments, brokered CD's, and member accounts;
Consider requiring examiners to obtain audit reports directly from independent auditors rather than receiving them from credit union management to avoid potential manipulation; and
Revise examination guidelines to include a step requiring examiners to obtain independent verification of significant balances (e.g., greater than 10% of total assets) directly from third parties.
For the full material loss review, use the resource link.