How Not To Embezzle – Part 3 of… [Internal Fraud Prevention]

By Christian Mullins

Credit Union: TxDOT – Wichita Falls

Location: Wichita Falls, Texas

Employee Name/Position: Joanna Lynn McGee, President

Convicted Of: Embezzlement of funds through approximately 130 fraudulent loans over seven years.

Amount In Question: At least $850,000 and as much as $1,900,000.

How she did it:

From 2001 until May 2008, McGee originated 129 fraudulent loans totaling $3.1 million using mainly dormant and decedent accounts.  Some of the disbursed funds were used to make payments on existing fraudulent loans, while the rest was kept for personal use.

How she was caught:

None of the resources used to compile this report included that information.

Status:

On April 3, 2009, Joanna McGee was sentenced to 71 months in prison and ordered to pay restitution of over $2.5 million.  The credit union was declared insolvent and taken over by Postel Family Credit Union, also in Wichita Falls.

Moving Forward:

Something I’ve written before bears repeating: Regular, thorough audits build trust, not mistrust.

This happened at a credit union with just over 500 members and $5 million in assets.  While direct blame lies with Joanna McGee, indirect blame lies with whoever was responsible for the internal audit of the lending documents.  If that duty was unclear in any way, blame falls squarely on the Board of Directors.

The loan auditor, presumably from the Supervisory Committee, should have requested access to the member account software, personally printed a list of loans generated since the last audit, and mailed confirmation letters to random loans on the list.  With names and addresses changed, not to mention using the names and accounts of deceased members, it wouldn’t be long before irregularities were discovered.

While it isn’t customary for Supervisory Committee members to utilize confirmation letters, extra diligence is required whenever a large amount of responsibility is concentrated with one individual. If such a policy had been in place, Joanna McGee wouldn’t have been able to take advantage of the lack of safeguards and a 55 year old credit union wouldn’t have had to pay the ultimate price.

It’s Time To Develop A Comprehensive Savings Program For Your Credit Union

By Christian Mullins

With the world in a recession, savings has become the new spending.  Personal finance is no longer counted amongst politics and religion as casual subjects better left untouched.  People that had previously discussed vacations or their latest big item buy now talk about how much they lost when the stock market crashed.  It’s at the forefront of everyone’s thoughts, from rich to poor, and we all share a strange comfort in knowing that everyone around us is in the same boat.  There aren’t any quick fixes, but most people are beginning to understand the need for a solid savings foundation beyond the stock market.

The problem credit unions face in fully realizing the potential long term gains of this current mindset is that very few spenders successfully transform into savers.  The spender-members know they should save, and it is within the ability for most of them to do so even in a recession, but as credit unions we have largely failed in developing a set of mechanisms for these members to successfully save over the long term.  As soon as the economy rebounds, savings built through the fear of the unknown will ebb or even decline for many of these spender-members.

Financial seminars, youth savings accounts and a myriad of certificate offerings are a start but they’re only pieces of what should be a comprehensive and easily identifiable savings program.  Every credit union should have a plan in place to assist any member that wants to increase their savings from $A to $B, and the credit union’s involvement should extend beyond handing out savings pamphlets or budget charts.

A fully developed long term savings plan requires time, thought, and planning, and it’s unlikely to significantly ‘bump up’ your deposits, but that’s where any downside ends.  It’s a public relations marketing tool, both in direct and word of mouth advertising and, more importantly, it will improve the lives of a few members that have tried, and failed, to save with your credit union’s current products and services.