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.
April 11, 2009 at 5:32 am |
Small businesses can’t afford annual audits. They can afford to implement simple oversight procedures that will cut their vulnerability dramatically.
June 3, 2009 at 2:19 pm |
TexDOT-WF CU was a state chartered credit union under the supervision of the Texas Credit Union Department. TCUD would schedule examinations based on the findings of the previous exam probably annually and more often if there were problems. In addition, the credit union would be required to perform an internal audit at least annually. Ms. McGee did not have the background, credentials, or experience to be hired for such a position, i.e. “it’s not what you know, but who you know” and that decision falls squarely on the shoulders of the Board of Directors at the time. While state credit unions are not required to have a Supervisory Committee one wonders why TCUD and auditors did not discover suspicious loan documentation in almost 10 years. One also wonders why the Board after knowingly hiring someone lacking in qualifications would simply hand over the credit union with no internal supervision as suggested by Mr. Mullins. It is sad to see the credit union movement lose one of their own, and especially the members to lose their credit union.
August 19, 2009 at 8:35 am |
Indirect blame does not lie with internal audit but with management, who is clearly responsible for designing and enforcing internal controls sufficient to identify errors, omissions and fraud in the normal course of business. The duty of internal audit is to provide feedback to the Supervisory Committee as to whether those internal controls are in place and working, not to identify all internal fraud.