Share and Member Account Fraud

Insiders can use their own share accounts or members’ share accounts to conduct fraud.

Examples of fraud involving shares and member accounts include:

Dormant Account Fraud

Dormant member accounts (accounts without activity for a stated period, usually 12 months or longer) or accounts that are not actively monitored by a member are easy targets for fraud perpetrators.

Kiting

Kiting occurs when a member deposits a check, ACH, or other funds from an account with insufficient funds to cover the withdrawal of funds from a different account with insufficient funds.

Internal Kiting

Internal kiting can involve credit union employees.

External Kiting

External kiting typically pertains to members' accounts. External kiting schemes usually involve a credit union and one or two other financial institutions. A member writes share drafts or checks against one or both external financial institutions but has insufficient funds in that institution to cover the check.

Examiners review the credit union member’s deposit processing and funds availability policies and procedures to determine if the credit union has proper controls to prevent kiting, and whether the controls are adequate. Internal controls can include proper check holds and limits on the number of check deposits in a single day.

Misappropriated and Unrecorded Deposits

Without proper segregation of duties among credit union staff, an insider may commit fraud by accepting deposits from members or nonmembers (for example, another credit union or a bank) without recording the deposit in the appropriate account.

Additional unrecorded deposit schemes include:

  • Fraudulent wire activity. Unrecorded deposit schemes generally involve funds wired into or out of the credit union. Examiners can trace wire activity from the bank statement to a member’s or nonmember’s account and the corresponding GL entries. Traced member account deposits that do not match the incoming wire member detail information are a red flag.

  • Closed bank accounts. When closed accounts seem suspicious or indicate there may have been improper activity, examiners can investigate further.

Insider Accounts

An insider is an individual in a position of trust or closely affiliated with the credit union. Examiners can review internal controls, policies, and procedures on insider accounts to mitigate misuse.

Theft of Member Shares

A credit union insider may target members with high balances and low activity in their share accounts. This type of fraud generally occurs in relatively inactive accounts.

Last updated on May 01, 2023