Internal Fraud

An insider is an individual in a position of trust or closely affiliated with the credit union. Typically, insider financial fraud is conducted in three ways:

1. Fraudulent Financial Statements—Most of these cases involve the intentional misstatement of amounts on the balance sheet or income statement. Examples include:

   • Intentional violation of policies, internal controls, regulations, or procedures

   • Manipulation of accounts, documents, or records

   • Forgeries or alteration of documents

2. Misappropriation of Assets—These cases involve theft of a credit union’s assets. The term “misappropriation” is used to indicate that the theft involves employees and others internal to an organization. Examples include:

   • Theft of any kind, including stealing from members’ accounts, overpayment of dividends, and creating fictitious loans

   • Unrecorded or understated deposits (member shares, nonmember deposits, investments)

   • Fictitious fee refunds

   • Fake vendor invoices (billing schemes)

   • Ghost employees or straw borrowers

   • Check/share draft kiting

   • Intentionally failing to secure collateral, to properly record a security interest in collateral, or pledging a member’s shares as collateral without that member’s permission

   • Unrecorded ACH transactions, cash, or credit union check disbursements

   • Manipulated suspense accounts

3. Corruption—These cases typically involve an insider abusing their position at the credit union for financial gain. Examples include:

   • Unauthorized or unapproved salary or leave advances, overtime, or travel reimbursement

   • Knowingly accepting illegally obtained funds for deposit

   • Obtaining bribes or receiving kickbacks from third parties or members

   • Granting or requesting preferential treatment for anyone for potential financial gain

Common types of insider fraud include:

• Loan Fraud
• Investment Fraud
• Share and Member Account Fraud
• General Ledger Manipulation

Last updated May 01, 2023