Fraud has the potential to impact a credit union in all risk areas. Any misappropriation, fraud, or error can result in an increased exposure to loss, which can result in a credit union’s inability to:
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Deliver products or services
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Maintain a competitive position
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Provide accurate financial statements
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Manage information
Transaction Risk
Transaction risk exposure can result from weak internal controls, information systems, employee integrity, and operating processes, all of which are part of a credit union’s daily operations.
This fraud type can negatively affect a credit union’s earnings, which will reduce the credit union’s net worth.
Reputation Risk
Fraud can result in financial losses for a credit union, litigation, media coverage, loss of trust in the board of directors, and, ultimately, the loss of membership.
Liquidity Risk
Recognizing fraudulent transactions can immediately impact liquidity. Fraud poses two threats to a credit union’s liquidity: First, if a credit union’s financial statements are inaccurate, the institution may have far less liquidity than originally thought. Second, liquidity risk can stem from reputation risk if members find out. If fraud or theft is being committed by credit union employees, there may be a run on deposits.
Strategic Risk
Net worth is essential to credit unions. Not only does net worth protect against uncertainties, it also provides a foundation for the long-term viability of a credit union and ensures continued service for current and subsequent generations of members.
Fraud can drive a credit union’s net worth down, exposing the institution to a higher risk of failure because they are unable to absorb the loss resulting from fraud.
Last updated on May 01, 2023
