Four CU liquidations cause $3.3 million in NCUA stock insurance losses

Official NCUA seal. (Source: NCUA)

Four credit union liquidations resulted in losses estimated at $3,312,779 for the NCUA equity insurance fund.

According to the NCUA Office of Inspector General’s semi-annual report to Congress from October 1, 2021 through March 31, 2022, posted on the federal agency’s website in late May, liquidated credit unions included Indianapolis Newspaper Federal Credit Union ( loss of $2.29 million), Portsmouth Schools Federal Credit Union (loss of $806,089); Prairie View Federal Credit Union ($200,000 loss) and Empire Financial Federal Credit Union ($16,690 loss).

The INFCU failed due to alleged fraud by the former CEO, former Chairman of the Board and employees who were allegedly involved in a loan collection scheme that included forgery internal loan records to conceal embezzled money, according to an OIG Material Loss Review published last December.

Cash proceeds from fake loans, or suspected fraudulent advances on loans, were used to make payments on existing loans, which masked the credit union’s default levels. Approximately $1.3 million in suspected fake loans were identified under the loan recovery program from July to September 2020. By the end of that year, the credit union had a loss of nearly $1 million. dollars, according to NCUA financial performance reports. The federal agency determined that the INFCU was insolvent and liquidated it on March 31, 2021.

The INFCU, established in 1961, held $6.2 million in assets and had 1,143 members.

While the OIG primarily blamed fraud losses on management and the board, it also blamed NCUA reviewers, noting they may have identified the alleged fraud sooner and mitigated the losses. if they had addressed in greater depth certain lending and credit concentration risks identified during the completion of the investigation. Small Credit Union Examination Program (SCUEP) and performed additional suggested procedures in response to identified risks.

For example, the OIG stated that INFCU consistently provided loans to a member or household that exceeded 25% of the credit union’s equity. Interestingly, NCUA examiners noted during a review the level of loan concentration to one member who accounted for 47% of INFCU’s net worth, according to the OIG.

Additionally, INFCU has not measured unsecured debt against income to manage credit risk. Although reviewers flagged the issues as cause for concern, the credit union did not implement adequate credit risk management policies addressing high concentration risk or unsecured lending risks.

The OIG recommended that the NCUA improve its annual SCUEP training related to concentration risk.

The semi-annual report also found that the NCUA failed to implement a recommendation from a February 2020 material loss review regarding the $40 million CBS Employees Federal Credit Union fraud case. The OIG recommended that the NCUA change the guidelines to require a reconciliation between the print processor and stock and loan affiliates when an audit of statements is performed.

The OIG also alleged that the fraud contributed to the liquidation of the $2.3 million Portsmouth Schools Federal Credit Union in Portsmouth, Virginia in December 2021 and the $3.1 million Prairie View Federal Credit Union. dollars in Prairie View, Texas in February 2022.

PSFCU was involuntarily liquidated by an emergency purchase and assumption agreement with the Newport News Shipbuilding Employees Credit Union for $2.3 billion in Newport News, Va. (dba, Bayport CU). The PSFCU was insolvent with a net worth that continued to deteriorate due to record keeping losses and alleged fraud perpetrated by a former chairman of the oversight committee, according to the OIG.

NCUA liquidated PVFCU and completed emergency assisted merger with Cy-fair Federal Credit Union for $346 million in Houston due to PVFCU’s declining net worth, which was compounded by alleged fraud committed by a former director of PVFCU, the OIG reported.

The NCUA retained the $5.1 million Empire Financial Federal Credit Union, then it was involuntarily liquidated via an emergency purchase and takeover agreement with the 3.9 million Jovia Financial Federal Credit Union. billion in Westbury, NY, in March.

The OIG declared the New York-based EFFCU insolvent due to its alleged failure to have an adequate Bank Secrecy/Anti-Money Laundering Act compliance program, which included the alleged failure to file numerous required related regulatory reports.

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