ALEXANDRIA, Va.–A new report offers insights into the reasons for three recent credit union failures.
According to a report to Congress from NCUA’s Office of Inspector General that covers the period from Oct. 1, 2021, through March 31, 2022 and which examines the estimated loss to the National Credit Union Share Insurance Fund (NCUSIF) from the failures, the losses amounted to a little more than $1 million in the aggregate.
The report cites fraud as the suspect in two of the cases and poor compliance with Bank Secrecy Act (BSA) requirements was found in the third.
The three institutions, all of which were liquidated included Portsmouth Schools FCU (alleged fraud) in Virginia, which was folded into Bayport FCU; Prairie View FCU (alleged fraud) in Texas, which was folded into Cy-Fair FCU, and Empire Financial FCU (BSA inadequacies, including failure to file numerous reports) in New York, which has been absorbed by Jovia Financial Credit Union.
The Federal Credit Union Act requires material loss reviews be conducted on NCUSIF-insured CUs when the loss to the NCUSIF exceeds $25 million and an amount equal to 10% of the total assets of the credit union at the time assistance was initiated or a liquidating agent appointed. But none of the three CUs that failed over the six months met those criteria, and the agency said it instead conducted limited-scope reviews.
Additional Findings, Recommendations
In addition, the OIG said the report also reviewed the progress being made (or lack thereof) on recommendations to agency management in connection with previous OIG audits, recently enacted legislation, and audits planned or underway.
According to the report, one audit in progress states, is intended to determine whether NCUA:
- Adequately reviews compliance with the Bank Secrecy Act (BSA) during credit union safety and soundness examinations
- Issues timely formal or informal enforcement actions to address BSA-related violations
- Tailors enforcement actions to address deficiencies identified during the supervisory process
- Follows up on reported BSA violations to ensure credit unions take appropriate corrective action before closure of the violation
- Appropriately refers significant BSA violations and deficiencies to the Department of Treasury
The full report can be found here.
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