By Michael Fryzel
It takes a good detective to solve a case. Inspector Colombo was a master at it. He was able to see that one bit of evidence everyone missed. He knew what questions to ask and he could sense if a person was lying.
Colombo was assigned homicide cases. Murder, the worst crime possible, was his forte. Every week, in a 60-minute television show, he was able to view the crime scene, identify the suspects, analyze the evidence and bring the perpetrator to justice.
Financial crimes rarely involve someone losing their life. They are crimes usually committed within entities like banks, credit unions, investment firms, corporations and other businesses. They involve an individual who, when presented with the opportunity, steals or embezzles money from investors, members/customers or his employer.
Often, the crime committed may involve an elaborate scheme that goes on for years resulting in the loss of millions of dollars to unsuspecting individuals. It could also be a less-complicated scenario involving two sets of financial records. One set that is true and accurate and kept from public viewing, and the other which is false and doctored but presented as the real thing.
Recently, NCUA banned six individuals from ever participating in the affairs of any federally insured financial institution. Their offenses, which caused the action by NCUA, involved stealing cash from teller drawers or the vault, originating fraudulent loans, withdrawing funds from member’s accounts and embezzling funds while performing accounting services. The amounts garnered by the illegal activity ranged from thousands of dollars to a million.
Hard to Detect
Financial crimes are sometimes the hardest to detect and solve. It takes a mindset like Colombo. It not only involves looking at scores of documents, but also being able to carefully analyze what you are seeing. It furthers requires asking the creator of the documents the right questions and knowing if the answers you are given make sense.
Probably the greatest skill is the feeling the inquisitor gets being in the same room as the person allegedly involved in financial wrongdoing.
NCUA employs examiners who become their Colombos when it comes to detecting, analyzing and determining if fraud or theft has taken place. These individuals are trained to look for out of the ordinary transactions and spot behavior that indicates possible involvement in illegal activity. Examiners develop a sixth sense. They can feel the vibe being given off by someone who may have done something wrong.
In-Person Visits Necessary
During the ongoing COVID pandemic, NCUA, like all state and federal regulators, has conducted virtual examinations. Documents are reviewed electronically and all communication is also done that way or telephonically. This will continue until such time as it is deemed safe for examiners to return to in-person and on-site examinations at credit union offices.
While many believe the virtual exams have lessened the regulatory burden on credit unions and have lobbied for them to continue beyond the end of the pandemic, in-person, on-site, examinations must commence as soon as it is safe to do so.
Fraud, embezzlement and theft are something we unfortunately will always have to deal with. Those who engage in such activity believe they will never get caught. And they may not. Which is why the Colombo examiners must once again look at records in-person and on-site to allow their intuition to help them determine if a crime has been committed and who is responsible.
The pandemic has presented the opportunity for individuals inclined to cheat a greater chance to do so. Fortunately, in the credit union industry it is not rampant, but it does exist. It must be found and those individuals responsible must be held accountable.
Advice from Ronald Reagan
The preliminary work for exams should continue to be conducted virtually, but in-person, on-site examinations must also continue to ensure the safety and soundness of the credit union. Allowing for the prep work to be obtained virtually will ease the regulatory burden, but it’s in-person, on-site visits that will catch those who have not been honest. There was no virtual mechanism when Colombo worked a crime scene. He solved all his cases in-person and on-site.
Perhaps the best advice NCUA can follow is that given by President Ronald Reagan. “Trust, but verify.”
Michael Fryzel is the former chairman of NCUA and NCUA board member who is now in private practice in Chicago. Mr. Fryzel can be reached at meflaw@aol.com.