NCUA OIG: Loan and share account manipulation, BSA violations among reasons for recent small-credit union failures

The four small federal credit unions liquidated during the period covered by their regulator’s most recent inspector general report to Congress were closed for reasons including loan and share account manipulation, failure to address Bank Secrecy Act deficiencies, and generally poor condition, according to the report.

Each caused a “non-material” loss to the National Credit Union Share Insurance Fund (NCUSIF), the report notes, with the total cost to the fund estimated at $4.1 million.

The National Credit Union Administration (NCUA) Office of Inspector General (OIG), in its report, notes no investigations of credit union failures for material losses to the National Credit Union Share Insurance Fund (NCUSIF) during the period covered, Oct. 1, 2022, through March 31, 2023. (A material loss would be more than $25 million and an amount equal to 10% percent of the total assets of the credit union.) It did, however, report on four limited-scope reviews of the four failed institutions, which ranged in asset size (based on call report data) from about $477,000 to $11.9 million and caused non-material losses to the fund:

  • O.F. Toalston Federal Credit Union (assets about $477,610; liquidated Nov. 15, 2022): The NCUA placed OFTFCU into conservatorship and later into involuntary liquidation due to suspicious activity including loan and share account manipulation, recordkeeping concerns, and allegations of potential fraud. Estimated cost to the NCUSIF is $465,164.
  • Mingo County Education Federal Credit Union (assets about $2.7 million; liquidated Nov. 15, 2022): The NCUA placed MCEFCU into conservatorship and later into involuntary liquidation due to suspicious activity including loan and share manipulation, recordkeeping concerns and allegations of potential fraud. Estimated cost to the NCUSIF is $2,369,773.
  • InterAmerican Federal Credit Union (assets about $727,157; liquidated March 8, 2023): IAFCU entered an involuntary liquidation because it did not resolve concerns for violations of the cease-and-desist orders addressing concerns with Bank Secrecy Act, recordkeeping, dormant accounts, and supervisory committee weaknesses. Estimated cost to the NCUSIF is $74,451.67.
  • Woodlawn Federal Credit Union (assets about $11.9 million; liquidated March 31, 2023): WFCU failed because of its poor financial condition with various administrative remedies that were not resolved. WFCU voluntarily merged with Navigant Credit Union. Estimated cost to the NCUSIF is $1,205,718.

The report also gives highlights of federal credit union financial trends, key developments within the NCUA, pending legislation and more.

Listed under “audits in progress,” among other things, are an ongoing, self-initiated audit of the NCUA’s enforcement of Bank Secrecy Act (BSA) requirements and another on the agency’s federal credit union chartering activities.

The report also notes three significant “open” report recommendations and 13 unimplemented recommendations from audit reports more than six months old.

NCUA OIG Semiannual Report to the Congress (Oct. 1, 2022-March 31, 2023)