A former vice president of business lending for an Arizona federal credit union has been indicted for allegedly participating in a US $1 million kickback scheme to obtain fraudulent business loans, according to an article published in The Yuma Sun. A credit union spokesperson said inconsistencies detected following the former vice president’s departure prompted an audit of business lending activities, which revealed numerous infractions of policies and procedures that substantially impaired the credit union’s business loan portfolio.

Lessons Learned

In this case, the alleged perpetrator knew what auditors typically examined during an audit, and his actions were, according to the credit union’s spokesperson, “structured to elude detection by both internal and external auditors.” The IIA’s International Standards for the Professional Practice of Internal Auditing requires auditors to consider fraud risk in addition to normal audit procedures. In particular, auditors should:

  • Use multiple approaches to help prevent and detect fraud.
  • Consider the adequacy and effectiveness of the existing controls.
  • Brainstorm on fraud risks and consider what would-be fraudsters could manipulate or control.
  • Perform digital analysis to look for anomalies in the data using tests such as Benford’s Law.
  • Examine trends, outlying dates, and use of management override.

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Subscribe_June 2014