External review into credit union thefts ‘needed’

Revelations that more than half a million euro has been stolen from accounts in two Cork credit unions should lead to an external review of the governance of both institutions.

That’s according to financial adviser and consumer champion Eddie Hobbs who said the revelations relating to Gurranabraher Credit Union and Synergy Credit Union in Fermoy showed a “clear failure” of internal auditing.

Earlier this week, it emerged a credit union staff member was dismissed after the discovery of alleged financial irregularities of up to €200,000 at Gurranabraher Credit Union.

It came less than a week after it emerged that €400,000 was stolen from members’ accounts at Synergy Credit Union in Fermoy in a series of “unauthorised transactions”.

Both credit unions have referred investigations to both the gardaí and the Central Bank.

Responding to the revelations, Mr Hobbs said an external review of governance was needed in order to get to the bottom of the matters.

“There was clearly a failure of internal auditing here and some people within the credit union have to take responsibility for that fact. The fact that these issues came up raises questions about the standard of internal auditing.”

“What needs to happen now is an external review of the governance of the credit union. Whatever reports are produced needs to be circulated to the members and the members should decide on what actions need to be taken going forward. Only then will people be in a position to move on,” he said.

However, Mr Hobbs praised the credit union movement as a whole and said the lack of incidents involving fraud were a clear sign of how well it operates.

“We’re very lucky in Ireland that there haven’t been more incidents like these. We are very, very lucky to have the quality of credit unions that we do here. The relative damage done in terms of fraud and bad lending by credit unions is infinitesimally smaller than what was done by the banks.

"Infinitesimally smaller. The credit union sector in terms of how it dealt with non-performing loans and bad debts has performed very well and it has to be seen in that context,” he said.

However, both institutions have also declined to answer a series of questions relating to the irregularities.

In the case of Gurranabraher Credit Union, it is understood that the investigation is focussing on a staff member who was allegedly engaged in misappropriation of members’ funds for a number of years before being exposed.

However, it has declined to elaborate on the nature of the investigation, the amount involved, or the number of accounts that may have been affected. It did confirm that none of the 15,000-plus members had been exposed to a loss as a result of the matter.

Synergy Credit Union confirmed that the €400,000 was stolen from some 29 member accounts. However, it declined to specify the period of time over which this occurred. It also declined to say whether the insurance policy of the credit union was used to replenish the 29 affected accounts or if the original monies recovered.

“As there are still various third-party processes underway, we cannot comment in any greater detail on this matter, except to say that an individual has accepted responsibility, co-operated with the investigation in full,” said a statement.

It also remains unclear if there are other similar investigations ongoing in any other credit unions around the country.

A spokesperson for the Irish League of Credit Unions said that “in relation to other investigations, each credit union is autonomous and deals directly with any such matters”.

Members’ money safe, says credit union body

Credit union members around the country have been assured their money is “safe and secure” — after it was revealed over €500,000 was raided from accounts at two Cork branches.

Alleged financial irregularities of up to €200,000 have been discovered at Gurranabraher Credit Union and last week it emerged over €400,000 was stolen from 29 member accounts in Synergy Credit Union in Fermoy.

The Irish Examiner put these questions to the Irish League of Credit Unions:

How safe is your money in a credit union?

Members’ savings continue to be safe and secure in Irish credit unions. The movement is extremely well capitalised and holds over €2.3bn in capital reserves, with €914m in excess capital above the 10% requirement.

Assets currently stand at over €14.5bn. Furthermore, credit union members’ savings continue to be guaranteed by the Government Deposit Guarantee Scheme; up to €100,000 per member.

What protections are in place in credit unions when issues like the above emerge?

With the increasing threat of financial crime in all organisations, credit unions continue to evolve and strengthen their fraud-prevention control frameworks. As well as the pre-existing controls in place in credit unions, since 2013 each credit union must now have a compulsory risk function, Compliance function and an internal auditor to enhance the existing structures.

What type of monitoring systems are in place to ensure that incidents like these do not happen or are caught at the earliest possible opportunity? Are these being strengthened?

Most recently, credit unions have also moved to fund the widespread roll-out of an enhanced risk and compliance support service, under the Credit Union Compliance Centre (CUCC).

The CUCC will work with credit union compliance and risk functions to implement a more consistent framework in compliance and risk management. Credit unions will continue on this process to ensure risk and compliance systems and processes are as effective as possible.

What type of insurance cover is in place for incidents like these and is the cost of this passed onto members?

All credit unions carry insurance to deal with matters such as fraud or theft.

How many other investigations are ongoing across the credit union network currently?

While instances such as these are extremely regrettable, they remain isolated. As credit unions are democratic and fully accountable to their members, where such incidents occur it often comes to public attention.

This is distinctly different to other financial institutions where such incidents may be dealt with via a closed internal process. In relation to other investigations, each credit union is autonomous and deals directly with any such matters.

Long record of service but not without controversies

Gurranabraher Credit Union has been serving the people of the northside of Cork City since its foundation in 1963.

Gurranabraher Credit Union was the subject of an almost year-long investigation by the Registrar of Friendly Societies in 2000. In 2002, its manager and deputy manager were dismissed.

Established in the basement of the Church of Ascension by a handful of people, by 1970 it had moved to what remains its current address on Bakers Road.

By 1992, it had begun the computerisation of member accounts and its membership grew solidly.

To accommodate this increase in services, its new building was completed in 2006 and its Knocknaheeny/Hollyhill Office opened in 2009.

While it has celebrated its 50th anniversary, it has a chequered history and has hit the headlines on numerous occasions in recent years. In 2000, it was the subject of an almost year-long investigation by the Registrar of Friendly Societies.

The investigation raised concerns about expense claims and a €7,000 junket to Killarney for, inter alia, members of the board of directors, the supervisory committee and management.

There were also concerns around bullying and harassment of staff.

In 2002, the manager and deputy manager were dismissed following “an exhaustive investigation”.

This week the Irish Examiner revealed that a staff member at the credit union has been dismissed after the discovery of alleged financial irregularities of up to €200,000.

Following the discovery of the irregularities, which are believed to have been ongoing for a number of years, it has referred the matter to both the gardaí and the Central Bank.

From humble beginnings members grow to 16,000

Fermoy Credit Union was founded in the mid-1960s and grew out of the Fermoy Civic Action Group which had three aims: to set up a public swimming pool, a toastmasters’ group, and a credit union.

Fermoy Credit Union, which last December changed its name to Synergy Credit Union. It was recently disclosed that €400,000 was stolen from member accounts.

From a humble membership of less than a few dozen, it quickly grew to over 600 by the end of the decade. The branch hired its first full-time employee in 1968 and, by 1971, the common bond was extended to the neighbouring parishes of Castlelyons, Rathcormac, Glanworth, Kilworth and Watergrasshill.

By 2005, savings had topped €63m with loans in excess of €38m. But the financial crisis of 2008 impacted badly. Loan repayments stalled and it was forced to reschedule loans, reduce repayments and, in worst case scenarios, freeze interest and write off loans. It also lost an investment of €1m with Anglo Irish Bank.

Last December, it changed its name to Synergy Credit Union, chosen by members to reflect the north Cork credit union’s momentum and to help achieve its vision for the future.

It is, once again, boasting a surplus. Membership has swelled to over 16,200 members and the report for 2016 shows combined savings increased by €3,642,348 to over €53.2m. Assets increased by 7.3% to €62.4m.

Its current chairman is Denis Granville.However, a recent disclosure in the report showed €400,000 was stolen from member accounts in a series of “unauthorised transactions”.

The gardaí and the Central Bank were informed and accountancy firm Grant Thornton was commissioned to carry out an independent investigation.