Self Dealing is Not Your Average Policy Violation

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Most banks and credit unions have policies in place that prohibit employees from accessing or performing transactions on accounts owned by themselves or family members. While such behaviors, often called “self dealing”, can be relatively minor infractions that highlight the need for re-training or better policy enforcement, they can also be part of large scale fraud schemes, as in the case at this West Virginia credit union.

On September 13, Pamela Mullins, a former employee of the N&W Poca Division Federal Credit Union, pleaded guilty to charges stemming from her role in a multi-million dollar fraud scheme which contributed to the failure of this credit union. In August, a federal grand jury indicted Mullins’ co-worker — Rebecca Poe, alleging that the pair posted credits directly to their accounts as well as those of relatives. They may as well as have deposited monopoly money. The net effect would have been the same. Ultimately, their former employer, N&W Poca Division Federal Credit Union, incurred a loss of $2.4 million and was eventually placed into liquidation.

The scheme was remarkably simple; credits would be posted, with no actual funds being deposited. Once the “funds” were deposited, Poe used the money to pay personal expenses, as well as loan payments for herself, and members of her family. She also allegedly issued official checks that were subsequently deposited into the same accounts or made payable to third parties. The exact methods used by Poe and Mullins are not readily available, but what is clear is that they were able to issue credits to various accounts with no corresponding funds backing up the “deposit”.

Normally, I recommend analyzing how money left a bank in order to develop lessons learned. In this situation, it never entered the credit union in the first place! In that respect, the failure point is quite easy to detect. Could this fraud happen at your institution? If your bank does not somehow flag employee accounts and those of their relatives for transaction monitoring, as well as ensure that credits are backed by actual funds, regardless of how and where the deposits are entered, then it is entirely possible that this fraud could happen at your bank.

This loss is a direct result of the credit union’s failure to monitor for suspicious credit activity and employee self dealing. Ultimately, the question to consider is straightforward; can an employee at your institution credit their own account or the account of a family member without submitting an actual deposit? You don’t have to answer here, but please take the time to ask the question. It might just save you $2.4 million…

Posted in: Internal Fraud Account Takeover Identity Theft