ALEXANDRIA, Va. – NCUA reported this morning it believes the manager of O.U.R. FCU, a Eugene, Ore., community development credit union that failed last year, deliberately manipulated the accounting and misstated financial reports to hide a capital hole of more than $2 million in the $5 million CDCU, prompting its NCUA takeover.

“Numerous inconsistencies and unsupported entries were found, the most flagrant of which was a $1.6 million imbalance between the member share subsidiary and the general ledger,” concluded a report issued this morning by NCUA’s Office of Inspector General. The report also criticized Board oversight of the CDCU failure, citing the Board’s “undisclosed related party activity, incomplete minutes, and the lack of understanding of financial results.”

“We found no Board minutes for some months and for those we located, many were not signed. In addition, all the Board minutes were very general and informally written,” wrote the IG. “In our opinion, the Board appeared very lenient and sympathetic to the manager and did not address repeated examiner concerns regarding accounting processes that resulted in consistently late Call Report submissions.”

The Oregon credit union was among a growing number of troubled CDCUs either failing or being merged out, emphasizing the difficult environment for both small and low-income credit unions. Among them are: CR Community First in South Dakota; Borinquen FCU in Philadelphia, Shepherd’s FCU in North Carolina; People for People Community Development CU in Philadelphia; and Birmingham Financial FCU in Alabama.

O.U.R. FCU, chartered in 1969 to serve residents of Lane County participating in poverty programs, was taken under conservatorship in June 2011 after NCUA discovered an unexplained $1.6 million hole in its finances, and the remnants of the CDCU were eventually assigned to Northwest Community CU in nearby Springfield under a purchase and assumption deal. The failure is projected to cost NCUA $3.7 million to resolve.

Among the problems encountered by the CDCU, according to the report, were that it relied too heavily on nonmember deposits and secondary capital, mainly in the form of grants, to supplement operating capital. “The frequency and amounts of these grants were irregular and hard to predict, creating on-going capital concerns,” said the report.

But the main cause was apparently management malfeasance. “We determined that the manager of O.U.R. FCU was involved in highly suspect activities that deliberately manipulated the Credit Union’s accounting records and misstated its financial reports,” said the IG’s report, dating the suspicious activities as far back as 2005. “We believe irregular and unsupported general ledger entries, member account and financial results manipulation, and overall suspicious activity performed by the manager raise serious concerns that improprieties occurred, which materially influenced O.U.R. FCU’s failure,” concluded the IG.

 

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