How Not to Embezzle

Christian Mullins
August 17, 2009 | COMMENTS

Credit union: TxDOT, Wichita Falls, Texas

Employee name/position: Joanna Lynn McGee, president

Convicted of: Embezzling funds through approximately 130 fraudulent loans over seven years.

Amount in question: At least $850,000 and as much as $1,900,000.

How she did it: From 2001 until May 2008, McGee originated 129 fraudulent loans totaling $3.1 million using mainly dormant and decedent accounts. Some of the disbursed funds were used to make payments on existing fraudulent loans, while the rest was kept for personal use.

How she was caught: None of the resources used to compile this report included that information.

Status: On April 3, 2009, Joanna McGee was sentenced to 71 months in prison and ordered to pay restitution of over $2.5 million. The credit union was declared insolvent and taken over by Postel Family Credit Union, also in Wichita Falls .

Moving forward: Something I've written before bears repeating: Regular, thorough audits build trust, not mistrust.

This happened at a credit union with just over 500 members and $5 million in assets. While direct blame lies with Joanna McGee, indirect blame lies with whoever was responsible for the internal audit of the lending documents. If that duty was unclear in any way, blame falls squarely on the board of directors.

The loan auditor, presumably from the supervisory committee, should have requested access to the member account software, personally printed a list of loans generated since the last audit, and mailed confirmation letters to random loans on the list. With names and addresses changed, not to mention using the names and accounts of deceased members, it wouldn't be long before irregularities were discovered.

While it isn't customary for supervisory committee members to utilize confirmation letters, extra diligence is required whenever a large amount of responsibility is concentrated with one individual. If such a policy had been in place, Joanna McGee wouldn't have been able to take advantage of the lack of safeguards and a 55-year-old credit union wouldn't have had to pay the ultimate price.

Reprinted with permission from CU Potential, a blog written by Christian Mullins, a 14-year-veteran of the credit union industry.