The news story about PACE Savings & Credit Union former chief executive officer making a secret loan without disclosing it to the board is a cautionary tale reminding Canadian credit unions to uphold a culture of transparency at the board, even if the CEO has served for 28 years.
DICO, which insures deposits at credit unions in Ontario, took corrective action with PACE. In September 2018, DICO placed PACE Savings & Credit Union Limited under administration, allowing the credit union to continue to operations but under DICO’s direct control while providing sufficient time to develop and implement the most appropriate strategy to protect depositors.
On April 26, DICO issued a statement and update saying, as Administrator, it has been proactive in protecting members and has acted decisively in their interest. Both Larry Smith, former CEO and Phil Smith, his son, were put on administrative leave pending further investigation by DICO and were subsequently let go. The Administrator commenced legal proceedings to protect the credit union’s interests and put in place a highly-skilled leadership team and oversaw strengthening of internal controls and processes at PACE.
But regulators alone don’t protect credit union members. Credit union compliance requires oversight from the board of directors.
How can credit union boards establish such a culture of accountability? Partly it takes having committed and competent directors around the board table. But technology that records board discussions and loan decisions is also critical to enforce disclosure and transparency. Board portals provide such record keeping, establishing an audit trail for compliance reporting (and in PACE’s case to support legal proceedings).
After the period of DICO administration, it will again be up to PACE’s board of directors to ensure the credit union’s loan activity remains on the up and up. Looking back, PACE board directors may well reflect that if they had a board portal tracking what was disclosed – they could have better used their informed intuition to probe on potential issues.
It’s true most credit unions cannot match what major banks spend on compliance but board software technology exists that is affordable and easy-to-use and every director recruited to a CU board should insist it is in place as a critical control.
Think what happened to PACE couldn’t happen to you? Make sure with board management software that enforces a culture of accountability.