Irregularities in credit union sector

Abstract

Co-operative credit unions (PL abbr. SKOK) have emerged from the idea of self-financing co-operatives run by the members for the members and formed by people who have something in common (e.g., locality, in which they live or work). Over time, SKOKs have become a fast-growing alternative to banks although regulations governing them were much more liberal and they were required to apply simplified rules of accounting. In the absence of adequate supervision, these arrangements had led to a number of cases of misrepresentation and financial abuses in their management, which got revealed as late as after the year 2012, i.e., after the credit unions had been subjected to the supervision
of the KNF – Polish Financial Supervision Authority. As a result of these irregularities, many SKOK credit unions went bankrupt or were taken over by other financial institutions.

The goal of the paper is to discuss irregularities the most often committed in the SKOK sector over recent years. We give examples of, e.g., false accounting, circumventing the law, money laundering or taking financial assets outside of the SKOK system. The paper is supplemented with valuable data collected from interviews with credit union sector employees by one of the authors conducted during his professional internship in a commercial bank, which acted as a service provider to SKOK credit unions.