Defining What's Normal, Part 1 of 3

Nowadays at Priority One Credit Union, headquartered in South Pasadena, California, "business as normal" has been displaced by fending off lawsuits. Its important to note that this dynamic did not exist at anytime during the 81 years preceding January 1, 2007, the date Charles R. Wiggington, Sr.  began serving as President and CEO of what was then a successful and growing Credit Union. 

Three lawsuits Priority One is currently litigating differ dramatically from those filed and voluntarily settled by the Credit Union during the years of 2010 through 2013. Those cases filed by four former employees and one Member, alleged violations of the Privacy Act, sexual harassment, same-sex sexual harassment, age discrimination, race discrimination, retaliation, and creation of a hostile work environment. The Credit Union paid out monies to avoid costly and potentially embarrassing court trials that would have produced documented records of abuses committed by the Credit Union's highest officers.

Two of the current batch of lawsuits, all filed in 2014, accuse the Credit Union and its President of various contractual related breaches while a third, filed by CUMIS, the Credit Union's insurance carrier, accuses the Credit Union's external auditors, Turner, Warren, Hwang, and Conrad of acting negligibly and failing to perform audits in compliance to established auditing standards. CUMIS also asserts that Turner, Warren, Hwang, and Conrad provided the Supervisory Committee erroneous information which in turn, compromised the integrity of the committee's annual performance assessments. CUMIS insists that the failures perpetrated by Turner, Warren, Hwang, and Conrad included not identifying thefts, perpetrated by Pearl Lynnette Fortson, a former AVP assigned to the Los Angeles branch, resulting in the theft of more than $1 million in cash from that branch's vault. 

As might be expected, CUMIS' allegations circumvent all reference to the Credit Union's and more specifically, the Supervisory Committee's responsibility to safeguard Credit Union and Member assets. Superficially, CUMIS' accusations seem absurd, eliciting questions about the actual theft and why so much responsibility is being placed on Turner, Warren, Hwang, and Conrad. Some of our questions are:  

• How could Turner, Warren, Hwang, and Conrad be held accountable for the physical removal of $1 million in cash from the Los Angeles Branch's safe when the Credit Union's Accounting Department, the Chief Operations Officer, and the Supervisory Committee are responsible for all records documenting money sent to and received from the Credit Union's branches. ?

• Why is CUMIS holding Turner, Warren, Hwang and Conrad responsible for thefts which occurred prior to their audit of the Los Angeles branch's ledgers? 

• Turner, Warren, Hwang an Conrad were hired by the Credit Union to perform audits. The Supervisory Committee and President, delegated instructions to the firm as what records were to be audited. Did the instructions they provided include a request to audit vault cash and general ledgers located at the Los Angeles branch? 

In a few weeks, the Credit Union will serve as a witness in CUMIS' lawsuit. The Credit Union will also be a defendant in a lawsuit filed Turner, Warren, Hwang, and Conrad and in another lawsuit filed by Auto Alliance, one of Priority One's contracted automobile brokers. . Because the President is named a defendant, he will finally have to appear in court and provide testimony concerning the Credit Union's internal controls and answer questions which will almost certainly scrutinize his abilities as President and CEO and possibly even touch upon his ethics. However, we wouldn't be surprised if he stages excuses to try and avoid or prolong, having to, participate in litigation. In the past the wily but cowardly President took refuge behind Board Chair, Diedra Harris-Brooks, who freely approved spending Credit Union monies to hire overpaid and unscrupulous attorneys and useless consultants to create bogus defenses concoct fictitious facades that tried in earnest to depict the President as a victim, incapable of the atrocities described in lawsuits.  

A TREK DOWN MEMORY LANE

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In 2013, a lawsuit was filed by a former Branch Manager, which cited egregious acts committed by and under President Wiggington, former COO, Beatrice Walker, and the entire Human Resources Department. President Wiggington was named a defendant but his attorney at the time, Paul F. Schimley, of Richardson, Harmon and Ober contacted the plaintiff's attorney and told her that if she didn't remove President Wiggington's name as a defendant in the lawsuit, he would have to file a motion with the court informing them that the President was suffering from cancer and undergoing medical treatments that he said would force postponement of the lawsuit for months and possibly years. . 

CUMIS VS TWHC

We;'re intrigued by CUMIS' lawsuit. Though Turner, Warren, Hwang, and Conrad did not perpetrate the actual theft of $1 million in cash from the Los Angeles branch's safe, it is their competency, expertise and reputation will will be dissected in court and which ultimately is a threat to their reputation. 

CUMIS' investigation concluded that Turner, Warren, Hwang, and Conrad are responsible for failing to detect any of the individual thefts during audits conducted in 2010, 2011, and 2012. Due to their gross oversight, eventually the thefts would amount to more than $1 million in cash. In their lawsuit, CUMIS alleges malpractice, a type of violation most often associated with lawsuits filed against attorneys and physicians. Oddly, CUMIS fails to cite an exact date when the thefts started, merely stating that they began in "early" or "late" 2010 and continued through the end of 2012. Why couldn't they provide a more specific date when the thefts occurred? Shouldn't they have merely stated that "the thefts began sometime in 2010?" 

Who is Turner, Warren,Hwang and Conrad? 

We visited Turner, Warren, Hwang and Conrad's webpage and discovered that in 2013, a peer review was performed by Caldwell, Becker, Dervin, Petrick and Company, LLP. and In a letter dated June 30, 2013, and written to shareholders, Caldwell Becker, Dervin, Petrick and Company concluded: 

"In our opinion, the system of quality control for accounting and auditing practice.... for the year ending June 30, 2013, has been suitably designed and completed to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects" and concluding, Turner Warren Hwang an Conrad ACE has received a peer review rating of pass."

Please note that the letter is dated only four months after the theft of $1 million was discovered by the Credit Union. Turner, Warren, Hwang and Conrad's website also contains the following overview of services they offer clients: 

TWHC's financial institutions practice provides a complete suite of services to credit unions of all sizes. Our credit union clients range from over $10 million to over $10 billion in assets. Our staff knows credit unions well. While the national firms we compete with call themselves specialists and the partner may have five or six credit union clients, our partners have in excess of 25 to 30 credit union clients each. 

We have a strong foundation built on our credit union practice. Our partners have worked for or with credit unions for over 20 years. We did not stumble onto credit unions or use them as filler time. We are dedicated to credit unions and have been from he beginning which is why we are ranked among the top five services providers to credit unions in the U.S. and are number one collectively in the states west of Arizona. 

:Source: https://www.twhc.com/about-twhc/peer-review/

Due to the length of CUMIS' lawsuit, we have decided to publish excerpts of only those allegations and statements we deem most important.  

As "subrogee", CUMIS has assumed the legal right to try and collect the monies paid out against the claim filed by the Credit Union. 

Former AVP, Pearl Lynnett Fortson, allegedly embezzled "at least $1,000,000" in cash, to wit, the amount was more than $1 million. She accomplished the thefts by allegedly "falsifying 'Daily Recaps", but how could the AVP, with or without accomplices, embezzle more than $1 million without detection by the Credit Union? Why did Priority One's internal controls designed to protect Credit Union assets fail to detect the thefts?

During the years of 2010 through 2012, Ms. Fortson's direct supervisors were COO, Beatrice Walker and later, CLO, Cindy Garvin, and finally, current Vice President of Operations, Yvonne Boutte. Over an approximate twenty-four period, why didn't any of the three overpaid and evidently, unqualified executives ever notice any of the several incidents during which money was embezzled? 

Turner, Warren, Hwang and Conrad's attorney may have told a reporter of the CU Times that Priority One never "expressed" disappointment with the services and decisions made by his client but the Credit Union's Supervisory Committee and CUMIS found sufficient evidence to conclude that Turner, Warren, Hwang and Conrad violated laws and provided fraudulent data that in turn caused the Supervisory Committee to derive erroneous conclusions about the Credit Union's actual performance. Since the Supervisory Committee is a governing body of Priority One Credit Union and because CUMIS' is the subrogee of the Credit Union, it appears Priority One was indeed, extremely disappointed with Turner, Warren, Hwang and Conrad's "actions." 

 

Under #19, CUMIS states that Priority One's Supervisory Committee is appointed by the Credit Union's Board of Directors and "tasked with the responsibility of obtaining an audit of the Credit Union's financials using an independent external auditor. But is the report provided from an "independent audit" the only source used by the Supervisory Committee to assess the Credit Union's performance and to gauge its ability to protect Member and Credit Union assets. 

Under #29, above, CUMIS states that during the years of 2011-2012, the Supervisory Committee was the recipient of Turner, Warren, Hwang, and Conrad's reports which provided findings obtained from audits; and similarly, Turner, Warren, Hwang and Conrad "expected" the Supervisory Committee to "rely on the thoroughness, accuracy, integrity, independence and overall professional caliber of audits it performed. Wouldn't it seem reasonable that a firm providing services to numerous Credit Union's and whose peer review cites an adherence to industry standards, make every effort to ensure the information provided to the Supervisory Committee was accurate and obtained from a thorough review of Priority One's records? 

Many past employees of the Credit Union can testify that documentation presented to auditors was always first reviewed by Executive Vice President, Rodger Smock, who was seen pulling out documents he did not wish presented to auditors. His censorship was intended to obstruct the disclosure of any information which could reveal breaches in procedure. 

CUMIS has chosen to accuse Turner, Warren, Hwang and Conrad of violating professional auditing and ethical standards and alleges the firm failed to properly examine Credit Union "books, records, and general ledgers." We expect the accounting firm to provide more than statements from the Credit Union that supports their accusations including providing lists of what documents the President and Supervisory Committee ordered to be included in any number of audits. Because as CUMIS asserts, Turner, Warren, Hwang and Conrad were hired by the Credit Union and paid to perform a service, was the accounting and auditing firm ever instructed not to audit certain credit union records?  Ultimately, it was the Credit Union who retained full control over what should and what should not be audited.  

It's seems more than a tad hypocritical that since Charles R. Wiggington, Sr. was appointed President on January 1, 2007, that the Credit Union has been sued several times and accused of egregious violations of state and federal laws, yet CUMIS and the Credit Union have no problem leveling accusations impugning the accounting and auditing firm and accusing them of violating "their professional auditing and ethical standards by failing to ever review or test the cash accounts at" the Los Angeles Branch.

In December 2009, then CFO, Manny Gaitmaitan, resigned but before leaving, confided to some members of his staff that he had been ostracized by President Wiggington; COO, Beatrice Walker; and then Senior Vice President, Rodger Smock, for his refusal to manipulate financial reporting." We hope that CUMIS is prepared to address questions regarding the Credit Union's reporting practices. 

 

In late 2009, TWHC conducted a three-week audit at the Los Angeles Branch and found that more than $60,000 had been stolen by a former receptionist. During the entire three-week audit conducted in a back office at the branch, AVP, Lynnette Fortson sat alongside auditor, Terry Nabors, while he examined Member and branch records. At the time, we found her inclusion in the audit both a conflict of interest and inappropriate but President Wiggington took absolutely no issue with her involvement. Could it be she sat alongside the auditor because she was concerned that he might uncover incidents that would reveal she was involved in the thefts of money? 

CUMIS accuses Turner, Warren, Hwang and Conrad of failing to count vault cash. Had they counted vault cash and reconciled those amounts with what was recorded in the vault's general ledger or reviewed the balancing sheets prepared by AVP, Fortson, they would have discovered the "fraud and embezzlement" committed by the AVP. Priority One has an internal auditor- Diane Huffman who should have been sent to each of the Credit Union's three remaining branches to audit records and count vault cash. Why wan't this done? And what about the responsibility the President, the COO, and the Accounting Department have to reconcile ledgers, balance sheets and cash records? 

CUMIS chose to pay out more than $980,000 against the $1 million claim filed by the Credit Union in 2013. We assume they agreed to pay the claim because their investigation proved that the Credit Union following all security protocols, yet this was the second large theft to occur at the Los Angeles Branch within a three-year period.  

• How did the Credit Union respond following the discovery in 2009, that a former receptionist absconded with more than $60,000 from the Los Angeles branch?

• What changes did Priority One introduce to its security procedures following discovery that more than $60,000 had been stolen by a former receptionist? 

We have to question CUMIS' wisdom. Why didn't the insurance company provide a more exact date when the theft of $1 million in cash began? According to their complaint, the thefts started either in "early" or "late 2010". Why not just state that the thefts began sometime in 2010?  We hope Turner, Warren, Hwang and Conrad have retained records showing what they were asked to audit. 

CUMIS requests the courts order Turner, Warren, Hwang, and Conrad to pay damages and all costs spent to file and litigate the lawsuit and any additional monetary relief deemed just and proper by the court.  

In his article, Strong Internal Controls Reduce Employee Dishonesty, dated August 20, 2014, Theran Colwell writes:

 "When a credit union catches an employee embezzling funds or committing other fraud, it must investigate and implement procedures to close the security breach."

Again, what changes did the Credit Union introduce following the discovery that more than $60,000 had been stolen by a former receptionist sometime in early 2009?

More importantly, why did the changes the Credit Union should have introduced fail to deter the series of thefts that started in "early" or "late" 2010 and continued, unnoticed, through late 2012?

In his article, Mr. Colwell also states: 

• Lead from the top with a written policy
• Create a system of checks and balances, including a clear segregation of duties
• Review cash-handling procedures and refresh staff training

Source: http://news.cuna.org/articles/39429-strong-internal-controls-reduce-employee-dishonesty

REVISITING THE 2013
SUPERVISORY COMMITTEE'S ADDRESS 

We are once again revisiting the Supervisory Committee's address which appeared int he 2013 Annual Report. The report was first distributed to attendees of the Annual Meeting which took place at Priority One's main branch in South Pasadena, California on May 27, 2014. 

The Supervisory Committee's Chair composed her address in 2014, approximately one year after Priority One discovered the theft of $1 million from the Los Angeles branch's vault. And though the series of thefts took place during the years of 2010 through 2012, the Supervisory Chair included the name of Turner, Warren, Hwang, and Conrad in her address published in the 2013 Annual Report which was first distributed on May 27, 2014. 

Why would Ms. Simmons make reference to the firm if she knew that CUMIS had concluded that Turner, Warren, Hwang, and Conrad had been remiss in their audits and allegedly caused the Credit Union to lose $1 million in cash? 

In her address, Ms. Simmons states, "The Supervisory Committee has the responsibility of overseeing the internal and external auditors of the Credit Union", adding, "The external audit firm of Turner, Warren, Hwang & Conrad Certified Public Accountants and Consultants conducts a comprehensive annual financial audit with verification of member accounts each year." 

Three conspicuous facts standout:

#1: In February 2013, Priority One's Internal Auditor discovered that $1 million had been embezzled from the Los Angeles Branch's vault. 

#2: CUMIS filed its lawsuit against Turner, Warren, Hwang and Conrad in April 2014. 

#3: Ms. Simmons address to Members was published in the annual report first distributed in May 2014, one month after CUMIS filed its lawsuit.  

We've also reviewed several of the Credit Union's annual reports for the years preceding 2013 and failed to locate a single address signed by Ms. Simmons and which alludes to Turner, Warren, Hwang and Conrad or any other external auditing firm hired by Priority One. 

So why did Ms. Simmons reference Turner, Warren, Hwang and Conrad's name in the 2013 Annual Report? Ms. Simmons is clearly stating that her Committee relies on whatever findings are provided by Turner, Warren, Hwang and Conrad. Is her disclosure a feeble and all too transparent attempt to free the Supervisory Committee of all culpability in the theft of $1 million?

Priority One may be a state-chartered Credit Union but its assets are federally insured by the NCUA. We obtained the following excerpt Cornell University Law School's Legal Information Institute, describing the role of a credit union's Supervisory Committee. 

12 CFR 715.3- General Responsibilities of the Supervisory Committee

§ 715.3 General Responsibilities of the Supervisory Committee

(a) Basic. The Supervisory Committee is responsible for ensuring that the Board of Directors and management of the Credit Union-

(1) Meet required reporting objectives; and 

(2) Establish practices and procedures sufficient to safeguard member assets.

(b) Specific. To carry the responsibilities set forth in paragraph of this section, the Supervisory Committee must determine whether:

(1) Internal controls are established and and effectively maintained to achieve the credit union's financial reporting objectives which must be sufficient to satisfy the requirements of the Supervisory audit, verification of Member accounts and additional responsiblities. 

(2) The Credit Union's accounting records and financial reports are promptly prepared and accurately reflect operations and results: 

(3) The relevant plans, policies, and control procedures are established by the Board of Directors are properly administered; and

(4) Polices and control procedures are sufficient to safeguard against error, conflict of interest, selfing dealing and fraud. 

CUMIS' lawsuit places responsibility for the theft of $1 million on Turner, Warren, Hwang and Conrad even though it is the Supervisory Committee who is ultimately responsible for the implementation of internal controls that effectively protect Credit Union and Member assets. 

• So what corrective measures did the Supervisory Committee implement in response to the 2009 theft of more than $60,000 perpetrated at the Los Angeles branch by a former receptionist? 

• Why did the Credit Union's internal controls fail to identify any of several thefts perpetrated over the years of 2010 through 2012? 

• And how often does the Supervisory Committee convene and what records can they provide of the topics discussed during each meeting and the actions taken to improve Priority One's internal controls? 

On a side note, it's important to note in 2008, Cornelia Simmons along with Board Directors, Diedra Harris-Brooks; O. Glen Saffold; and Thomas Gathers, voted and won reinstatement of President Wiggington despite overwhelming evidence that he sexually harassed a former employee and following urging by the investigator that the President be terminated. .These attest to her ethics and ability to hone decisions based on a fair and impartial assessment of evidence. 

The Supervisors like the Directors, are ignorant and unable to carryout their state-mandated duties. They and the Directors depend on the President to interpret financial data contained in the Credit Union's financial reports. Does this at all seem like a conflict of interest and immensely inappropriate? It's time the Supervisors and Directors were administered tests to gauge their competency. And one has to wonder, why procedures developed and/or approved by the Supervisory Committee have continually failed to protect assets administered by the Los Angeles branch.

CONCLUSION

It doesn't take an expert or even an in depth study of Priority One's monthly, quarterly, and annual reports to realize that this Credit Union's issues run deep and are terribly awry. What should be seen as perplexing is that the President, his executive and managerial staff, the Board of Directors and the Supervisory Committee are all apparently so out of touch that they can't understand the relationship that exists between internal conflicts, security breaches, abuses of authority, dishonest business practices, and the Credit Union's struggle to acquire new business and membership.

CUMIS Insurance is hoping to that their accusations against Turner, Warren, Hwang and Conrad will possess sufficient merit and be so compelling that a a jury (which they've requested) will issue a judgment in their favor. 

However, CUMIS will have to contend with questions about the Credit Union's subpar security procedures which failed to stop the theft of $60,000 in 2009 and the theft of $1 million in cash during the years of 2010 through 2012. The looming question we have is how could the Credit Union's allegedly well-developed security procedures fail so miserably? 

Here is a record of some lawsuits filed against or involving Priority One since October 2010? 

1. Lawsuits filed by four former employees during the years of 2010 through 2013, alleged sexual harassment, same-sex sexual harassment, retaliation, age discrimination, and creation of a hostile working environment. 

2. The filing of a lawsuit in 2012 by a former Member which accused the Credit Union of violating the Privacy Act.

3. The 2014 filing of a lawsuit by Alliance Auto, one of Priority One's contracted automobile brokers, alleging a breach in contract. 

4. The 2014 lawsuit filed by CUMIS against Turner, Warren, Hwang, and Conrad and alleging it is the accounting firm's satisfactorily perform its duties compliant to established standards resulted in the loss of $1 million in cash stolen by a former AVP. 

5. The 2014 filing of a lawsuit by Turner, Warren, Hwang and Conrad against Priority One Credit Union.

The lawsuits are all symptoms of a bigger, more serious problem afflicting Priority One and indicative of why the once successful Credit Union is nowadays a smaller, no longer competitive, and disliked Credit Union. The internal turmoil saturating the Credit Union explains in part, why Priority One was forced to close 6 of 9 branches during the period of 2010 through 2014. The Credit Union has spent years, desperately raising its net capital all for the mere purpose of retaining their operation. In 2008, its net capital dropped down to almost 6% and at the time, both the DFI an NCUA informed the President that he had better find an immediate means by which to reduce expenses and raise capital. His closures, however, could not stave-off the continued decline in net income which dropped by approximately $22 million since January 1, 2007.

President Wiggington's business failures are exacerbated by his personal conduct which has been appalling and embarrassing. In 2008, an investigation proved he sexually harassed a former employee though fortunately for the President, his ally, Board Chair, Diedra Harris-Brooks, ignored and suppressed the evidence and led two other Directors and Supervisory Committee Chair, Cornelia Simmons, to vote for his reinstatement despite the fact the investigator urged his termination. 

In the end, a victory in court will be gotten by the attorney who presents the most convincing argument. For CUMIS, this isn't a slam dunk as they have chosen to continue a business relationship with an organization led by a notorious President and corrupt Board of Directors and evidently, ineffective Supervisory Committee. On the other hand, Turner, Warren, Hwang, and Conrad chose to enter into and maintain a business relationship with the infamous Credit Union and as of May 2015, their well-earned reputation in the industry is at stake.  

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