Measured by total loans, Wells Fargo Bank is the largest bank in America. It is also one of the largest when measured by retail deposits. Over the past six months, Wells Fargo has become the poster child for how not to develop and manage a sales culture. Coincidentally, during this same time frame, CU ALM Report has presented a three-part series featuring credit unions successfully selling their services in a way that we believe is mutually beneficial to both the credit union and its members. In this short article, we will examine the conflicts that arise when credit unions adopt a sales and marketing culture as well as ideas to prevent the exercise from spiraling out of control. Credit unions are member owned and ultimately must operate in a way which benefits a majority of the members. When we offer incentives to credit union employees, we are driving their actions and creating a conflict between what is best for the member and what is best for the credit union.
Internal controls are basic to the concept of handling other people’s money and the concept of fiduciary responsibilities. They should protect the assets of the credit union and the operations of the credit union from being compromised by employees or third parties who would utilize them for self-benefit in one form or another. However, there is a second purpose for internal controls that may be more important depending on your outlook. A strong set of internal controls also protects the credit union’s employees and volunteers from allegations of mismanagement and misuse.
A strong and well-thought-out set of internal controls will minimize the likelihood of the misapplication and misuse of credit union incentives. An appropriate set of controls is based on many factors, including the size and complexity of the credit union’s marketing and sales effort and the nature of the incentives. You can be sure that a rich set of incentives will likely drive the actions of your marketing associates.
The scope of this article doesn’t allow for detail as to how to implement a system of internal controls. The needs and requirements for an internal control system vary widely based on the size and scope of the credit union’s operations. All credit unions are required to perform a set of limited auditing procedures at the very least on an annual basis. Almost all credit unions choose to have an outside professional such as a CPA or other qualified expert to perform this review. This individual or firm should be able to help you in the development of internal controls which are applicable to a marketing environment.
It’s basic stuff. It’s the separation of duties and responsibilities and the approval of key transactions by a second and non-interested associate. It’s independent verifications sent on new loans or services, stuff like that. It could be a simple telephone call to a small sample of participants in a credit union promotion where the credit union is offering incentives to its associates. It is not rocket science. For larger credit unions who are fortunate enough to have an internal audit function, the implementation of internal controls and their review and compliance may come under the auspices of that department. For a good internal auditor suggesting a set of internal controls for the marketing and sales function should be a piece of cake, so to speak.
We believe that reasonable controls, checks and crosschecks can mitigate efficiently the risks posed by a sales culture. After all, it’s done every day in other industries. The Wells Fargo example is a classic case of mismanagement resulting in the detriment of their stockholders and customers. Credit unions can and must lead the way in safeguarding their assets and the special relationship with members.