Big credit union overcomes shameful history

Over the past five years, England’s biggest credit union has endured the fallout from chronic mismanagement which resulted in near complete financial collapse, two police inquiries, the former chief executive being forced to resign and finally an embarrassing court case thanks to a manager helping herself to the contents of members’ accounts.

LCCU’s mismanagement has been the subject of a long-running Yorkshire Post investigation which first revealed serious concerns as far back as 2007.

Then, LCCU was shown to rife with cronyism and nepotism, including major breaches of financial rules through favourable loans provided to staff and their relatives.

In one instance, the son of then chief executive Sue Davenport had received a loan for £14,205 when he was only entitled to £1,200. In another, Davenport’s daughter-in-law had been able to take part in processing a loan for herself at a preferential rate.

Criticisms from the Financial Services Authority (FSA) were also highlighted, in particular Davenport’s ability to exert an inordinate amount of control over the books. A letter written by the FSA to LCCU as far back as 2003 specifically referred to “the risk of intentional manipulation” – a risk subsequently shown to be one Davenport was willing to take.

In April 2008, Davenport was required to resign by the FSA and the following year the damage she had been able to inflict on LCCU’s finances emerged when the accounts revealed around £2m of so-called toxic debt had gone unreported. Without an emergency bailout of £4m from public funds, the credit union would not have survived.

In 2009, it was also revealed Davenport had declared herself bankrupt – with nearly half of her £90,000 of outstanding debt owed to her former employer in loans she has not repaid.

The chaos uncovered in the 2009 accounts prompted LCCU to call in the fraud squad which led to a three-year inquiry and a spat between West Yorkshire Police and the Crown Prosecution Service (CPS) when the CPS declined to press charges against Davenport who had been arrested on suspicion of fraud in 2010.

It was only earlier this year the full details of Davenport’s manipulation and misuse of LCCU’s funds were finally revealed by the Yorkshire Post, including the alteration of thousands of members’ accounts and thousands of pounds spent in luxury shops and on upmarket hotels.

A leaked internal audit report, showed Davenport also obtained loans totalling more than £100,000, many without evidence of approval or agreement.

Auditors found she had changed loan repayment dates on members’ accounts. The report said: “It is suspected that the action of changing repayment dates on a mass level would manipulate the arrears figures to make the results in a more favourable position.”

The credit union’s reputation suffered a further blow when it emerged area manager Beverley Farmer was being investigated by police over alleged theft from members’ accounts.

Farmer, who has since changed her surname to Johnson, was sacked by LCCU in 2009, arrested in 2010 and brought before the courts this year, culminating in her suspended jail sentence at Leeds Crown Court yesterday.

Former Leeds MEP Michael McGowan, who stepped down as LCCU president in January after leading efforts to clean up its finances, said: “We successfully rooted out members of senior management who abused their position of trust and almost destroyed the credit union. The credit union is now one of the most successful in the country and an example to the rest of the credit union movement in adopting zero tolerance to financial malpractice.”