Troubled credit union sinking deeper

A CRISIS-hit credit union is at the centre of a fresh series of revelations surrounding its management after the Yorkshire Post learned it is facing a second police investigation, the company secretary has resigned and auditors have issued a “technical insolvency” warning.

Last week it was revealed that the former chief executive of Leeds City Credit Union (LCCU), Sue Davenport, had been arrested on suspicion of fraud before being bailed pending further inquiries.

It can now be revealed that West Yorkshire Police are investigating a second former manager on suspicion of fraud.

Area manager Beverley Farmer, who was sacked last year, allegedly made irregular money transfers and obtained loans without proper authorisation. Police began an inquiry after her alleged activities were reported to them by LCCU.

She has since obtained a managerial position at nearby Calderdale Credit Union but declined to comment when contacted by the Yorkshire Post.

Frances Burns, president of Calderdale Credit Union, declined to comment when asked whether the credit union was aware of Ms Farmer’s employment history. Another credit union in Yorkshire had already employed Ms Farmer before letting her go within a fortnight when her background at Leeds became known.

It has also emerged that Terry Jacques, LCCU company secretary, resigned in January, specifically highlighting his fears for the financial viability of the credit union and concerns about the credibility of its proposed recovery plan.

LCCU, England’s largest credit union with over 20,000 members, needed an emergency 4m bailout from the public purse last year after its accounts showed over 2m in bad, or so-called “toxic” debts, had remained hidden for four years.

The chaotic finances emerged in the wake of the departure of Mrs Davenport, who resigned in 2008 following a Yorkshire Post investigation into mismanagement.

The latest set of accounts, due to be published next month in time for the LCCU annual general meeting, show further substantial losses of 1.37m for the financial year ending last September.

In his resignation letter, Mr Jacques wrote: “The auditor states, in the year-end financial report, that if LCCU were to carry on at the present levels of losses it would be technically insolvent by April 2010.

“All the evidence suggests the financial situation is dire and much more problematic than directors have been led to believe. The trading loss for 2009 is likely to place LCCU in an unrecoverable position during 2010.”

Mr Jacques’s letter also referred to a letter sent to the credit union by the Financial Services Authority (FSA) in December warning that if the recovery plan was not working and the trading position worsened the regulator would step in “with a view to stopping LCCU from operating.”

But LCCU president Michael McGowan insisted the action taken to improve finances – including almost halving the number of staff from 75 to 39 – has staved off the threat of potential closure.

He said: “The credit union is solvent and vigorously implementing a recovery plan despite the damage we have suffered and the recession has not made the situation any easier.

“It is no secret that the credit union has suffered damage as a result of the management activities of the former chief executive, the board is working hard to turn around the situation and it is glaringly obvious that this cannot be achieved overnight.

“We are now under new management and the financial, legal and trade union representation of the board of directors has been substantially strengthened.”

“The board is carrying out a root and branch assessment of all services including a review of the branch network and will not hesitate to take radical action to improve efficiency where necessary.”

The FSA declined to comment.

Sea of troubles: Page 5.