Directors must direct

There is a lesson in the failure of the New London Security Federal Credit Union: Those who serve on boards of directors assume awesome responsibilities.

A just-released 31-page report on the alleged embezzlement of $12 million from the downtown New London credit union, a situation that forced its closure, places much of the blame on its board of directors, which provided only limited oversight and shirked its responsibility to safeguard members' assets.

Because of the evidence unearthed by investigators, the account manager at the credit union was under criminal investigation. The manager, well-known and well-liked city stockbroker Edwin F. Rachleff, jumped to his death from the top of the 11-story Mohican Senior Apartments on July 28, 2008, the same day the investigators declared the credit union insolvent and closed it down.

The tiny credit union was operating as an investment club, and Mr. Rachleff made the purchases and sales, collected income, hand-delivered monthly brokerage statements to managers and submitted reports on investment activity and status - with virtually zero oversight.

The National Credit Union Administration waved a red flag, repeatedly recommending that the credit union's supervisory committee become more active or contract out quarterly reviews of its own internal reviews, which, despite promises to do so, the board never did.

Its members were friends and business associates, people who trusted one another.

But board members, whether for the New London credit union, another financial institution, a nonprofit community agency, hospital, newspaper or any entity, have a responsibility as overseers to protect the integrity of the organization.

Such boards are not ceremonial. They serve a purpose. But that purpose is undermined if, for fear of alienating a friend or colleague, a board member does not challenge assumptions.

Those serving in similar capacities should consider this case when evaluating their own responsibilities.

Ask questions. Study documents. Demand third-party auditors. Make no assumptions.