SSP Credit Union files lawsuit against audit committee members

Published 12:00 am Sunday, March 23, 2003

The Ironton SSP Credit Union, by its liquidating agent American Share Insurance, has filed a lawsuit against three of the credit union's former audit committee members.

On March 17, American Share Insurance filed a suit in the Lawrence County Court of Common Pleas against Anthony Mosco, chairman of the audit committee, and committee members Estel Hall and Larry Boggs alleging that their failures to perform their duties caused the loss of nearly $4 million in assets from the credit union.

The plaintiff seeks compensatory damages equal to $3.8 million and an award of costs, expenses and attorney's fees.

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Their actions, the lawsuit document states, allowed the credit union's general manager, Douglas Calhoun, to commit extensive embezzlement while the defendants did nothing to stop him.

On Nov. 6, Calhoun, 60, of Russell, Ky., pleaded guilty to 13 counts of theft and grand theft. On Dec. 4, he was sentenced to 5 years in prison, fined $10,000 and ordered to make restitution of nearly $4 million to an insurance company for stealing money from the credit union over a 12-year period.

Last May, the Ohio Department of Commerce revoked the articles of incorporation for the credit union and appointed American Share Insurance to liquidate it.

At a time presently unknown to the plaintiff but believed to be no later than 1990, Calhoun began a pattern and practice of defrauding the credit union and its members by embezzling their deposits and share balances and converting them to his personal possession or third parties who were not lawfully entitled to the funds, the document states. The embezzlement continued until discovered by ASI and the Ohio Superintendent of Financial Institutions on May 15, 2002.

During that period, Calhoun stole more than $3.8 million from the credit union and its members, according to court papers. When ASI was appointed as the liquidating agent, Calhoun's handwritten ledgers showed that the credit union's total assets as of May 17, 2002, should have been more than $3.8 million, but the actual assets in the bank accounts were less than $12,000.

Throughout the time of Calhoun's theft, the credit union had an audit committee consisting of Mosco, Hall and Boggs who were appointed by its board of directors that was responsible for overseeing and verifying its financial condition and affairs. As members of the committee, the defendants were required to conduct monthly and annual audits of the credit union's books in accordance with Generally Accepted Auditing Standards.

In the monthly audits, Ohio law also required the defendants to perform certain audit procedures such as balancing the cash, reconciling the bank statement to the general ledger, and reviewing canceled checks and deposit slips. Every month, the audit committee was supposed to sign a report to the credit union's board of directors certifying that they examined the cash, accounts, books and records of the credit union. The report was to confirm that they found the accounts and records to be in good order, and the credit union was operating in accordance with regulations and the law. According to the court papers, such a report is required by state law.

The lawsuit documents allege that the defendant's reports were false and that they never performed monthly audits of the credit union's books and records. Instead, the document states, they allowed Calhoun to exercise complete unsupervised control of the books and records and they relied wholly on Calhoun's representations that the credit union's finances were in good order.

Additionally, the suit alleges that Mosco would sign certain monthly reports indicating that the audit committee had confirmed the credit union's share balances and outstanding loans with its members in writing and reconciled the general ledger with its bank statement from Firstar Bank, where deposits were maintained. The committee did not perform these functions and Mosco had no knowledge whether the information listed on the reports was accurate. Mosco, the suit alleges, simply signed blank reports and allowed Calhoun to fill in the blanks.

The suit also alleges that the defendants were also required to perform periodic reviews of internal control procedures which they allowed Calhoun to fill out the reports, perform annual passbook audits of member accounts that they never did and simply signed them when Calhoun requested that they do so by Calhoun, and allowed Calhoun to exercise complete control over the credit union's books and records.

ASI, the primary share insurer of deposits at ICU, has paid a total of $3,770,975.33 to members of the credit union to indemnify them for their losses.

Estel Hall did return phone calls Friday or Saturday. Anthony Mosco and Larry Boggs both declined to comment.