The directors of Firhouse Credit Union were repeatedly warned about a cash shortage that totalled almost €700,000 and is now being investigated by the Garda and Revenue Commissioners.

The credit union's members, who attended its annual general meeting this week, heard that its supervisory committee had notified its board of directors of "a breakdown in internal controls" at various meetings up to six months ago.

In its annual report, the credit union told its 14,000 members that it had an unexplained cash shortage of €678,096 and bad debts totalling €3.6 million. It said the cash shortage was a result of a breakdown in "internal control systems".

The Irish League of Credit Unions (ILCU), which has stepped in to guarantee €3.2 million of those debts to allow the credit union to continue to operate as normal, was notified of the problem in February 2003. It then appointed field officers to investigate the matter.

Its head of monitoring, Mr Pat Fay, has said that these monies would be pursued through whatever means were necessary.

The ILCU requested that a bank reconciliation of all transactions of deposits, loans and repayments to be provided by that credit union. Several letters, signed by the secretary of Firhouse Credit Union, Pat McDonagh, assured the ILCU that a bank reconciliation was being carried out, Mr Fay revealed.

The field officers visited the credit union again in October 2003 and discovered that "these letters were not accurate".

When the reconciliation was eventually carried out following an investigation by external auditors the shortfall in lodgments was discovered.

The ILCU has reassured the credit union members that their monies are safe. The manager of the Firhouse credit union was dismissed once the problems came to light.

The ILCU has appointed a professional debt-collection agent and two credit controllers to pursue the outstanding loans.