| PREAMBLES | | | | of dual control |
| The greatest challenge facing the banking | | | | Acceptance of some level of fraud as 'cost |
| industry globally today is fraud. | | | | of doing business'. |
| The banking industry loses billions of dollars | | | | Outdated and ineffective control measures |
| annually to fraudulent activities. | | | | that do not meet acceptable global standard. |
| Some of the frauds are executed | | | | Increase in staff turnover which technically |
| successfully by outsiders while a reasonable | | | | could lead to understaffing |
| number is successfully perpetuated with the | | | | Aggressive accounting entries all in the bid to |
| connivance of an insider/staff. | | | | post profit. |
| Anyone can perpetuate a fraud. | | | | FRAUD SIGNS |
| FALSE ASSUMPTION ABOUT FRAUD | | | | The following are characteristics of a fraudulent |
| Below are some false assumptions about fraud: | | | | staff which should put supervisors and associates |
| 1. Most people will not commit fraud. | | | | on guard: |
| Response: A vast majority of people, under | | | | 1. An employee who regularly borrows small |
| certain circumstances, will commit fraud especially | | | | amounts of cash from other colleagues |
| if they are convinced that it will go undetected. | | | | 2. An employee who asks to "hold" his or her |
| Therefore everyone should be assumed to have | | | | personal cheque before negotiating it |
| a tendency to commit fraud. | | | | 3. A staff who frequently closes late and does |
| 2. Fraud is not material. | | | | not go on vacation. |
| Response: Fraud is very material and it is capable | | | | 4. Low or inadequate salary levels employees |
| of eroding the working capital of any organization | | | | 5. Employees who show resentment at not being |
| which consequently results to illiquidity and | | | | treated fairly or being taken advantage of |
| insolvency. | | | | 6. Superiors who lack respect and appreciation for |
| 3. Most fraud goes undetected. | | | | employees |
| Response: Most frauds are detected over time | | | | 7. Highly domineering senior management |
| especially if due process and procedure is | | | | 8. Employees who appear to be living, and |
| followed. | | | | spending above their means |
| 4. Fraud can be well concealed and the auditor | | | | 9. Split purchases |
| can't detect it. | | | | 10. Bid process irregularities |
| Response: There is usually a loop hole that will | | | | 11. Same bidders time and time again |
| eventually come to the open. With a sound | | | | 12. Payment of invoices from a copy rather than |
| internal control procedure, such fraud will | | | | an original |
| eventually be detected. | | | | 13. Unusual sequence of numbers on vendor |
| A well trained auditor can easily detect a fraud | | | | invoices |
| following properly designed audit program. | | | | EFFECTS OF FRAUD |
| 5. Those who are caught and prosecuted are not | | | | Fraud has far reaching effect on the organization |
| wise. | | | | and the society at large. |
| Response: The staff with fraudulent intentions | | | | Fraud can deplete the working capital of any |
| think that those caught are not smart and the | | | | organization which will culminate ultimately to |
| mindset of a first-time fraudster is either: I'm just | | | | distress. |
| going to do it once or, I'm too smart to get | | | | Disengagement of staff and the associated |
| caught. | | | | social hazards to the staff and his dependant. |
| COMMON TYPES OF FRAUD | | | | Loss of confidence of customers, suppliers, |
| Common types of fraud in banking include the | | | | creditors, contractors and shareholders on the |
| following: | | | | organization and the industry. |
| 1. Cheque substitution | | | | FRAUD ALERT AND PREVENTION TIPS |
| 2. Cheque Suppression | | | | 1. Assume everyone can commit fraud under the |
| 3. Cheque cloning | | | | right circumstances. |
| 4. Cheque kitting | | | | 2. Use your knowledge of internal control to "think |
| 5. Cheque alteration | | | | dirty" and then check out your suspicions. |
| 6. Teeming and lading | | | | 3. Remember that good documentation does not |
| 7. Claiming unearned overtime allowance | | | | mean something happened; only that someone |
| 8. Dry posting | | | | said it happened. |
| 9. Accumulating charges due from unauthorized | | | | 4. Pay attention to documents themselves and |
| and unofficial long duration phone calls | | | | the supporting paperwork, observing the |
| 10. Overstating claims for reimbursement | | | | consistency of numbers, dates amount. |
| 11. Deposit suppression | | | | 5. Consider the reasonableness of account |
| 12. Adding fictitious names to the payroll | | | | balances and accounting entries, especially |
| 13. Overcharging customers | | | | adjustments |
| 14. Removing money directly from vault, till box, | | | | 6. Develop relationships and pay attention to hints |
| petty cash etc | | | | or rumors of wrongdoing. Follow up. Remember |
| 15. Obtaining payments for false invoices either | | | | that people are often torn between their moral |
| self-prepared or obtained supplier or vendor (e.g. | | | | standards and their reluctance to get involved. |
| Hotel, air ticket etc). | | | | They seldom tell all they know in the first |
| FACTORS CONTRIBUTING TO FRAUD | | | | interview. |
| Growing complexity in the structure of an | | | | 7. Check out hunches; first impressions are often |
| organization | | | | right. |
| Increasing speed of transaction dynamics | | | | 8. Be inquisitive; don't easily accept explanations, |
| Improved technological advancement which | | | | especially if you don't understand them. |
| aid the ease with which transactions are | | | | 9. Use statistical sampling to force you to look at |
| concluded | | | | items you would not generally otherwise examine |
| History of inattention of supervisors | | | | 10. Look for patterns of unusual transactions. (If |
| Understaffing which could cause a breakdown | | | | you're surprised, it's unusual! |