Fraud Identification Training Sept-Oct 2022

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CASE STUDY 4

The OM’s review of the overdraft listing reflected none over 30 days; however, overdrafts in four accounts titled ‘C&W I, II, III, and IV’ represented $65M of the $71M in total overdrafts. These overdrafts were cleared after the start of the examination. Somewhat curious, the OM researches these accounts and finds that C&W I, II, III, and IV are country and western-themed karaoke bars located in a large metropolitan area over 250 miles from the bank. Loan demand is weak in the bank’s trade area, and the President reportedly met C&W’s principals while on a business development trip. After the OM informs you about the C&W overdrafts, the type and location of C&W’s operations, the lax controls relative to overdraft and NSF review, and her difficulty in determining the composition of the two Other Asset accounts, you become concerned. Through review of the Customer Information File (CIF) and the loan trials, you note that C&W has four smaller loans (one to each entity) totaling $110M. Each of the four loans has a different CIF number.

IDENTIFY THE RED FLAGS

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What actions should bank management take to prevent the situation?

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