Fraud Identification Training Sept-Oct 2022

CASE STUDY 6

Date

Mgmt.- Computed Tier 1 Ratio

3-Year History Annual Income

Tier 1 Lev.Capital

12-31-X7 19X7 Net Income of $2,018M 12-31-X8 19X8 Net Income of $2,316M 12-31-X9 19X9 Net Income of $2,648M

$10,905M $12,421M $14,169M

6.18% 6.35% 6.39%

Date

Dividend Schedule

Yearly Total

10-15-X7 Dividend of $800M 04-09-X8 Dividend of $200M 07-05-X8 Dividend of $800M 10-10-X8 Dividend of $1,000M 01-03-X9 Dividend of $1,000M 04-04-X9 Dividend of $500M 10-01-X9 Dividend of $1,000M

$1,500M

$2,000M

$2,500M

While at the visit, examiners checked management’s report of Tier 1 Capital and dividend to net income ratios against the UBPR (Uniform Bank Performance Report). They found the management-prepared reports to be accurate. Primary schedules of the Call Report and supporting work papers were reviewed for accuracy and completeness. No errors were noted and, because examiners have never had a problem with this bank’s Call Reports, supporting RC (Report of Condition) and RI (Report of Income) schedules were not reviewed. Team members drafted comments in the Field Office while the EIC determined loan review lists with the use of ALERT (Automated Loan Examination Report Tool). The examination began as scheduled, with the entire examination team focusing on loan review, except the OM and two other individuals. Those individuals completed the remaining detail tasks, reported the findings to the EIC, finalized comments, and put loan classifications and technical exceptions into the Report of Examination (ROE). The examiners were ready to leave the bank to begin the off-premises portion of the examination. In preparing for the exit review with the President, the EIC performed a cursory review of the ROE comments before putting his agenda together. Before the exam commenced, he had reviewed the latest available UBPR and remembered seeing a large amount of “Other Increases/Decreases” flowing in and out of capital. The capital comment did not provide an explanation of this and the EIC was ready to conclude that the OM received an explanation of the activity (possible miscoding) from management. Nonetheless, he inquired and found out no one looked into it. The OM stated he wasn’t aware of the activity because there wasn’t a need to check the supplemental schedules of the Call Reports. Additionally, he stated the President didn’t tell anyone about the activity in the capital account during the pre-exam visit, nor was any questionable activity detailed in any of the manual reports provided.

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