Fraud Identification Training Sept-Oct 2022

CASE STUDY 9

After the ownership change, the FDIC examined the bank and rated the bank a composite “2”. A subsequent examination, the following year, also resulted in a “2” composite. EIC Clark also learned during the preplanning phase from EVP Taylor that the new owners replaced the five-member Board. The owners believed the Redrock market was untapped. They believed a Board that embraced a more aggressive business philosophy would increase bank footings and help with bank profitability and holding company debt servicing. Another order of business was the immediate reassignment of Cashier responsibilities to EVP Taylor’s wife, who had no prior banking experience. Cashier Wessel had 42 years of experience with the bank and was asked to resign. EVP Taylor stated the reason for changing cashiers was to give the bank a completely new image. EIC Clark also learned that Mr. Yates was no longer with the bank. He resigned and sold his interest in the holding company to Mr. Taylor, who then became Chief Executive Officer and President. Mr. Taylor stated he didn’t know why Yates sold his interest and left the bank, or where he relocated. He believed Mr. Yates took a bank management position in the Southwestern United States. Field Office policy is to verify the entire Call Report, including supplemental schedules. Assistant Examiner (AE) Schroeder received a transcript of the capital account during the pre-examination visit and it reconciled to the UBPR (Uniform Bank Performance Report). The transcript included several capital injections from the holding company. As is customarily done before every examination, Field Office Supervisor (FOS) Michaels reviewed the ALERT (Automated Loan Examination Report Tool) line sheets and the entire loan deck before the examiners left for the bank. As a result of the rapid loan growth, several large lines were new to the bank and no previous line sheets existed. FOS Michaels noted the bank extended a $1 million-dollar loan to Fred “Freddie” Kruger four months earlier for personal investment. FOS Michaels knew Mr. Kruger was former President Yates’ father-in-law and a small-town businessman. EIC Clark’s presence at the examination was going to be delayed two days while he finished up the last examination. Due to a number of experienced examiners out on details, only the four AE from the Field Office, with varying degrees of experience, were going to the bank to start the job. EIC Clark directed the Assistant Examiners to work the notes and begin loan review of the perceived high-quality loans. EIC Clark assigned insider loan review to AE Schroeder, and the DOE audit to AE Hoover.

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