Fraud Identification Training Sept-Oct 2022

CASE STUDY 9

On his way to the bank, EIC Clark was surprised when he drove past President Taylor’s home, guessing its value at around $1 million. When he arrived at the bank, AE Schroeder reported on the following insider loan activity. President Taylor had a $475M loan at the bank dated 12-31-X8. The stated purpose of this loan was “Personal”. The yield was 9% and the maturity date was 1-30-X9. No collateral is identified on the note, but the bank had the right of offset. Before working the credit file, President Taylor told AE Schroeder that he paid $100M on the note and that the loan would be paid in full tomorrow when he closes on a property he sold. The following day, he paid the principal and accrued interest in full with a payment of $377M. After the President presented the general ledger tickets showing the loan was fully retired, AE Schroeder wrote “Pass-Out” on the line sheet. Mrs. Taylor also had a $250M 10-year term loan. The purpose of her loan was “Investment”. The first payment of $25M plus accrued interest was due and paid during the examination. AE Schroeder wrote “Pass-Performing” on the line sheet. Neither of the loans to EVP Taylor or his wife contains the signature of a witnessing officer. Following his review of the line sheets, EIC Clark wanted additional information on President and Mrs. Taylors’ loans. EIC Clark requested AE Schroeder to obtain copies of the checks or money wires used to make the payments. AE Schroeder was satisfied when President Taylor told him there was no check or wire confirmation because the sale was financed. President Taylor stated the credits were the payments on his loan and the debits were the new loans. After Schroeder returned with that information, EIC Clark told AE Schroeder to find out who the purchaser/borrower was and bring back the credit file. Rather than go through an intermediary, President Taylor personally approached EIC Clark to explain the situation. He told EIC Clark the property consisted of two parcels that were sold to Borrower One, Inc. and Susie Que Partnership. He stated the files are not complete because the sales were just consummated. The EIC requested that President Taylor supply him with the credit files, regardless of their condition. Three business days later, President Taylor presented the credit files on Borrower One, Inc. and Susie Que Partnership. EIC Clark included these loans in the line deck to be reviewed, and instructed Examiner Ruff to assist AEs Hoover and Schroeder with tracing loan proceeds because he couldn’t understand why President and Mrs. Taylor collectively needed to borrow $725M. This exam was AE Hoover’s second bank where she performed the DOE audit. At her first assignment, AE Schroeder explained to her that the purpose of this task is to identify insider overdrafts and the quickest way to complete the task is to review summary screens. AE Schroeder stated the summary screens would list each overdraft during the last 12 months and the duration of each, and for AE Hoover not to be concerned with one-day overdrafts.

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