Fraud Identification Training Sept-Oct 2022

CASE STUDY 1

AUGUSTA BANK AND TRUST Situation:

You are part of a team examining Augusta Bank and Trust, a $70 million commercial bank, and have been assigned the responsibility of gathering information regarding the bank’s system of internal routine and controls. Your responsibilities include verifying collateral and safekeeping. The Executive Vice President (EVP) will get you started in this effort. The EVP completes the first half, and the receptionist completes the second half of the combination lock and the main vault door is opened. After the receptionist leaves, then the EVP opens the vault compartment containing all of the bank's negotiable collateral. He states that they have a small number of loans secured by jewelry and precious metals. He then opens a vault box containing these items, which are properly recorded in the collateral register. With bank personnel present, the examiners check the collateral. A number of sealed packages found in the vault are unrecorded as to contents but are said to contain valuable silver pieces, old coins, and art work left by customers for safekeeping. Later that day, one of the Associate Examiners noticed that in numerous instances, there had been no deposits or withdrawals for six months or longer on a number of deposit accounts. In addition, the Associate Examiner reported that all exception reports covering dormant account activity are left with the Senior Vice President/Chief Lending Officer. The internal auditor spot checks dormant account electronic signature cards, which are accessible to all tellers in order to verify withdrawals. The Assistant Examiner assigned to review the cash accounts says that all cash items are held by the head teller and that these items are reported as a separate asset account on the general ledger. The Assistant Examiner notes that management maintains an adequate record of these items. The Assistant Examiner observed that when the paying and receiving teller next to the head teller's window is out, the loan officer handles the teller's cash temporarily. The Assistant Examiner also noted that tellers leave their cash drawer keys in an unlocked, empty drawer when they go to lunch. Additionally, the teller's bank stamp, date stamp, teller stamp, and some currency straps for the morning's opened packages are lying on the counter. During times of customer inactivity, the loan officer handling the teller's work uses the on-line memo post terminal to apply loan payments received in the mail. Using the teller supervisor override key, the loan officer is able to handle both the teller postings and loan entries with little problem.

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