Fraud Identification Training Sept-Oct 2022

CASE STUDY 13

working the CELESTIAL files first.

The CELESTIAL files are found to contain only limited documentation. From the review, it appears no underwriting criteria was used other than to verify the name, birth date and SSN. Applicants apparently are not required to provide verification of income, place of employment, a phone number, or residence address to obtain the minimum credit limit. Although credit bureau reports were in the files, extremely poor credit histories did not preclude the issuance of a card. The recent audit stated that nearly one-half of all CELESTIAL accounts did not meet Board-adopted underwriting standards. Based upon the information obtained, it appears that the “sky is the limit” when it comes to obtaining a credit card. You began to ask questions and everyone you talked to pointed the finger to someone else as to who oversees the portfolio, the portfolio acquisition activities, and the collection activities. No one really seemed to know. Based upon what little you have been told and what you observed, it appears the dominating bank president oversees all of these areas. The Field Office Credit Card SME (Subject Matter Expert), Examiner Mike Smith, was assigned to review affiliate transactions. In Examiner Smith’s words, the fees paid to the marketing and processing affiliates are “well in excess of industry standards.” Fees total at least twice the industry charges. He also notes that the bank pays monthly fees to the processing affiliate for all credit card accounts. This includes charged off accounts, inactive accounts, and accounts that were part of the securitizations. Furthermore, the amounts for each type of fee were estimates obtained from the President that were unsupported and largely undocumented. Examiner Smith also could not see where the bookkeeper obtained the appropriate officer’s approval for fee payment. Rather, the President authorized the payments. During the examination, you read in a financial publication that GrandParent, Inc. would be recording a pre-tax operating loss of $100 million at its Parent, Inc. credit card operation. The announcement stated that the losses stemmed from increased charges to the ALLL because of CELESTIAL credit card losses. During discussion of this article with the bank’s Board, they disclosed that material operational flaws resulted in erroneous information used to compute the ALLL adequacy. Bank officials stated an additional $60 million would be provided to the ALLL, and that GrandParent, Inc. would inject capital. At this point, additional examiners and accountants are asked to assist in the examination.