Fraud Identification Training Sept-Oct 2022

CASE STUDY 1

During the examination, you balance the installment loan trial at the note teller's window so that the teller could explain any differences, should it become necessary. This teller was very helpful and cleared away several customers’ certificates of deposit (CD) that were taken to secure loans. During the balancing procedure, you observe that the officer who made the loan initials all notes. Also, several blank notes signed by the customer were in the note tray. The note teller stated these instruments are for the convenience of the bank’s best customers when they need additional funds and cannot get to the bank. The borrowers could call the bank and the proceeds would be credited to their checking accounts. After reviewing the Board minutes, you discover that the Board does not review any charged-off loans, giving the Chairman/President full discretion; however, charged off notes are segregated and under dual control. Since the bank utilizes an off-premise facility for its demand deposit accounting, you talk to the individual who is responsible for this area. The individual states that computer-rejects consist of items described as unposted and unprocessed. The unposted items are listed on a computer printout with an indication as to why they were not posted, such as: Non-Sufficient Funds (NSF), account closed, no such account number (unable to locate), hold account, etc. Another multiple-copy printout is provided on the NSF items. These NSF printouts are distributed each morning to all the lending officers for their review. The bookkeeping control clerk receives all the computer reports and any unprocessed items. Since these items were not captured during the initial sorting run due to illegible amounts or wrong account numbers, there is no printout. The control clerk then examines the unposted and unprocessed items to determine what is wrong. You notice that the control clerk also has access to an on-line computer terminal to input all demand deposit unposted or unprocessed items immediately after finding the error; however, not all demand deposit items are input by the control clerk. Some items are reprocessed with the current day's work. The control clerk explains, due to the loss of the user’s manual, some transactions have not been inputted. Any item the control clerk cannot correct and rerun is referred to an officer. You are informed that overdrafts are not carried as an asset but are deducted from demand deposits. During the examination, you have had a number of occasions to talk to the head bookkeeper that makes all journal entries to the general ledger. This person is extremely helpful and appears to be the only knowledgeable person about operations at the bank. In addition to general ledger work, the bookkeeper also works as part-time relief teller and performs monthly reconcilements of "due from" bank accounts. You check further on this matter and find that reconcilements are reviewed by the auditor and that the head bookkeeper is not authorized to sign checks drawn on these banks.

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