Fraud Identification Training Sept-Oct 2022

CASE STUDY 18

account and their book values reveals the bank is the owner of several vehicles, including a Rolls Royce, a Jeep Cherokee, a Mercedes-Benz, and a yacht. You mention this to other members of the examination team, who indicate that they have only seen one of these vehicles in the bank’s parking lot. Given the value of these assets, you request the insurance policies. Review of these documents indicates the existence of additional vehicles, including another Mercedes-Benz, a Buick, and a Ford, with the bank as the named insured. When asked about the vehicles the cashier stated President Stratton had possession of all of them. The bank’s salary structure is noted to be far above peer levels. A review of approved salaries in the Board minutes reveals that not only is President Stratton’s salary far above that of the other bank officers, it seems high in relation to other banks you have examined. High salaries were also approved for Stratton’s children, though their presence in the bank appears to be limited. When present, they work on projects that do not command the level of salary they are receiving. You determined that you need to spread the income accounts to be sure of proper reporting and composition due to the seemingly excessive level of overhead. You note that the other expenses category seems largely comprised of accounts titled miscellaneous charges, travel and transportation expenses, and food/refreshments. You also note that, according to the UBPR, the “Other Expense” category has been increasing over the past several years. Based on your discussion with the Examiner in Charge (EIC), you decide to work with the Asset Manager (AM) to coordinate a review of “miscellaneous expenses,” “officer expenses,” and loans extended to directors and executive officers. You and the AM continue the review of subsidiary expense ledgers, subsidiary asset ledgers, supporting receipts/expense statements, cancelled checks, deposit account statements, loan files, and personal financial statements. You also hold several meetings with bank employees to answer some of your questions. Your review and the discussions indicate several abusive and self-serving practices, including apparent violations of Regulation O. Mr. Stratton, in his capacity as president, CEO, and COB, caused the bank to purchase or invest in assets that provided no material benefit or inadequate benefit when compared to the costs to the bank. The assets purchased or invested in were either primarily or exclusively used for the personal benefit of Mr. Stratton and his family members.

You also learn that large amounts of legal fees and fines of Mr. Stratton were paid by the bank.

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