Fraud Identification Training Sept-Oct 2022

CASE STUDY 20

An amended FS replaced the original and showed the following:

$ 816M

$ 788M $1,313M $ 500M $1,813M

Current Assets

Current Liabilities Total Liabilities

Net Worth

$1,813M

Total Assets

Total Liabilities & Net Worth

This amended FS included credit card debt, leases, and equipment dealer debt.

At each Loan Committee meeting, members discussed the local economy. According to the minutes, the committee learned through bank retail business clientele that Mr. and Mrs. Smith were struggling financially. They were unable to pay past due bills to unsecured creditors on time, if at all. Feed and other expenses continued to accumulate, and the debtors needed to continually borrow for “operating” and “livestock”. Senior management did not know there were any financial problems because bank practices did not require annual independent reviews to be performed by Loan Committee members. There had been no monitoring of the credit by anyone other than Loan Officer Douglas. President Patrick reviewed the credit file and found it to be poorly documented and absent adequate information for proper analysis. During his nine years with the bank, no one questioned Loan Officer Douglas’ lending ability. He was viewed as a competent lender based upon the recommendations from previous employers. After the 20X9 FDIC examination, Loan Officer Douglas abruptly decided it was time for a change and he took other employment.

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