fraud management in the banking sector
DESCRIPTION
frauds in bankTRANSCRIPT
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FRAUD MANAGEMENT IN THE BANKING
SECTOR
BY
WORLALI K AMEEVOR
2 Worlali K Ameevor [email protected] 00233266552155
TABLE OF CONTENT
1. Fraud definition
2. Why commit fraud
3. The effect of bank fraud
4. Fraud management
5. Detecting fraud
6. Identity theft management
7. Protecting one self
8. Destroy all unwanted documents
9. Most paper works to be destroyed include
10. Major type of fraud
11. Fraudulent loans
12. Mortgage fraud
13. Other types of loan fraud.
14. Wire fraud
15. Fraud indicators
16. Behavioral indicators
17. Physical indicators
18. Internet fraud
19. Cheque fraud
20. Counterfeit cheques
21. Stolen cheques
22. Altered or forged cheques
23. Closed accounts-
24. New accounts
25. Overrpaid checques
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26. Measures to adopt to ensure that your cheques are not or cannot be
forged after they have been prepared and signed.
27. Ecobank fraud case
28. References
Fraud Definition
Fraud is an aspect of corruption and it occurs in organizations where governance
structures are weak.
The Association of Certified Examiners in the USA defines fraud as the “use of
one’s occupation for personal enrichment through deliberate misuse or
misapplication of employing organizations resources and assets”.
The Collins English Dictionary (1999) also defines fraud as “a criminal offence in
which a person acts in deceitful way” .in this respect fraud can be classified either
internal or external.
However in the perspective of the financial industry and specifically the Banking
sector, fraud remains a huge issue.
Banking fraud therefore is define as the use of deliberate misrepresentation in
order to fraudulently obtain money, assets or other property owned or held by a
financial institution. Moreover in criminal law, bank fraud is an intentional
deception made for personal gain or to damage the financial institution.
Bank fraud is also widely known as the white-collar crime: which requires some
sort of technical expertise
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Why commit fraud
The perpetrators do not necessarily carry same identities rather they carry similar
characteristics.
Many individual are driven to the cause of fraud just by mere interest in what they
do not have perhaps they want to posses. Besides individual intents to fraudulently
acquire things that they may need, things really do not have and per the influence
of the environment they find themselves there is also a great desire for a group of
persons or otherwise clans that have group desires to get gains for fame, ownership
of property, to be financially sound etc.
The effect of bank fraud
Beyond financial (monetary) losses fraud has other negative consequences that
impact an institution reputation, customer loyalty, and the confidence of the
shareholder. Moreover in the greater impact, the fraud cost is passed on to the
customer.
The individual who fall victim to fraud can experience mental, psychological,
financial, social and physical damage.
The impact of fraud can also be very damaging to cooperate victims where
small/medium scale businesses are most times unable to recover from the financial
or reputational damage caused. However most large companies literally feel the
impact through the increase cost of doing business.
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Fraud management
Today while , electronic tracking and improved security has deter fraud practices
the threat still exist and bank fraud still occurs on regular basis. Fraud as have been
mentioned earlier on is a crime, and is becoming difficult to pin down, however,
with the right management controls, practices and policy frame work, it can be
mitigated.
While financial institutions are increasingly spending more resources on the
management of fraud and it allied, the traditional approach of using transaction
monitoring systems can only work well for detecting individual point of sales fraud
in real time.
The financial institutions need an integrated framework together with most
comprehensive plan new and modern fraud detection and prevention.
This management approach needs to protect fraud at the point and time of
transaction, accurately detect incidents in transaction, span all the ways customers
interact with the institution and provide structured oversight for the fraud
management program me.
There are some key elements that can help institutions to successfully prevent
fraud. The institutions must
Have staff code of conduct
Have managers who understand their responsibilities for preventing and
detecting the risk of fraud
Have fraud policy
Take a proactive approach to preventing fraud
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Have employees who understand their responsibility for preventing fraud
and detecting the risk of fraud
Have a clear policy on accepting gifts and services
Screen new employees, including criminal history checks
Communicate staff code of conduct regularly-annually or biannually
Designate a person to be responsible for fraud risks, including investigations
Review fraud controls regularly- annually or biannually
Communicate fraud policies regularly-annually or biannually
Carry out due diligence on new suppliers, including credit checks, and
checks for conflict of interest
Offer fraud awareness training.
Detecting fraud
Detecting fraud generally relies on a number of actions; from providing safe
whistle blowing, awareness of how staff can report suspicions to specific process
checkpoints etc.
Some elements as tabulated below with possible affirmative answers ordered from
highest to lowest, entities who want to detect fraud must
1. Closely monitor staff expenses
2. Have a culture where staff will be willing to raise any concerns that they
may have regarding fraud or corruption and know that their concerns will be
taken seriously and that they would not suffer any retaliation
3. Closely monitor staff credit deductions/levels
4. Encourage staff to come forward if they see or suspects fraud or corruption
5. When fraud or corruption risk are raised, take proactive steps to reduce the
risk
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6. Have a whistleblower hotline
7. Have a protected disclosure policy
Identity theft management
Identity theft occurs when fraudsters use your personal information without your
knowledge or consent to take out bank accounts, credit cards, loans, state benefits,
and documents such as passports and drivers licenses in your name. Your identity
and personal details are very important for variety of reasons. If these are
compromised by criminals, you may only discover financial crime when you
receive letters seeking repayment of debt you haven’t incurred, or you find an
unexplained credit in your bank account.
It can have very serious consequences on your personal life and finances. For
example, you may have difficulty getting loans, credit cards, or a mortgage until
the problem is sorted out.
Protecting one self
In protecting yourself against this fraud you are advised to keep your valuable
documents secure. It is very crucial to secure documents such as passports, driver’s
licenses and other IDs and always ensure they are in your possession. Whether at
work or at home. Remember, don’t keep your cheque-books and bank cards
together –store them separately.
Destroy all unwanted documents
Don’t help criminals. Always destroy all important personal and financial papers
and documents when you don’t need them any longer. Preferably use cross-cutting
shredder for addition security. If you do not do this, criminals could establish your
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name, address and other details by going through your rubbish and can use the
information to apply for credit, goods or services in your name.
Most paper works to be destroyed include
Old bank credit cards and financial statements
Old card receipts
Any partly completed application form carrying your personal details
Any document with your name and address on them
Major type of Fraud
Fraud can be classified as internal or external. Internal fraud occurs when
employees identify an opportunity to commit the act of fraud. An external fraud is
committed when outsider such as customers, suppliers, and service providers
defrauds institutions. I some instances, they would be working with internal staff.
However in the banking financial institution there are multiple disciplines of fraud.
They are
Loan
Mortgage
Wire
Wire on internet
Wire on phone
Cheque
Card
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Fraudulent loans
Fraudulent loans take many different forms. The victims may be individuals or
group of people or institutions, and these case financial institutions. Fraudulent
loans schemes generally prey on vulnerable consumers. The situation was people,
groups of people and institutions turn to be in need for money for emergency
purposes. Here we are going to look at critical but common forms of Loan frauds
and how to avoid becoming a victim or accidentally committing fraud yourself.
Mortgage fraud
In the west, mortgage fraud if not the commonest loan frauds, then it is one of the
most common form of loan fraud and it’s so costly.
The victims can be banks or individuals. And sometimes individuals can perpetrate
fraud without even knowing.”Creative Financing” is a term that has been in the
mortgage industry for a long time now. Unfortunately many a time the term forces
consumers to commit fraud without even realizing it. Here are some few examples
that a mortgage applicant can/may do which would constitute mortgage fraud.
Over appraising property value. Happen to be a good friend to the appraiser?
May be he/she raised your house value a little bit to help you get a higher
selling price. If that is the case, its mortgage fraud
Applying for a “stated income” mortgage? May be you exaggerated your
income a little bit to help you get a lower interest rate. That definitely is not
creative financing. That is mortgage fraud.
According to the FBI, mortgage fraud is defined as “any material misstatement,
misrepresentation or omission relied upon by an underwriter or lender to fund,
purchase, or insure a loan”. If you feel that you may be asked to break the laws on
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your mortgage application, at the very least, consult your council because
ignorance of the law is no excuse. This fraud is also highly perpetrated by insiders.
Other types of Loan Fraud.
Other types of loan fraud may include applying for loan with a fake identity,
forging loan documentation, or even posing as a financial institution I order to
collect down payment on an alleged loan and disappearing after receiving the cash.
Wire fraud
Wire fraud is defined as attempting to defraud using electronic means, such as a
computer or telephone. What must be proved is that the person knowingly and
unlawfully devised or intended to advice a scheme to defraud. Since the advent of
the internet, there are literally thousands of crimes that fall under the definitions of
wired fraud. Here we will be looking at some of the more common forms of wired
fraud, why they occur and how you can protect yourself.
Fraud indicators
There are various indicators as to who might be involved in fraud and these may be
manifested through the change in behavior, speeches or physical appearance of an
employee.
Behavioral indicators
An employee who always seems to stay at work a little later than everyone else or
who wants to leave after the supervisor has gone.
A formally outgoing employee who has become withdrawn.
An employee showing signs of drugs or alcohol abuse.
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An employee who refuses to take any vacation or other time off.
Physical indicators
Signs of altered timesheet that a supervisor is requested to approve.
Signs of correction or overrides made to stock accounts sheet or goods received
voucher.
Indicators of photocopies or otherwise suspicious looking supplier invoices
submitted for approval.
Signs of non-business expenditures incurred while on a business trip that are being
charged to the organization.
Internet fraud
The internet fraud offers a global marketplace for consumers and business. But the
crooks also recognize the potentials of cyber space. The same scams that have been
conducted by email and phones can now be found on the World Wide Web and in
emails and new cyber crimes are emerging.
It is sometimes hard to tell the difference between reputable online seller and
criminals who use the internet to rob people.
You can protect yourself by learning how to recognize the danger signs of fraud. If
you are a victim or attempted victim of internet fraud, it is important to report the
scam quicly to the law enforcement agencies so they can shut down the fraudulent
operations.
Examples of internet fraud include but not limited to the following as there are
emerging ones each and every day:
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1. Advance free loans
2. Credit card offers
3. Business opportunities
4. Charity scam
5. Fake cheque scam
6. General merchandise
7. Government grant
8. Nigerian Money offer(419)
9. Investment scam
10. Travel fund
11. Pyramid and multilevel marketing
12. Phishing
13. Information/adult service
14. Identity theft
15. Scholarship scam
16. Online auction
17. Work from home scam
18. Job scam
Cheque fraud
Checque fraud is one of the oldest types of financial crime. Even in our computer
and internet technology era, many consumers still prefer to pay by cheque or
bankers drafts. The cause of this is the people do not trust the computer technology
and have misconceptions about online banking. This is to some extent
understandable because of the fact that most of these humans are computer
illiterates and what is unknown to the human mind causes fear or rejection. This
fear however is totally obsolete because statistics has shown currently that online
banking is now safer than cheques.
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To protect yourself from cheque fraud I will be giving you some guidelines and
necessary precautions you should take before receiving or sending a cheque. It is
also strongly recommended that you responsibly inspect and analyze the cheques
The three main types of cheque fraud are:
Counterfeit cheques-these cheques are not written or authorized by
legitimate account holders. The existence of counterfeit cheques is supported
by new technology. The thieves now use printers, copiers, and software’s to
make clone cheques with high resemblance to the original. Many times these
are hard to recognize as false even by experts.
Stolen cheques-cheques not signed by account owner, rather stolen,
usually out of the glove box of cars or homes. The signature is then forged
and cheque used as pleased. Interestingly other documents not well protected
and have signatures are used to clone the signature.
Altered or Forged Cheques- this check is properly issued by the
account holder but has been intercepted and the beneficiary or the amount on
the cheque being altered or new information added. To do so, sharp
instruments and chemicals are used.
Closed accounts- Bank account which are not used anymore or are
closed, but cheques still exist for these accounts. if these cheques are not
destroyed, you can be a potential victim
New accounts- an identity is stolen or made up with false documents. If a
fraudster personal document and some potential information, he can request
a bank account in your name. Bankers unknowingly accept these request and
open new accounts, giving the scammer the opportunity to steal money from
individuals or businesses in your name.
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Overpaid checques- a false cheque is issues by your “business partner”
with a larger sum than required. The thief will then ask if he can get the
change, making up different excuses why he transferred the overpaid sum.
The cheque is false and will be declined by the bank and you will end up
losing the amount you gave out in exchange.
Measures to adopt to ensure that your cheques are not or cannot be
forged after they have been prepared and signed.
Leave not gaps in your words
Always draw a line after the name, amount and elsewhere any space is left
Use full and correct names for all information
Prohibit transfer of cheques
Never pre-sign cheques
Don’t leave your cheque books in your car as large percentage of stolen
cheques are taken from cars
If you close an account, destroy any remaining cheques relevant to that
account
Measures to take when receiving a cheque
Check for an ID .only take driver’s license, personal ID or passport; don’t
take other Ids confirmation as they are relatively easier to fake. Even then be
cautious. These documents can also be forged.
Compare the signature on ID against cheque signature any other specimen
Ask the issuer the cheque to give you their home telephone number and
may be some sort of personal information, compare the number in your
phone book and call the person at home
Refuse cheques written with a pencil or cheques with signs of being altered
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Be wary of accepting cheques not signed in front of you or single cheques
not being torn out of the checkbook. Thieves often steal just one or two
cheques to gain time before the owner suspects the missing leafs.
Don’t give change on cheques
Insider must beware of Checque gifts
People who are cashing cheques end up losing funds when the bank realizes the
cheques are false. That’s so because people are held responsible for anything they
deposit into their accounts.
Ecobank fraud case
THE FINANCIAL Division High Court yesterday sentenced an Ecobank Cashier and her
husband to 25 years' imprisonment each for stealing various sums of money from accounts of the
bank customers.
The couple was found guilty of stealing over GH¢700,000 from the accounts of Church of
Pentecost and Teacher's Fund.
The cashier, Linda Edzidor, was charged with 94 counts of stealing while her husband Joshua
Edzidor faced four counts of abetment of crime and dishonestly receiving.
According to the prosecution, the cashier, who had worked at Ecobank Ring Road branch for the
past four years, between the months of May and October 2010, withdrew GH¢ 655,526,
GH¢31,120 and GH¢ 655,526 from the accounts of Church of Pentecost headquarters, La
District Church of Pentecost and Teacher's Fund Financial Service respectively, and invested
them into businesses.
They had allegedly used the money to buy two 4×4 vehicles, four taxis and acquired a vast land
at Pokuase for a Real Estate company.
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In addition, Joshua formed Strong Foundation Company and opened an account at Ecobank for
it. Some of the stolen money was deposited in the Ecobank account to run the said company.
The court presided over by Justice Bright Mensah observed that the prosecution, led by a
Principal State Attorney, Evelyn Keelson, was able to prove the guilt of the convicts without
reasonable doubt.
The judge observed from the evidence that it was Joshua who encouraged his wife to steal the
money, as Linda sent him the stolen money every two weeks.
Justice Mensah found them guilty on all the counts and sentenced each to 25 years' imprisonment
in hard labour, but the sentences are to run concurrently.
The judge also ordered that the money and the property acquired by the convicts should be
confiscated and given to the bank.
Before conviction, their lawyer, J. K. Yeboah, prayed the court to temper justice with mercy
because the convicts were young and had two children.
Facts in court disclosed that in October last year, some customers, including the Pentecost
Church, complained of strange withdrawals from their accounts.
The bank therefore commenced investigations into the matter and discovered that Linda was the
one who withdrew the money without any authorization from the bank.
The bank then invited her for questioning but she did not honour the invitation as she continued
to feign sickness and gave flimsy excuses.
This made the bank contact her husband, who gave an undertaking that he was ready to pay the
amount involved.
However, the bank handed the case to the police for further investigation, leading to their arrest
and subsequent sentencing.
By Mary Anane
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REFERENCES
http://www.modernghana.com/news/358665/1/ecobank-cashier-jailed-for-fraud.html
http://www.ecobank.com/sc_it.aspx
http://www.fraud.org./
http://www.fraud.org/internet/intinfo.htm
Best Practice Series: Fraud and Prevention Handbook
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