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#Kdk at bank mgt conf 2010

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  • 1. “All hands on deck”the fight against fraudk.d.karydiasGroup OpRisk Officer
  • 2. Background Banking fraud is as old as the industry itself, and is one of the largest expenses faced by many financial institutions The economic effects of the market downturn are exacerbated by a surge in financial crime Financial pressures can lead the honest into dishonesty and open up new opportunities for criminals Fraud doesn’t appear in management best-sellers, in MBAs courses or as part of management training and consultancy. Business is awash with “best-practice” on generating and maximising profit, but woefully lacking in knowledge of how to minimise and manage losses 2
  • 3. Three MythsNot our organisation: management oftenoperates under the false impression that its bankis immune to fraudWe understand our fraud risks: Banks have beenfighting an enemy about which they know verylittle and even less about how to deal with themThe deterrent myth: fraud investigations have asignificant preventative effect 3
  • 4. Initial detection in Europe source: Report to the Nations ©2010 Association of Certified Fraud Examiners, Inc 4
  • 5. Source of tips Employees were the most common source of fraud tips Customers, vendors, competitors and other non- company sources provided at least 34% of fraud tipsFraud reporting policies and programs should bepublicised not only to employees, but also tocustomers, vendors and other externalstakeholders 5
  • 6. Anti Fraud Programs ...... must meet five primary objectives: Prevention, stop incidents of fraud occurring Deterrence, deter potential fraudsters from even attempting any fraudulent activity Disruption, make life as difficult as possible for the fraudster. Keep the fraudster on the move and under pressure Identification, a good fraud prevention strategy will help to identify high-risk activities and weaknesses in the control environment Legal action, effective strategies will reduce the likelihood of needing to resort to costly civil actions or time consuming and disruptive criminal proceedings 6
  • 7. Use of Technology Highly effective technology tools are available to detect and investigate fraud Anti-fraud software and electronic information resources are only as good as the individuals using them Even the most wonderful high-tech anti-fraud tools are not foolproof We must still rely on people to detect indicators of possible fraudulent activity and to blow the whistle 7
  • 8. P-D-R Responsibility Employee education is the foundation of preventing and detecting fraud Staff is the bank’s top fraud detection method Employees must be trained in what constitutes fraud, how it hurts everyone in the company and how to report any questionable activity Having the knowledge to Prevent, Detect and Report fraud is not enough to cut fraud losses. Make it the responsibility of everyone in the bank to use that knowledge to take action against fraud 8
  • 9. Red Alerts“Fraudsters exhibit behavioural warning signs of theirmisdeeds” This human element of fraud, demonstrated in red flags, is not identified through an audit or other traditional controls Staff should be trained to recognize these and other common behavioural signs that a fraud might be occurring encouraged not to ignore such red flags, even when discovered by accident, as they might be the key to detecting or deterring a fraud ACFE president James D. Ratley, 2010 9
  • 10. Know your PeopleMany fraud prevention experts use the so - called 20 - 60 - 20rule to illustrate the human component of fraud:  Approximately 20% of the people in any bank will never steal — no matter what  Their character and integrity are so strong that nothing could pressure or tempt them to do anything dishonest  Another 60% of the people in the bank are fence sitters, they are basically honest people  But if given the opportunity to commit fraud and the risk seems minimal to them, they might cross the line.  The remaining 20% are fundamentally dishonest, they will always commit fraud when the opportunity arises  In fact they will often try to create opportunities to steal or deceive if they think they will gain financially. 10
  • 11. Educating Customers customer education and awareness of fraud risk are vital both as detection and prevention means as well as a response to their concerns competing priorities within firms between fraud mitigation and ‘customer experience’ worries of  putting customers off by implementing controls which are more stringent than those of the competitors  exposing the bank to negative publicity 11
  • 12. Roadmap Consider fraud risk as an integral part of an overall corporate risk management strategy Develop an integrated strategy for fraud prevention and control Develop an ownership structure which cascades downwards throughout the organisation Introduce a fraud policy statement Introduce an ethics policy Actively promote the policies through the organisation Establish a sound control environment Establish sound operational control procedures 12
  • 13. Roadmap cont’d Introduce a fraud education, training and awareness programme Introduce a Fraud Response Plan, as an integral element of organisational contingency planning Introduce a Whistle blowing Policy & a reporting ‘hotline’ Constantly review all policies and procedures Constantly monitor adherence to controls and procedures Establish a ‘Learn from Experiences Group’ Develop appropriate information and communication systems 13
  • 14. Epilogue Fraud is a many splendid thing. Anything can happen anywhere and at any time. Stay alert!! “With a gentleman I am always a gentleman and a half, and with a fraud I try to be a fraud and a half.” Otto von Bismarck (1815-1898) 14