B3 Fraud Intrnl Cntrl Presentation
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This document discusses fraud prevention and internal controls for banks. It defines fraud and outlines common types of internal and external fraud such as forgery, misposting of deposits, fictitious loan accounts, and check kiting. It also describes key internal controls including proper accounting records, independent balancing, division of duties, dual control, and rotation of duties. The document emphasizes that strong internal controls can help prevent fraud from occurring and ensure the accuracy of bank records.
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B3 Fraud Intrnl Cntrl Presentation
- 1. Fraud & Internal Control
- 2. Introduction “ While fraud cannot be totally eliminated, it can be prevented and controlled.”
- 19. Remember: “ An ounce of prevention is better than a pound of cure”.
- 32. Creating an Action Plan After identifying the improvements needed in your bank’s Internal Control Systems, you will now create a workable Action Plan. This will serve as your guide in implementing the changes and improvements in the next few months.
Editor's Notes
- Many bank owners, senior bank officers, and regulators of the banking industry are very critical about “microfinance” because of the following issues: It is very labor intensive, It is very costly to manage and, It is very risky (has lots of internal control issues to address) The first two issues are very much related to financial aspects , and can be addressed by the bank owners during the financial projection activity conducted during the product designing stage. The third issue is the most challenging of all since it involves the entire operations of the bank’s microfinance unit. This training module is intended for MF consultants, officers, owners of MFI’s and staff. At the end of this training, it is expected that the participants are made fully aware of the risks facing their microfinance operations, the necessary internal control measures that could mitigate risk and the importance of putting these measures in place all the time. Next slide
- Banks and other institutions dealing with finance are highly exposed to fraud originating from clients and/or employees. While this cannot be totally eliminated, management should aim at preventing and controlling fraud to protect its assets and reputation.
- Today’s discussion is specially designed for Branch and field officers, Executives and Internal Auditors/Compliance Officers. Its main objective is to enhance your awareness of the importance of sound Internal Controls in your bank. Secondly, we hope to remind you once again of the damage that fraud can do, especially to the bank’s image. Finally, we hope that at the end of this workshop, participants will be able to evaluate the internal control systems of their respective branches. The major output for this workshop is a workable Action Plan that each bank will agree to follow in implementing and/or improving their Internal Control Systems over the next few months.
- The following is a list of basic internal controls: Read the list…
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- Read slide and give examples. It is important to check on inactive document and closed accounts as well to ensure that fraud is not being committed in classifying or managing these accounts.
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- Restrictions in hiring relatives of directors and officers of the bank and those applicants who are strongly recommended by valued clients must be strictly observed. Officers and employees of the bank should be restricted from processing transactions of their relatives and friends. A very classic example is the processing of loan applications of bank employee’s relatives.
- All banks have existing Internal Control Policies. But the big problem lies in the implementation. It is management’s primary responsibility to see to it that the day-to-day operations of the bank are being guided by sound policies. Perpetrators know very well which banks are easy to manipulate on the basis of its existing policies. Once they get the impression that your bank has very tight controls, they won’t dare to try. Your very own employees will never be tempted to defraud their own bank if Internal Controls are in place.
- Now, what can fraud do to the bank? Read bullets one by one. After the last bullet: As we can see, a business could suffer both financial and non-financial damages, if fraud hits its operations. Depositors will take out their money if they know that bank employees could run away with their deposits. Loan clients will also stop paying if they know that collectors could run away with their loan payments. If the fraud involves big sum of money, victim clients sue the bank not only for direct reimbursement but with some remuneration for damages. Having seen the magnitude of the bad effects of fraud to the bank, would it still be prudent for the bank to do microfinance? As mentioned several times, the absence of controls in the micro credit process is only a perception. Under the MABS approach of doing microfinance, proper internal control systems are integrated into the entire credit process. There are interventions done by another individual in between steps, to review and validate the work of the AO’s. Next slide…
- Just like a dreaded disease, fraud if detected in its very early stage can be treated. But if detected too late, it can bring your bank to the edge of bankruptcy.
- Read slide. Internal fraud is caused by employees of the bank while external fraud is caused by clients.
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- Read the slide.. Then add: If tolerated, this usually becomes a vicious cycle for some businessmen until it reaches a point when they can no longer accurately monitor their checks in circulation.
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