This document discusses fraud prevention, detection, and management. It defines fraud as a deception practiced to gain unfair advantage or cause loss to another party. Fraud can originate from clients or employees and can occur at any stage of the loan process. The document then lists and describes different types of fraud, including those perpetrated by borrowers, loan officers, supervisors, and other bank staff. It emphasizes that while fraud cannot be eliminated, it can be prevented and controlled by minimizing motivations and opportunities through strong internal controls and compliance with policies. Uncovering fraud often happens through management discoveries or reports from staff, clients, or audits.

1. Fraud Preven+on, Detec+on, Management
Girlie Lopez
MABS
2010 RBAP‐MABS Na.onal Roundtable Conference
Hya= Hotel and Casino, Manila
June 2‐3, 2010

2. • DEFINED
– A decep.on deliberately prac.ced in order to secure
unfair or unlawful gain or causing loss to another party
• Fraud may originate from clients and/or
employees of the bank.
• Fraud can happen in all stages of the loan process
– loan solicita.on, collec.on, account monitoring,
and delinquency management.

3. DIFFERENT FACES OF FRAUD

4. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
“Ride‐on” Loans





Bribes




Commissions




“Processing Fee”



Over‐appraised collateral 

Dummy Accounts




Ghost Accounts




False iden.fica.on 




5. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Recycled Borrower




6. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Non‐remi=ance


of collec.on
Non‐issuance of OR 

Altering OR details


Fake OR 

Lapping 

Cashing‐out cheques


“Hold‐up”


Altering MIS records 



7. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Inten.onal Mispos.ng 
Unauthorized



withdrawal

8. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Non‐remi=ance of 

penalty fees
Unauthorized
restructuring or 

extension
“Foreclosure scams”


Wri.ng‐off recoverable 

accounts

9. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Overclaiming/



False claim of expenses
Stealing discounts



“Private Business”




False benefit claims





Financial reports 
manipula.on

10. HANDLING FRAUD

11. While fraud cannot be totally eliminated,
it can be prevented and controlled.

12. • Essen.al components why fraud occurs
– Mo.ve
– Opportunity
1. Internal control systems are loose
2. Policies are not being followed
3. Managers and owners run the business on the basis of
“trust” rather than “sound internal controls”
• The benefits of preven.on outweigh the costs.

13. • “Ul.mately, reducing the risk of fraud is a ma=er
of good management, of crea.ng a work
environment that reduces the incen.ves for
employees to commit fraud.”
Richard Hook
Microenterprise Development Brief, June 1995.

14. • Tips:
– Minimize mo)va)on to commit fraud:
Ins.tu.onalize a culture of professionalism, to include
honesty and compliance
– Close the window of opportunity to commit fraud:
Evaluate your bank’s Internal Control System
effec.veness, its policies and implementa.on, based on
iden.fied risk areas.

15. • Main ways in which fraud may be uncovered:
1. Discoveries by management, usually emerging from
management monitoring and controls;
2. Rou.ne policies/system or specific audit checks;
3. Opera.ons review;
4. A “.p” from a concerned individual – either internal
or external party
• Learn to “think like a thief to catch a thief”

16. • Tips:
– Check proper implementa.on of management controls
– Do documenta.on checks
– Do trend analysis
– Review properly‐generated MIS reports
– Have competent, courageous, and efficient auditors
– Do regular opera.ons review – preferably not from the
opera.ons team
– Do field valida.on visits
– Set‐up customer hotlines

17. • Managing the Inves.ga.on:
– Consider how to minimize any further loss;
– Ensure that adequate resources are provided to carry
out the inves.ga.on;
– Subject to appropriate disciplinary procedures from the
Human Resource directorate;
– Iden.fy and preserve all original documents and other
exhibits rela.ng to the intended complaint
– Submit .mely reports to management, third‐party
stakeholders, and regulators
– Define the .meline from report submission to
implementa.on of sanc.ons

18. • Recovery of Loss:
– Quan.fy any loss and account for affected loans/
deposits
– Seek recovery of losses from:
1. Bonds – fidelity, property, cash
2. Personal assets
3. Legal ac.on

19. • Public Rela.ons:
– Coordinate any public rela.ons work
– Decide and manage informa.on dissemina.on
– send a clear and firm message that fraud is taken seriously
and will not be tolerated

20. • Aher the Inves.ga.on:
– Iden.fy system weakness/es
– Assign responsibility for making changes to address
weaknesses. Set an ac.on plan.
– Check if revisions were made and if these revisions are
working efficiently

21. FRAUD:
Can be prevented, detected and managed
Maraming Salamat po!