Frauds in banking

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CHAPTER 1
INTRODUCTION
Fraud is a type of criminal activity,
Defined as:
'Abuse of position, or false representation, or prejudicing someone's rights
for personal gain'.
Fraud is an act of deception intended for personal gain or to cause a loss to
another party.
The general criminal offence of fraud can include:
Deception whereby the someone knowingly makes false representation or
they fail to disclose information or they abuse a position. Fraudsters are
always finding new ways to trick you out of your money. You could find
yourself targeted through emails, phone calls, letters, social networking sites
or even chat rooms.
Frauds and scams in Indian financial can be divided into following
broad categories.
Bank frauds
Insurance frauds
Mutual fund frauds
Financial market frauds
Other financial institution frauds

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PAYMENT SYSTEMS IN BANKING
Key participants
Reserve Bank of India
CCIL, Stock Exchanges
Clearing Houses
Banks
Other entities
Mission:
To ensure that all the payment and settlement systems operating in the country
are safe, secure, sound, efficient, accessible and authorized.
Apex body:
The Board for Regulation and Supervision of Payment and Settlement Systems
(BPSS)
FRAUDS IN PAYMENT SYSTEM
Paper based
Cheques
Dividend/Interest warrants Demand Drafts/Pay orders
Electronic
CTS (Cheque Truncation System)
RTGS/NEFT
ECS – Debit and Credit
ATMs
Credit cards including prepaid
Internet Banking
Mobile Banking

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CHAPTER 2
FRAUDS IN BANKING
DEFINITION
Bank fraud
Bank fraud is the use of potentially illegal means to obtain money,
assets, or other property owned or held by a financial institution, or to obtain
money from depositors by fraudulently posing as a bank or other financial
institution.
“A deliberate act of omission or commission by any person, carried out in
the course of a banking transaction or in the books of account maintained
manually or under computer system in banks, resulting into wrongful gain to
any person for a temporary period or otherwise, with or without any monetary
loss to the bank.”
Definition of the term ‘Fraud by RBI
Fraud can loosely be defined as “any behaviour by which one person
intends to gain a dishonest advantage over another". In other words, fraud is an
act or omission which is intended to cause wrongful gain to one person and
wrongful loss to the other, either by way of concealment of facts or otherwise.

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Fraud, under Section 17 of the Indian Contract Act, 1872, includes any of the
following acts committed by a party to a contract, or with his connivance, or by
his agents, with intent to deceive another party thereto or his agent, or to induce
him to enter into the contract.
Though Reserve Bank of India had not given a specific definition of the
term, it has, for quite some time now, been monitoring the nature, volume and
magnitude of frauds in certain sections of the financial sector that fall under its
jurisdiction.
The reporting of fraud cases by banks was prescribed by RBI way back
in July 1970.
In 2005-06, the prescription of reporting of fraud cases was extended to
urban cooperative banks and deposit taking NBFCs registered with RBI.
In March 2012, NBFC-ND-SIs (systemically important, non-deposit
taking NBFCs) having asset base of Rs. 100 crore and above were also brought
under the reporting requirements.
While online reporting and monitoring of fraud cases by the banks has
been in place since May 2004, the reporting by UCBs and NBFCs is still in
manual format.

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CAUSES OF FRAUDS IN BANKING
1. Greed
good old fashioned human nature intervenes when an individual, or group
of individuals, sees a chance to make ‘a fast buck’. A good example being those
cases where people ‘adjust’ their expense claims upwards.
2. Lack of transparency
Complex financial transactions that are difficult to understand are an ideal
method to hide a fraud. The Barings fraud was perpetrated by use of an
accounting ‘dump account’ that no one understood.
3. Poor management information
Where a company’s management information system does not produce
results that are timely, accurate, sufficiently detailed and relevant; the warning
signals of a fraud, such as ongoing theft from the bank account, can be
obscured.
4. Excessively generous performance bonus payments
The more generous the bonus, when coupled to a demanding target; the
more temptation there is to manipulate results, such as yearend sales figures, to
reach that target.

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5. Non independent internal audit department
Where an organisation’s internal audit department is not independent, e.g.
where it does not report to a truly independent audit committee but to the
Finance Director, the more likely that when there are signals that a fraud is
occurring the more likely they will be ignored. It is indeed interesting to note
that Cynthia Cooper (Head of Internal Audit at WorldCom) had to bypass her
boss (the CFO) and go directly to the audit committee to report the discovery of
the capital expenditure fraud.
6. Lack of clear moral direction from senior management
leadership comes from the top. Where the senior management indulge
themselves in ‘semi corrupt’ behaviour, e.g. adjusting their expense claims
upwards, others will follow adopting the well worn mantra ‘everyone’s at it’.
7. Excessively complex organisational structure
Designed to obfuscate the revenue streams; and so hide reality from third
parties, such as the Internal Revenue.

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CATEGORIES OF BANK FRAUD
There are three categories of frauds classified by
“Ghosh committee.”
1. Insiders
2. Outsider
3. Both

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TYPES OF BANK FRAUD BY INSIDER
1. Deposit Account Frauds:
Accounts opened without introduction or with improper introduction,
frauds under this head are generally attempted at the time of opening of new
branch when such emphasis is not paid on objection of introduction. Once the
account is opened , the miscreant deposits, stolen/materially altered cheques for
collection/payment etc. A dormant account is fraudulently operated by a forger
on forged signatures. Specimen signature card or signatures on letters are
utilized as models. Joint accounts are operated by one of the signatories (forger)
by forging the signatures of others. Mini deposit collections are not deposited
by the collecting banker.
The banker manipulates the depositor’s Pass Book.
2. Purchased Bill Frauds:
The frauds in this area are often costly. They can take the following forms:
Bogus or stolen railway receipts and motor transport receipts
accompanied by counterfeit bills are discounted.
Fake bills with inflated value, drawn on sister concerns, for discounts.
Genuine bills and railway are presented and got discounted from the
bank but the material is got released from the railways on indemnity
bond.
Bogus bills for worthless goods are discounted on the strength of
dispatch papers.

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3. Hypothecation Frauds:
Cash advances, against pledged goods, as security are fertile fields for
frauds. Stocks or part thereof, are removed unauthorised from the god owns.
Advance against pledge/hypothecation of securities, pledging inferior quality
of goods, overvaluation of stocks.
4. Loan Frauds:
The general policy of the government is to encourage loans to
agriculturists or to small artisans and businessmen. Infect, certain targets for
these purposes are fixed for the banks. In the initial stages, it resulted in
losses to the banks due to lack of expertise in the field.
The following types of fraud were perpetrated.
Loans are taken by different persons on the same time.
Nomadic artisans obtain loans and vanish from the scene.
False firms appear everywhere and obtain loans.
Loans taken for agricultural development were later used as marriage
celebrations.
In connivance with the suppliers, farm machinery bills were inflated
for accessories which were never supplied and included in the bills.
Farm machinery purchased with loans and hypothecated to banks is
sold without informing the banks or returning the loans.
These frauds normally take place with the active involvement of staff or
where the books are exposed to the members of public. In such cases,
subsequently the record is destroyed.

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5. Cash shortages
Cash the most sensitive asset of the bank is prone to fraud. The
shortages of fraud there is generally due to carelessness/negligence of the
concerned staff who are the joint custodians of cash.
6. Frauds in Borrower accounts
Advance against clean/documentary bills purchased/discounted. The
borrower committed frauds by tendering fake bills/accommodation
bills/cheques for discounting. Later when the bills/cheques are received
unpaid, the banks find it difficult to recover the amount.
Advance under some priority sector schemes.
Advance granted in haste or at the behest of top management or any pressure
or some consideration.
Incomplete credit information, lack of post disbursement supervision.
Miss-use of discretionary powers or exceeding discretionary powers by
Managers /Officers.
7. Frauds in Investment Portfolios
Investment portfolio which constitutes a big chunk of the total assets
of a bank is another fraud prone area. The dealer in securities in the absence
of proper policy, direction and adequate system of checks and balances may
misuse the position for his personal gains to the detriment of bank’s interest
by putting through deals for passing on business to the brokers which are
otherwise not warranted by business considerations.

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8. Frauds in Foreign Exchange Areas
Frauds in this area are perpetrated in the dealing room operations,
documentary credits, export-import transactions, packing credit etc.
Some of the dealers have been put through fictitious deals with the help of
brokers due to lack of back-up functions.
9. Frauds in computerized environment
Hardware errors disable the working of any of the component of
hardware with a view to creating/temporary/permanent malfunction to either
destroy the data or present its disclosure for security. Program errors are
created by miscreants to cripple the system or to siphon off the funds to
unauthorized accounts or to prevent/reduce charges to select accounts. Data
entry errors are created by staff to give undue gain to interested accounts.
Errors are made to give a wrong picture of sensitive data such as balances,
classification of advances, outstanding dues, interest rate applied etc.
10. Frauds in inter branch and inter bank accounts.
Debiting bank accounts without remitting cash. Debiting branch
adjusting account without remitting cash. Adjusting branch books-clean
cash. Fraudulently debiting/ crediting Head office account. Debiting/ Credit
in various deposit accounts without authority.

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BANKER’S RESPONSIBILITY IN A FRAUD
Bank frauds crop up in all spheres of banking dealing, like: Cheque
frauds, Deposit account frauds, Purchased bill frauds, Hypothecation frauds,
Loan frauds etc. A dishonest banker can play havoc with the bank’s money.
The bank has therefore to sentinel itself and its customer’s against the deceitful
employee. The vicinity of business of the banker is extensive. The following
operational avenues have been noticed time and again.
Manipulation of cash by those handling cash, misappropriation of
customer’s deposit accounts, misappropriation of money in telegraphic
transfers, clearing forged cheques and other instruments, fraudulently while
working in clearing departments, creaming of the sundry accounts, tinkering
with the central accounts, accepting counterfeit currency for a consideration,
helping the bank robber, by giving information etc.
An analysis of frauds reported by banks to RBI broadly indicated that fraud.
Perpetrated on banks could be classified into the following categories
Misappropriation of cash tendered by the banks constituents and
misappropriations of cash remittance.
Withdrawal from deposit accounts through forged
documents/instruments.
Fraudulent encashment of negotiable instruments by opening an account
in fake /fictitious name.

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CHAPTER 4
FRAUDS BY OUTSIDER
The customers or outsiders, the word “Fraud” has been defined in
the Indian Contract Act. In short fraud is dishonesty leading to loss to someone.
Dishonesty is never accidental. Therefore there is always a swindler behind
each bank fraud. The number of bank frauds in India is substantial. It is
increasing with the passage of time. Bank frauds are due to the bunko and the
bungler bankers, situational pressures and permissive attitudes. Fraud has not
been defined in the Indian Penal Code directly. However sections dealing with
cheating, concealment, forgery, counterfeiting, misappropriation and breach of
trust cover the same adequately. Hence what this paper fundamentally tries to
focus on is on the banker’s responsibility vis-à-vis the reach of deception
therein, consequences of such incident and tries to look into the entire possible
panacea to such a menace in the society.
1. Bill Discounting Fraud
Bill discounting fraud refers to a type of fraud in which a fraudster
presents himself/herself as a genuine, profitable customer before a bank by
using a company. After that the company will regularly and repeatedly use the
bank to get payment from one or more of its customers and thereby give the
bank the picture of a desired customer. Since the customers in question are part
of the fraud these payments are always made. They will also actively pay any
and all bills raised by the bank. Eventually, when the bank is happy with the
company, the company will request the bank to settle its balance with the
company before billing the customer. Even after this, the fraudulent company
will carry on business along with its fraudulent customers and the unwitting

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bank. When the outstanding balance between the bank and the company is
sufficiently large, the company will take away the payment from the bank.
Subsequently the company and its customers will disappear leaving no-one to
pay the bills issued by the bank.
2. Forgery and Altered Cheques
A check that bears a forged signature of the drawer or payee is generally
not properly payable from the customer’s account because the bank is not
following the instructions of the depositor precisely as he gave them. The bank
is expected to be familiar with the authorized signature of its depositor. If it
pays such a check, Article 4 will treat the transaction as one in which the bank
paid out its own funds, rather than the depositor’s funds.
3. Accounting Fraud
The intentional misrepresentation or alteration of accounting
records regarding sales, revenues, expenses and other factors for a profit
motive such as inflating company stock values, obtaining
more favorable financing or avoiding debt obligations. Employees who commit
accounting fraud at the request of their employers are subject
to personal criminal prosecution.
4. Stolen Cheques Frauds:
Cheque frauds include frauds relating to customer’s cheques, banker’s
cheques (drafts) or traveller’s cheques. They are the most important frauds both
loss-wise.

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They take the following forms:
Issuance of Cheque Book under fake authority, frauds of this type have
taken place where the miscreants have first successfully obtained the
chequebook in the customer’s account and later got encased cheques
under forged signatures.
Frauds due to payment of materially altered cheques etc, these types of
frauds are very common. The miscreant obtains/steals the cheque,
materially alters the particulars of cheques and presents over the counter
for payment/collection in the account with introduction/fake introduction.
Payments of cheques under forged signatures, such types of frauds are
generally perpetrated by the employees/partners of the account-holders.
Stolen Drafts/TPO leaves and issuing drafts on other branch without
consideration under forged signature or otherwise, such types of frauds
are committed by the staff as well as outsiders.
5. Credit Card Fraud
Credit card fraud is a form of identity theft that involves an unauthorized taking
of another’s credit card information for the purpose of charging purchases to the
account or removing funds from it. Federal law limits cardholders’ liability to in
the event of credit card theft, but most banks will waive this amount if the
cardholder signs an affidavit explaining the theft.

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Credit card fraud schemes generally fall into one of two categories of
fraud: application fraud and account takeover.
1) Application Fraud
Application fraud refers to the unauthorized opening of credit card
accounts in another person's name. This may occur if a perpetrator can obtain
enough personal information about the victim to completely fill out the credit
card application, or is able to create convincing counterfeit documents.
Application fraud schemes are serious because a victim may learn about the
fraud too late, if ever.
2) Account Takeovers
Account takeovers typically involve the criminal hijacking of an
existing credit card account, a practice by which a perpetrator obtains enough
personal information about a victim to change the account's billing address.
6. Booster Cheques
A booster cheque is a fraudulent or bad cheque used to make a payment
to a credit card account in order to "bust out" or raise the amount of available
credit on otherwise-legitimate credit cards. The amount of the cheque is credited
to the card account by the bank as soon as the payment is made, even though the
cheque has not yet cleared. Before the bad cheque is discovered, the perpetrator
goes on a spending spree or obtains cash advances until the newly-"raised"
available limit on the card is reached. The original cheque then bounces, but by
then it is already too late.
Identity theft is also includes in frauds by outsider

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TYPES OF WHITE COLLAR CRIME
1. Bank Fraud
To engage in an act or pattern of activity where the purpose is to
defraud a bank of funds. Blackmail: A demand for money or other consideration
under threat to do bodily harm, to injure property, to accuse of a crime, or to
expose secrets.
2. Bribery
When money, goods, services, information or anything else of value is
offered with intent to influence the actions, opinions, or decisions of the taker.
You may be charged with bribery whether you offer the bribe or accept it.
3. Cellular Phone Fraud:
The unauthorized use, tampering, or manipulation of a cellular phone or
service. This can be accomplished by either use of a stolen phone, or where an
actor signs up for service under false identification or where the actor clones a
valid electronic serial number (ESN) by using an ESN reader and reprograms
another cellular phone with a valid ESN number.
4. Computer fraud:
Where computer hackers steal information sources contained on
computers such as: bank information, credit cards, and proprietary information.
Counterfeiting: Occurs when someone copies or imitates an item without having
been authorized to do so and passes the copy off for the genuine or original
item. Counterfeiting is most often associated with money however can also be
associated with designer clothing, handbags and watches.

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5. Currency Schemes:
The practice of speculating on the future value of currencies.
6. Embezz1ement:
When a person who has been entrusted with money or property
appropriates it for his or her own use and benefit.
7. Environmental Schemes:
The overbilling and fraudulent practices exercised by corporations which
purport to clean up the environment.
8. Extortion:
Occurs when one person illegally obtains property from another by
actual or threatened force, fear, or violence, or under cover of official right.
9. Forgery:
When a person passes a false or worthless instrument such as a check or
counterfeit security with the intent to defraud or injure the recipient.
10. Health Care Fraud:
Where an unlicensed health care provider provides services under the
guise of being licensed and obtains monetary benefit for the service.
11. Insider Trading:
When a person uses inside, confidential, or advance information to trade in
shares of publicly held corporations.

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12. Insurance Fraud:
To engage in an act or pattern of activity wherein one obtains proceeds
from an insurance company through deception.
13. Investment Schemes:
Where an unsuspecting victim is contacted by the actor who promises to
provide a large return on a small investment.
14. Kickback:
Occurs when a person who sells an item pays back a portion of the
purchase price to the buyer.
15. Larceny/Theft:
When a person wrongfully takes another person's money or property with
the intent to appropriate, convert or steal it.
16. Money Laundering:
The investment or transfer of money from racketeering, drug transactions
or other embezzlement schemes so that it appears that its original source either
cannot be traced or is legitimate.
17. Racketeering:
The operation of an illegal business for personal profit.
18. Securities Fraud:
The act of artificially inflating the price of stocks by brokers so that
buyers can purchase a stock on the rise.

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19. Tax Evasion:
When a person commits fraud in filing or paying taxes.
20. Telemarketing Fraud:
Actors operate out of boiler rooms and place telephone calls to residences
and corporations where the actor requests a donation to an alleged charitable
organization or where the actor requests money up front or a credit card number
up front, and does not use the donation for the stated purpose.
21. Welfare Fraud:
To engage in an act or acts where the purpose is to obtain benefits (i.e.
Public Assistance, Food Stamps, or Medicaid) from the State or Federal
Government.
22. Weights and Measures:
The act of placing an item for sale at one price yet charging a higher
price at the time of sale or short weighing an item when the label reflects a
higher weight.

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DEPARTMENTAL FRAUD
Bankers are trustee of public money whose legal obligation is to ensure
safety of customer’s funds. Hence the information about any kind of fraud
which is received by bank should be continuously handled by the banker at
proper time and in proper manner In Banks departmental fraud measures to
prevent it.
1. Cash department:
The cash department falls under overall charge of chief cashier or cashier
in charge who is responsible for its smooth functioning and generally has
custody of cash amount.
Frauds at cash department
Theft of cash from counter by outsiders.
Storage of cash with cashier at the end or beginning of a day.
Extra receipt/payment of cash.
Receipt/ payment of cash from other then cash counter.
Inadequate security and custody of cash.
Preventive measures:
An enquiry should be directed to inquire all the counters of the branch.
The cash given to cashier should be so regulated to meet the average
requirement.
Thus surprise checking should be done at frequent interval.
Cashier should not be allowed to make entries in passbook.
Token as well as signature of person or party should be ensured.
Proper system should be utilised for ensuring the exposure of cash
balance.

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Cash department should evolve suitable system of adequate security and
custody of cash and other valuables.
Cash department should evolve suitable system of adequate security and
custody of cash and other valuables.
The branch manager and other officials should have a liaison with police
authority for prevention of frauds.
2. Collection department:
Collection of cheque is one of the basic service which banker has to do
for their customer.
Opening an account without proper introduction.
Payment without verifying the regularity of endorsement.
No inquiry is made in doubtful cases.
Collection of account paying cheque for any other person than payee.
3. Clearing department
Misuse of clearing mechanism
Destruction of outward or inward clearing of cheque.
4. Current account department
Deposits of large volume instrument in recently open account. If not
monitored closely then fraud can take place.
Misuse of power by officers for passing the cash instrument.
Credit in the newly opened account was only through such collection or
not cash or transfer entries were routed through this account.

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5. Saving account department.
Saving account is opened with introduction of an imperative account
holder.
Identity of new account holder does not appear to have confirm through
independent mean before allowing collection of large value cheques in the
account and allowing withdrawal or huge amount from account.
6. Staff members
Frauds are also committed by staff members in connection with outsiders
or by himself. He may commit theft or misappropriate the fraud by passing a
fraudulent entry in books of accounts or not accounting of income due to bank
or claiming excess amount then his eligibility warranted by banks.
7. Time deposit
The major fraud is done by provision of investment. When a specific
account balance is not allied. Generally the person handling this department
makes excess provisions of interest in this account and withdraws the excess
investment at a letter day by debiting the account. The amount so debited is
afterwards credited to its personal account.

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CHANNELS OF FRAUDS
ATMs
Social engineering
Skimming
Unauthorized reversals
Internet
Phishing
Vishing
Mobile Banking
ELECTRONIC FRAUD
Fraudulent RTGS/NEFT requests.
Physical requests.
Through internet banking.
Speedy dissemination of fraud funds to various banks .
Withdrawal across the country through ATMs or cheques .
ECS frauds.
Changing account numbers for credit/debit.

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1. Password
When using the Internet, including Internet Banking, always try to use
hard-to-guess passwords.
Passwords will only keep outsiders out if they are difficult to guess! Don't share
your password, and don't use the same password in more than one place. If
someone should happen to guess one of your passwords, you don't want them to
be able to use it in a number of places.
2. Hoax email
Delete the email If you receive a hoax email, delete the email
immediately. Do not click on any links and do not open any attachments in a
hoax email. ANZ will not send you an email or SMS asking you to verify or
provide your account details, financial details, or login details for ANZ Phone
Banking, ANZ Mobile Banking or ANZ Internet Banking. ANZ’s email and
SMS policy is set out below.
3. Phishing
Is an attempt to fraudulently acquire sensitive information, such as
usernames, password sand credit card details, by masquerading as a trustworthy
entity in an electronic communication SMS/Text message: The Short Message
Service (SMS),
Often called text messaging is a means of sending short messages, to
and from mobile phones. Secure Mail: Is a messaging service within internet
banking used to inform customers about account or servicing matters. Secure
Mail is linked to a customer’s internet Banking account and can only be
accessed via logging on to Internet Banking.

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Protecting identity by following these tips
Report any loss or theft of documents such as driver licence, credit card
or passport immediately.
Obtain a copy of your personal credit file from a credit bureau at least
every six months to check on the status of your file.
Keep tax records and other financial documents in a secure place.
Cancel all unused or dormant accounts that you may have.
Secure your mailbox with a padlock where possible.
Respond only to contact numbers and addresses that exist on anz.com.
3. Protecting your computer
Is your computer and information protected from viruses? Ensure your
virus protection software is always up-to-date.
A computer virus is a program that attaches itself to another program,
but changes the action of that program so that the virus is able to
spared.
4. Safe Banking Over the Internet
As use of the Internet continues to expand, more banks and thrifts are
using the Web to offer products and services or otherwise enhance
communications with consumers.
The Internet offers the potential for safe, convenient new ways to shop for
financial services and conduct banking business, any day, any time. However,
safe banking online involves making good choices - decisions that will help you
avoid costly surprises or even scams.
This brochure offers information and tips to help you if you are thinking about
or already using online banking systems. We will tell you how to:
• Confirm that an online bank is legitimate and that your deposits are insured

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• Keep your personal information private and secure
• Understand your rights as a consumer
• Learn where to go for more assistance from banking regulators.
5. Shopping online
Shopping online has become a part of our lives but some still worry that
their credit card details will be given to the wrong person. Online shopping is
certainly here to stay and online security continues to advance. There are
arguments that shopping online can be safer than shopping over the phone or
even in person, as you never hand your card details over to another person. Just
remember to follow these tips to keep your online shopping a safe and secure
experience.
6. Account aggression services
Access to all your banking transactions at a glance. Account
Aggregation, is a browser-based product designed to offer you the convenience
of obtaining detailed financial information on all your accounts maintained with
us and other banks on a single screen.

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With Account Aggregation you can:
View account balances and transactions.
Have immediate access to all your account statements and unlimited
customization to fit your reporting requirements.
Download your account statements and reports onto your computer
eliminating the need to manually input data.
Have access to Web Security & Enablement Requirements
Multiple Accounts
Internet Access or Dial-up (Modem, PC, & Telephone line)
Data Exchange Arrangement if another bank is involved
More ways to manage your finances
Business Internet Banking service.
Free online business banking, 24/7.
Real time balances, statements and transactions.
Make payments (domestic and international) and immediate transfers
between accounts.
24/7 business telephone banking via GT Connect.
SMS alerts to help you keep track and manage your accounts.

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CHAPTER 7
ATM FRAUD
Automatic or Automated Teller Machines (ATMs) Are computerized machines
that are designed to performfunctions of a bank teller.
An ATM facilitates comfortable and convenient banking 24 hours a day, 7 days a
week - not necessarilyfromthe premises of your bank.
You can put your ATM card to use for buying as it directly pays from
your checking or savings account. Banks too benefit as theysave on operation cost
byreducing the number of visitors to their premises.
Preventing ATM fraud
Bank ATM cards are used to withdraw money, find balance in account and
transfer money. Credit cards are also used at ATMs to avail cash advance facility or to
make payments towards credit card transactions. These plastic cards provide access to
ATMs, connect to your account (Savings, Current or Credit card account) and facilitate
carrying out desired financial transactions. Generally individuals are exposed to ATM
frauds when the card is lost, the ATM card is handed over to someone else or when the
confidentialityof PIN is not adhered to.
Easy tips to protect from possible ATM frauds
1) Keep ATM card in your possession.
2) Maintain PIN Confidentiality.
3) Retain Transaction slips
4) Destroyunwanted slips.
5) Never trust strangers.
6) Don't rush.

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7) Maintain distance: Make sure that the person standing behind you cannot read
your transactions while operating the ATM. Some thieves resort to this 'shoulder surfing'
to retrieve sensitive ATM card information.
8) Retrieve card: After completing your transactions wait for the ATM to push out
your card. Never leave the ATM location without your card.
9) Destroyold cards.
10) Report to bank: If your card is misplaced, do report immediatelyto the bank and
request for a replacement. You can call up the 24-hour service or toll-free numbers and
deal with the evenlyat once.

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MOBILE BANKING FRAUDS AND REWARD
Mobile banking is a relatively new banking service that is rapidly gaining
popularity with consumers and businesses. More than half of the 100 largest
banks in the United States offer mobile banking and approximately 19 million .
households use this service. Analysts estimate use of mobile banking will
continue to grow, potentially expanding to 38 million households by
2015. However, with more widespread use comes the potential for increased
fraud that could harm financial institutions and customers.
Mobile banking is the use of a mobile device, commonly a cell phone or
tablet computer, to conduct banking activities, such as balance inquiry, account
alerts, and bill payment. It is not the same as mobile payments, which uses the
same mobile devices to initiate payments from a person to other people or
businesses. Mobile banking is offered by insured depository institutions while
mobile payments systems can be offered by many types of companies.
The technologies used to deliver mobile banking services, identifies the
potential risks to financial institutions and customers, and describes strategies
for mitigating these risks.
Mobile banking is offered through three delivery channels:
• Text messaging/short message service (SMS)
• Mobile-enabled Internet browser
• Mobile applications (apps).

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CHAPTER -3
FRAUDS BY INSIDERS
Bank frauds are the creation of professional criminals, desperate
customers or of errant bankers or their collusion inter se. However the prima
donna in the drama is the insider or the banker. He opens the purse. He is often
the target and at times the tool. Occasionally, he is the victim of the temptations.
Other contributory factors are incompetence, lethargy, negligence, connivance
and ignorance.
Situational pressures and permissive attitudes of the society promote
them. High gains and low stakes encourage the incidence. The rising trend
makes it more and more important that ways and means are found to combat the
menace. Fraud is any dishonest act and behaviour by which one person gains or
intends to gain an advantage over other person. The gain may accrue to the
person himself or to some on else. Fraud causes loss to the victim, directly or
indirectly. In earthly terms bank frauds include all sorts of misappropriations,
embezzlements, manipulations of negotiable instruments (cheques, drafts,
hundies , bills or statements of accounts, securities etc.). Also included are
misrepresentations, cheating, thefts, undue favours and irregularities.
The frauds may be intentional or incidental and can be committed by
1. The bank employees themselves,
2. The staff members of the banks in collusion or connivance with the
customers or outsiders.

FRAUDS IN BANKING
TYBFM Page 38
Whistle Blower Policy
The Reserve Bank of India (RBI) has introduced a whistleblower policy
for private and foreign banks that allows customers, shareholders, NGOs and
other members of the public to complain in confidence.
The complaints could relate to corruption, misuse of office, criminal
offences, suspected/actual frauds and failure to comply with rules. Public sector
banks and the RBI were already covered under the Central Vigilance
Commission (CVC) which is the 'designated agency' to receive written
complaints or disclosure on any allegation of corruption or misuse of office and
recommend appropriate action.
Fraud Policy
Incidence of frauds, robberies, etc., in banks is a matter of concern.
While the primary responsibility of preventing frauds lies with banks
themselves, Reserve Bank of India (RBI) has been advising them from time to
time about the major fraud prone areas and the safeguards necessary for
prevention of frauds. RBI has also been circulating to banks, the details of
frauds of an ingenious nature, not reported earlier so that banks could introduce
necessary safeguards / preventive measures by way of appropriate procedures
and internal checks. Banks are also being advised about the details of
unscrupulous borrowers and related parties who have perpetrated frauds on
other banks so that they could exercise caution while dealing with them. To
facilitate this ongoing process, it is essential that banks report to RBI complete
information about frauds and the follow-up action taken thereon. Banks may,
therefore, adopt the reporting system for frauds.

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CHAPTER – 9
FRAUD RISK MANAGEMENT / TECHNOLOGY &
FRAUD MITIGATION
Upgrading reader sorter machines
UV integration
Reading of security features
Sorting suspicious instruments into a different pocket
Transaction monitoring New accounts
Accounts with unsatisfactory conduct
Clearing accounts
Transaction monitoring in automated channels
Internet banking
ATMs
Mobile

FRAUDS IN BANKING
TYBFM Page 40
FRAUD GOVERNANCE
Fraud governance structure
Detailed fraud policy
Reporting to Board, Special Committee
Responsibility of senior management
Staff accountability for frauds
Fraud is not the responsibility of one department, it has to be
owned across the organization.
Fraud loss limits
Triggers for review of product features
Regular review of fraud prone areas by Special Committee

FRAUDS IN BANKING
TYBFM Page 41
TECHNOLOGY & FRAUD MITIGATION
Upgrading reader sorter machines
UV integration
Reading of security features
Sorting suspicious instruments into a different pocket.
Transaction monitoring
New accounts.
Accounts with unsatisfactory conduct.
Clearing accounts.
Transaction monitoring in automated channels
Internet banking
ATMs
Mobile
AWARENESS
Customer awareness
Newspapers & other media
SMS alerts
Emails
Staff awareness
Training program
Practical /Online
Culture building

FRAUDS IN BANKING
TYBFM Page 44
Case 3
Two banks were duped of Rs 25 crore .The banks were the Pune based Janata
Sahakari Bank and the Mumbai base Centurion Bank. They had discounted bills
under letter of credit that were issued by good
Trustworthy nationalized banks. The fraudster produced some attractive looking
(letter of credit) and follows Up by presenting bills of exchange drawn under
them supported by faked evidence of trade transaction. The Banks fell for bait
and discounted the bill. Dealing in bills under LC, is generally considered to be
safe because Payment is guarantee by the LC issuing bank, so long as the bills
are drawn according to the provision of LC. It Was only when the matured bill
was presented to for reimbursement by the negotiating bank to the bank that
Supposedly issued the LC that fraud was discovered. As the bank had not issued
the LC at all, it had no recourse To the drawer, who was nonexistent.

FRAUDS IN BANKING
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CHAPTER 11
RECOMMENDATION
To ensure smooth operation of the banking industry bank should ensure
efficient system of internal controls and that adequate internal control measures
are put in place to safeguard the assets the banks against theft. Misuse of
improper disbursements , ensure that all accounts are reliable and accurate. A
good internal organisation should be put in place by banks. This will ensure that
proper delegation exists, duties and job, are clearly divided and that job do not
overlap. Similarly, staff members should not have unlimited access to sensitive
machined and instruments like cheques, and official stamp. Data security should
be ensuring at all Times. The banks however, should make it a point to take
good care of their staff through fringe benefits and Incentives job at the bank
should be constantly rotated, so that no staffs stays in one position for too long.
Banks Management must also know their staff thoroughly well including their
background and antecedence. Banks should also know their customer very well
and proper documentation must be kept on all customers. Activities In the cash
area in banks must be monitored on a massive scale through the illustration of a
close circuit television the bank manager should ensure that qualitative
technique of control is practiced. Techniques such as constant inspections,
security control, enhance remuneration, reassignment of staff, penalties, and
fraud detecting equipments. Banks education seminar, electronic monitoring
equipments and use of adequate supervision of document accounts.

FRAUDS IN BANKING
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CHAPTER 12
CONCLUSION
Bank frauds are done to make money by cheating the banks. There are
several loopholes in banking system that has been use by fraudster. The
numbers of banks has been increasing year on year along with that, Reserve
Bank of India also engage in making the banking system accurate and secured.
Main reasons to growth in banking frauds are fastest growing technical
innovations in banking sector.
The challenge to a Bank…
Financial Loss
Brand Image & Reputation
Customer confidence
Regulator confidence
Shareholder confidence

FRAUDS IN BANKING
TYBFM Page 47
CHAPTER 13
BIBLIOGRAPHY
The content information is taken by following sites.
www.rbi.org.in
http://www.businessdictionary.com
http://www.rbi.org.in/scripts/BS_Speeches
http://www.business-and-management.org
http://www.anz.com/personal/ways-bank/security/online-security/tips-
protecting-
yourself
http://www.actionfraud

Frauds in banking

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