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Preventing Bank's Fraud and Forgery
This document discusses fraud prevention at Summit Bank Limited. It defines fraud and notes that banks are susceptible to both internal and external fraud due to their operations. All employees are responsible for preventing fraud by complying with laws, rules and procedures. The key elements of an effective anti-fraud program are a strong control environment, risk assessment, control activities, information and communication, and ongoing monitoring. Common types of bank fraud include fake instruments, unauthorized transactions, and cybercrimes. Red flags that could indicate fraud include changes in an employee's lifestyle and behavior. Thoroughly knowing banking operations, employees, risks, and investigating anomalies are important for mitigating fraud risk.
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Preventing Bank's Fraud and Forgery
- 2. 1 FRAUD IS ANACT WHICH INTENDED TO CAUSE WRONGFUL GAIN TO A PERSON AND A WRONGFUL LOSS TO ANOTHER. THIS IS A DILEBERATE ACT OF OMMISSION OR COMMISSION
- 3. 1 Due to theinherent nature of banking operations, banks are always susceptible to fraud both internal and external. It is therefore important that all those who work in Summit Bank Limited (SMBL) are aware of the risk and means of enforcing the rules against fraud, dacoits, theft and other illegal acts involving dishonesty or damage to Bank's assets.
- 4. 1 Duties and Responsibilities Employees,Supervisors, Branch Managers, Group & Department Heads at all levels are responsible for setting the appropriate tone of intolerance for fraudulent act by complying with all laws, rules, regulations, policies and procedures. The above noted staff required to be aware of the types of the fraud that could occur within their area of responsibility
- 5. 1 Following 5 keyelements are attributed as the basis for effective antifraud program for prevention and timely detection of fraud. a) Control environment. b) Risk Assessment. c) Control activities. d) Information and communication e) Ongoing monitoring
- 6. 7 INSIDERS OUTSIDERS COLLUDING INSIDERS & OUTSIDERS PARTIESCOMMITTING BANK FRAUDS
- 7. 10 OPPORTUNITY THE FRAUD TRIANGLE RESEARCHSHOWSTHAT FRAUD DO NOT OCCUR RANDOMLY. THREE FACTORS ARE NECESSARRY FOR A FRAUD TO OCCUR
- 8. • THIS MOTIVATESTHE INDIVIDUAL TO COMIT FRAUD. THE INDIVIDUAL BELIEVES THAT HE CAN NOT SHARE THIS WITH ANYONE AND THEREFORE KEEPS IT A SECRET INTENTION • THIS REFERS TO THE SITUATION THAT ENABLES THE FRAUD TO OCCUR. THIS MAY EXIST IN FORM OF WEAK CONTROLS OR SUPERVISION. OPPORTUNITY • THIS INVOLVES THE PERSON COMMITTING FRAUD JUSTIFYING HIS ACTION THAT ARE NOT ACCORDING TO NORMS OF TRUST AND DECENCY JUSTIFICATION 11
- 9. BREAK THE FRAUDTRIANGLE BY BREAKING THE OPPORTUNITY LINK PRESSURE OPPORTUNITY RATIONALIZATION ORGANIZATIONS HAVE THE GREATEST CONTROL ON OPPORTUNITY BY IMPLEMENTING STRONG CULTURE OF INTERNAL CONTROLS, SUPERVISION AND SEGREGATION OF DUTIES OCCURANCE OF FRAUDS CAN BE REDUCED 13
- 10. 1 Impact of fraudon Banks Financial Loss Brand Image & Reputation Customer confidence Regulator confidence Shareholder confidence It is difficult for marketing people to get business Effect bank rating category
- 11. COMMON RECURRING FRAUDS •Fake/ forged instruments • Sharing of Passwords • Fake/ forged inward remittances • Tampering of AOFs and SS Cards • Fake/ forged share applications • Temporary Use of customers' Deposits for own purposes • Illegitimate ATM withdrawals • Manipulation of Pledged Stock
- 12. COMMON RECURRING FRAUDS •Illegitimate Foreign Remittances • Unauthorized Issuance of ATM Cards • Illegitimate On-Line Transactions • Unauthorized issuance of Cheque Book • Illegitimate Transactions in Customers' Accounts • Unauthorized Issuance of ATM Cards • Benami Transaction
- 13. COMMON RECURRING FRAUDS •Unauthorized Retention of Cheque Leaves of Closed Account • Illegitimate Transactions in Fake Accounts • Unauthorized use of customers' overdraft facilities by Staff • Illegitimate Transactions in Staff Accounts • Misappropriation of Cash in hand
- 14. COMMON RECURRING FRAUDS OnlineBanking Fraud Schemes • Most online banking fraud schemes involve two steps. • First, the criminal obtains the customer's account access data, i.e. logon name and password. • Second, the criminal uses this information to transfer money to other accounts and withdrawals the funds. For the first step, criminals have employed different schemes in the past:
- 15. 8 • Utility BillFraud • Unauthorized sale and purchase of foreign currency • Unauthorized use of cash • Prize bond fraud • Cheque Wash • Cheque Kiting • Parallel Banking Frauds in Advances • Unauthorized facility or excesses in facility • Agricultural credits • Facilities against fictitious security • Fraud in title documents • Fraud in pledged goods • Fraud in Trade Documents • Fraudulent exports COMMON RECURRING FRAUDS
- 16. 8 Fictitious Accounts Encashment /Collectionof Counterfeit/Forged Instruments Fraudulent Operation in Photo Account Window Dressing Misuse of Inactive Account Cash Shortage Consumer Products Related Frauds Issuance of Remittance in Absence of Funds Bogus Statement of Account Misappropriation in Bank Income COMMON RECURRING FRAUDS
- 17. 8 Un-Authorized Lien Removal fromDeposits Misappropriation of Withholding Tax Personal Usage of Un- Rented Lockers Bogus Agricultural Finances Shortage/Unauthorize d Lifting of Pledged Stocks Theft /Removal of Contents of Lockers COMMON RECURRING FRAUDS
- 18. Fraud - AlternateDelivery Channel Credit card /ATM /Debit fraud (scam) Advance fees fraud Carding & Skimming Phishing & Pharming Crime ware Money laundering
- 19. Signature Verification andFraud Detection
- 20. Fraud vs. Forgery FraudForgery • Deliberate deception • Unlawful • Unfair advantage • Body of fraud – Intention – Opportunity – Justification • Imitating • Counterfeiting • Altered • Replicate the original
- 21. Pressure indented Carbon medium tracing Tracing Transmitted light tracing Simulation AutoForgery Non-Genuine Signature Categories
- 22. Simulation/Free hand forgery •Genuine signatureas model •Artistic reproduction of the original •Skill and adequate amount of practice •The original signature is memorized and practiced •Less tremor/not shaky JUDGEMENT •Speed •The more rapidly the pen moves the more difficult it becomes to replicate the genuine •Concentrate on the minute details •Forger focus on large characters •Divergence in smaller and less prominent letters •Some of the forger’s own handwriting characters may appear
- 23. Transmitted Light Tracing Carbon medium Tracing Pressure indented Tracing •Paperto receive the spurious signature is placed over the document bearing genuine signature •Use of carbon as a medium •Ghost image of the signature •Use of thick ink pen to over write the ghost image •Similar to carbon tracing •No use of carbon medium •Pressure leaves indented signature on the receiving document TRACING
- 24. Striking features Simulation/Free HandAuto-forgery • Significant characters/letters similar • Miss the interior sub titles or small characters • Similarity to genuine – Large prominent characters • Significant characters/letters different • Once making a significant alteration comes back to his normal style • Similarity to genuine – Small/ intricate details
- 25. Key points tocheck true signature • Blunt starts and stops • Pen lifts and hesitation • Tremor • Speed and pressure • Patches • Slant of the writing • Connecting points of different words • Y & g loops
- 26. SMBL CHEQUE INKSECURITY UV Inks Magnetic Ink Penetrating/ Bleed Through Ink SMBL PRINTING SECURITY Litho/ Offset Printing Letter Press Printing Rainbow Printing Thread color under UV lamp
- 27. 27 Fraud Red Flags Each one of you, whether you are a branch manager, internal auditor, investigator or have other operating responsibility, must do your part in recognizing and preventing Economic Crimes. Red Flags are warning signs and should alert you to be on guard. They do not always point to criminal activity but deserve your attention. 60% - 70% of the bank’s Fraud / losses are a result of employee related frauds. Watch for these warning signs. They may give you advance notice of an employee theft.
- 28. 28 Fraud Red Flags-personal Life Style A discrepancy between earnings and lifestyle should cause concern. Any sudden / dramatic improvement in lifestyle should be questioned. Be ware of changing story on an employee’s improved wealth – rich aunty, lottery, inheritance willed by an unknown uncle?? Significant Changes in employee habits, behavior must be watched. E.g.. An employee with previous poor dress sense suddenly up with fashions and changed personality.
- 29. 29 Fraud Red Flags-personal Minimal Absenteeism. Staff who do not take time off or vacation may be avoiding risk that their replacement will discover their illegal activity. An employee who is never sick and never takes annual leave must be watched. Rotation policy. Reluctance of staff to be transferred in spite of protracted stay at one branch. Unusual / Inconsistent behavior Anything out of the ordinary deserves further inquiry.
- 30. 30 Fraud Red Flags- Remote Locations. Fraud is more likely to occur at remote locations where supervision and controls are least effective. Checks and Balances. Beware of situations / transactions that are not properly authorized, approved or recorded. Documents are missing. Significant accounts not reconciled on timely basis. Passwords/ Keys etc. Never compromise or allow others access to your personal passwords, or keys of strong-room, safe vault etc.
- 31. 31 Fraud Red Flags- Individuals familiar with operations and in a position of trust are more likely to commit frauds. Dominant top managers may abuse their authority in the commission of crimes. Employees given too much trust may abuse their authority. Transactions involving friends and relatives should be scrutinized. ineffective monitoring, ineffective rotation etc. hinder early detection of frauds..
- 32. Know your SOPs/ Regulator Guideline s Know your people .Internal /& external Know your risk indicators Investigate what does notmake sense The use of computer assisted audit techniques (CAAT) can significantly enhance the effectiveness of monitoring activities GOLDEN RULES FOR MITIGATING FRAUD RISK