The document discusses preventive vigilance measures to reduce fraud. It outlines why vigilance is important to discipline wrongdoers, protect the honest, and increase transparency. Specific areas that require vigilance are identified, such as transactions with high discretionary powers, complex rules, and opportunities for corruption. Preventive measures are proposed for various types of fraud including loans, mortgages, dormant accounts, and the CBS environment. The importance of honesty, whistleblower policies, and proactive prevention over punitive actions after the fact are emphasized.

1. Preventive Vigilence
Dr. D V Srinivasa Rao, Faculty, IMAGE
GOOD AFTERNOON
An
Interaction
on

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Class Flow
? ? ? Vigilance angle
Vigilant functions
Punitive
Vigilance
Preventive
Measures
Whistle Blower
Policy
Fallout
of
Frauds

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What? Why? Where?
‘Vigilance’ for
keeping careful
watch to avoid
possible danger or
difficulties.

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Why Vigilance ?
1. Disciplining the wrong doers;
2. Protecting honest performers;
3. Increasing transparency and fairness;
4. Ascertaining accountability;
5. Reducing wastages/leakages;
6. Promoting culture of honesty and integrity; and
7. Reforming systems for corruption-free delivery.
8. Vigilance is a Management Tool
In brief; it helps in striving for zero tolerance for corruption
and thereby enhancing the image of the organization.
In brief; it helps in striving for zero tolerance for corruption
and thereby enhancing the image of the organization.

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Where Vigilance ?
Vigilance is essential in every unit of the organization and
that is why it is stressed that every manager & staff becomes
vigilant. However, a focused attention is required in each unit
where:
1. Officials have high discretionary powers;
2. There is scope for doing wrong things;
3. Rules and procedures are complex;
4. Accountability is low;
5. Delay in decision making
6. Opportunities to negotiate make money and
7. Individuals are known to be corrupt.

6. Mind-boggling 1.6 lakh frauds took place between 2009-10 and 2012-13
Nationalised banks account for just 17.5 per cent of the fraud cases
But contribute 83 per cent of the cumulative losses of Rs 29,910 crore
Over 94 frauds involving a sum of over Rs 50 crore were reported by PSBs
adding up to a whopping Rs 10,081.7 crore. private sector only 6 & foreign banks 3

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Main reasons:
New Technology
Active involvement of Staff
Violation of laid down systems and procedures
Non adherence to preventive vigilance measures
Apathy amongst staff members
Lack of oversight by the managers on deviation
from systems and procedures
Business pressures to meet unreasonable targets
Lack of tools to identify potential tools

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WHAT IS VIGILANCE ANGLE ?
-Demanding / accepting illegal gratification
-Obtaining valuable thing with / without inadequate
consideration from a person with whom he is likely to
have official dealings
-Obtaining for himself or for any other person any
valuable thing or pecuniary advantage by corrupt /
illegal measures or abusing his position as a public
servant
-Possessing assets disproportionate to his known source
of income
-Misappropriation / cheating / forgery or other similar
criminal offence

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Vigilance functions
Punitive
Vigilance
Surveillance
Vigilance
Preventive
Vigilance
Punitive
Vigilance

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Negligence
Blatant Violation
Recklessness
Exceeding discretion
Actions attracting punitive Vigilance
Non/Not Reporting
Gross and willful negligence
In decision making
Systems & Procedures
Exercise of discretion where no
ostensible or public interest is evident
Failure to keep controlling
authorities informed in time

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Misappropriation
KYC / AML
Loans
CBS
Environment Bribery
?
? ?
Branch Official
Controls
& Systems
Preventive Vigilance
Jewel loan
Dormanta/cs

12. Lapses
 Customer Identification procedure not
followed
 Monitoring of transactions not done
 Connivance / collusion with customers
 Recklessness / Negligence / Blatant violation
of systems / procedures
Preventive Measures:
◊ Identification of Customers
◊ Categorisation of customers
◊ Suspicious Transactions
◊ Monitoring of Transaction
KYC & AML

13.  Full KYC exercise required to be done at least every two
years for high risk individuals and entities.
 Full KYC exercise will be required to be done at least
every Ten years for Low risk and at least every Eight
Years for medium risk individuals and entities.
 Positive confirmation (obtaining KYC related updates
through e-mail / letter / telephonic conversation / forms /
interviews / visits, etc) will be required to be completed at
least every two years for medium risk and at least every
three years for low risk individuals and entities

14.  No middlemen to be entertained under any
circumstances
 Loans to be disbursed directly to the vendors
 Follow Terms of pre – post sanction
 Loan documents should be secured safely
 Ensure end use and asset creation
 Cross verification of documentation by BM of
another branch
 CIBIL report should be scrutinized
 Conduct Stock and Receivables Audit periodically
 2 Valuation reports and title investigation reports
in respect of loans of > Rs. 1 Crore, where
collaterals are available
FRAUDS IN LOANS
Preventive Steps

15.  Proper due diligence on the builder /
seller / borrower and property
 Independent visit and discreet and
detailed enquiries
 A thorough study on loan proposal and
related papers
 Independently obtaining and verifying
Encumbrance Certificate / Search
Reports
 Registering EM in favour of Bank
 Inclusion of Flat Number in the plan
itself to be insisted
FRAUDS IN MORTGAE LOANS
Preventive Steps

16. Borrower: Careful choice of customer –
Extensive Enquiry / Cross Verification of details
declared – Visiting his residence / Office / Place
of business / Enquiries in his office /
neighbourhood – Verification of salary with the
employer
Builder: Reputation / Integrity of the builder – Details to be
brought in the proposal
 BPO to be in the name of Builder with Account Number
and Bank Name
 BPO not to be handed over to borrower. Depute an
officer to deliver to builder / seller with
acknowledgement
 Verify the name of borrower from original registry /
records of builder / Society / SIDCO
FRAUDS IN MORTGAGE / HOME LOANS
Preventive Steps

17. Advocate:
 No middlemen including borrower for obtention of Legal Opinion
 Unqualified Legal Opinion
 Advocate must visit SRO / Authorities for verification of
genuineness of documents, EC, POA, Will, Death Certificate, etc.
Every page of document to be verified for genuineness
 Final Legal Opinion to be obtained on receipt of Registered Sale
Deed – No discrepancies between Agreement to Sell and Final
Sale Deed
Engineer:
 Approved Engineer must visit the property preferably with an
officer discreetly without the knowledge of the party – to be
recorded – Boundaries of the property – Photograph
 Discreet enquiry with neighbour regarding ownership
 Verifying approved sanction plan for genuineness
 Make market enquiries about the value of the property – record
FRAUDS IN MORTGAGE / HOME LOANS
Preventive Steps

18.  Certificated copy of title deeds should not be accepted for EM
creation – Exceptional cases with permission
 EM created by POA Holder
Confirmation from the owner for having conferred POA for EM
creation
Legal opinion regarding flow of title, genuineness of property
documents
Validity and genuineness of POA to be confirmed by Panel
Advocate
POA – Irrevocable and registered
To obtain confirmation from the owner regarding authority to
sell
 Third party property as security – More due diligence – the
reasons – their interest – Permission from Zonal Head
 Verification with the CAs who have signed the financial papers
FRAUDS IN MORTGAGE / HOME LOANS
Preventive Steps

19.  If there are bulk applications from a single
organisation, visit the organisation and verify salary
details
 If the number of applications are few in number, send
a copy of the salary certificate to them and ask them
to confirm its genuineness
 While sending, do not send to authority mentioned in
the salary certificate; Send it to some higher
authority
 Find out telephone number and speak to the
organisation
FRAUDS IN SALARY LOANS
Preventive Measures

20.  Tagging with identification card for JL packets
 Keys of Jewel Safe in dual custody
 To be operated by both the custodians
 Maintenance of Jewel Control Register
 Custodian taking charge should verify no. of
packets
 Verifying / tallying with Control Register once in
a month
 Verification of contents once in a quarter by
custodians
 Jewel Appraisers
JEWEL LOAN FRAUDS
Preventive Measures

21.  Obtain life certificate for Pension accounts in
November every year
 Be cautious when there are large volume of
transactions in pensions accounts
 Be vigilant when there is sudden operations in
the inoperative accounts
 Insist for physical presents in case of illiterate
 Verify photograph, signature, previous entries in
pass book before making payment
 Passbook updation has to be done
 Ensure submission of pass book wherever the
payment is made against withdrawal slip
FRAUDS IN DORMANT ACCOUNTS
Preventive Measures

22. Preventive Steps:
 Practice Honesty, Integrity and Sincerity
 Honesty should be genuine and real and not
false or fictitious
 Not keeping commitments amounts to dishonest
behavior. Honesty inspires openness reliability
and frankness. It shows respect for one’s self
and others
 ‘When people tell lies, they lose credibility. Once
they have lost credibility, even they tell the truth,
no one believes them’
 ‘There is enough in this world for man’s need but
not for man’s greed’ – Mahatma Gandhi
BRIBERY – CORRUPTION
PECUNIARY GAIN
SUPPRESSION OF FACTS

23.  Maker-checker concept to be strictly followed
 Maker should prepare, post and checker should
authorize
 VVR checking should be done meticulously
 Attend to missing vouchers immediately
 Office accounts to be reconciled on regular
periodicity
 Control returns to be thoroughly verified
 “Must see Reports” should be compulsorily seen
FRAUDS IN CBS ENVIRONMENT

24. • Always keep your password hard to guess
• Avoid relatives’ names, your date of birth,
wedding date, date of joining, etc.
• Always have an alpha-numeric password,
preferably interspersed with characters such
as dot, hyphen, star, etc.
• Never write down your password anywhere.
Keep it only in your memory.
• Keep changing your password as often as you
can. Frequent change of password is a
deterrent for others to use your password
FRAUDS IN CBS ENVIRONMENT
Preventive Measure

25. • When going on leave, ensure that your user ID is
deactivated
• Never leave your terminal open even for a minute, if you
have to be away from the computer for attending phone
call or for going to the toilet or for drinking water, or for
any reason
• Although the system logs you off after a specified time
of no-activity, any mischief is possible before the
system does auto logoff
• Generate and check other reports such as cash
transaction reports
• Rotate checking of VVRs and other reports among the
officers periodically and with an element of surprise
• Beware of repetitive operations for small amounts in the
same account in a day or during consecutive days
• Such operations in cash payments are a sure sign of
fraud
FRAUDS IN CBS ENVIRONMENT
Preventive Measure

26. • Part of effective Corporate Governance to promote
culture of openness, setting standards of public services
and compliance with rules and regulations
• A mechanism for all staff members to report, in good
faith, to the management concerns about unethical
behaviour actual or suspected fraud or violation of
Bank’s Code of Conduct
• Whistle Blower is only an reporter not an investigator
• Designated Authority
• No Whistle Blower will be victimised
WHISTLE BLOWER’S POLICY

27. Fallout of fraudsFallout of frauds
Loss to the BankLoss to the Bank
Funds locked up by way of provisionsFunds locked up by way of provisions
Reputational RiskReputational Risk
Employee MoraleEmployee Morale
Loss of livelihood for the employeeLoss of livelihood for the employee
who committed the fraudwho committed the fraud
Disciplinary proceedings againstDisciplinary proceedings against
other staff for attendant lapsesother staff for attendant lapses

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Final word………Final word………
 Establish a comprehensiveEstablish a comprehensive
system of controlssystem of controls
 Reshape fraud detection effortsReshape fraud detection efforts
 Use advanced analytics andUse advanced analytics and
related tools, software andrelated tools, software and
applications to obtain moreapplications to obtain more
oversightoversight

29. 10/29/15 Dr. D V S Rao
Thank U
Thank You…Thank You…
Major reason why people commit fraud is
because they are allowed to do so.
Have Vigilance friendly approach
Do not wait for fraud to take place
&
Then chase and punish the guilty
Take proactive action
So that
the mischief itself does not take place
Updated on 28.10.2015