Pub. 3 2014 Issue 2

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 18 SECURITY OFFICER’S BY-WORD DOES IT ADD UP? ALWAYS VERIFY! By Charles M. Towle, KBS President Kansas Bankers Surety, Topeka, Kansas A BANK USED AN EXCEL SPREADSHEET TO balance its correspondent account. Each week the items recorded in the bank records, but not yet recorded by the correspondent bank (and vice-versa), were listed on a spreadsheet. The total of the reconciling items plus the amount shown in the account by the correspondent bank was compared to the amount the bank showed in its general ledger for the correspondent account. The balancing function was rotated regularly between three different people. Occasional balancing problems led to the discovery of inadvertent errors which were quickly corrected. When a new employee was being trained to help with the balancing of the correspondent account, the employee started by deleting all of the prior entries on the spreadsheet and questioned why the total in one column was $67,000 instead of zero. In researching the question, the trainer found that someone had buried a fixed number in a formula which added an extra $67,000 to the total on one side of the spreadsheet. The bank employees then used a calculator to add up the columns on the previously printed reconciling spreadsheets. They found that one column had not added up properly for over nine months and the amount of the difference had grown over time. It was then determined that one of the employees, who sometimes reconciled the correspondent account, had been stealing money. She was hiding the theft by debiting the correspondent account on the day before she was scheduled to balance the correspondent account and then changing the formula so that the total would be the actual total of the reconciling items plus the amount she stole. As long as no one added up the columns by hand, it appeared the correspondent account was in balance. At another bank, during a routine exam, a meticulous examiner added up the demand deposit accounts and came up with a total of over $3,000,000 more than the control total shown on the DDA General Ledger of the bank. The bank was asked to provide its regular reconciliations of the deposit accounts to the control total which appeared to always balance. The bank generated its normal balancing report and the subsidiary ledger totals appeared to balance with the control totals in the general ledger. But when the bank examiner added up the individual totals of the various different types of demand deposit accounts, he came up with a much higher number. It was determined the report programs had been modified so when the sum of the various types of demand deposit accounts were totaled, the formula also subtracted a specific amount. This forced the total amount to agree with the bank’s general ledger control totals. The bank actually had over $3,000,000 more in customer deposit accounts than it carried in its general ledger as the demand deposit account control total. Further investigation revealed that over a period of several years, a bank officer had been causing money to be wired to an account he had set up in another bank. That account had a similar name to the bank’s discount broker partner. When the wires were completed, he would complete debit and credit tickets crediting the Fed Wire account and directly debiting the DDA General Ledger control total without debiting any deposit account. He would then edit the formula for the report function that added up the various types of demand deposit accounts so the reports would show the total deposits in the bank were actually less than the sum of all customers demand deposit accounts. When the matter was discovered, the crooked officer had been stealing for more than ten years and had stolen over $3,000,000 from the bank. When a bank is balancing its records using spreadsheets, everyone should also verify that the totals of a column actually add up to total shown at the bottom. When a bank has report programs, any edits to the report programs should be reviewed by at least two other people to make certain all formulas in the programs are legitimate. Bank auditors and examiners should consider verifying that the underlying subsidiary ledger accounts actually add up to the totals in the bank’s general ledger. Computers are both reliable and necessary to us, but they can also be manipulated to make it appear that things are in balance when they are not. Do not assume that a total at the bottom of a list of numbers is the total of the list. Verify it. For more information, please give us a call at (785) 228-0000.