Pub. 4 2015 Issue 5

In a world where banks are increasingly more automated, it can be easy to overlook a financial institution’s human factor. Banks are organizations comprised of people, whose operations rely considerably upon these employees’ interactions. Banks entrust these employees to act as the hands, face, and eyes and ears of the bank: they process transactions, they build relationships with their customers and community, and they are often able to observe and detect suspicious activity long before management. However, just because employees may be well positioned to detect fraudulent behavior doesn’t necessarily mean that they’ll feel comfortable reporting it. In this article, we will take a closer look at key steps your bank can take to promote internal communication and help mitigate fraud. This could have helped a certain bank in the following incident: A bank had some customers come in to make payments on their loans. When the bank’s tellers could not find a corresponding loan on the books to credit, they referred the customer to another employee whom I will refer to as Mary Ann. These off-the-record loans were referred to as “the Mary Ann loans”. Mary Ann, a longtime employee, believed that some of the bank’s customers were unfairly denied loans. She decided to begin making undocumented loans to these customers. Originally, Mary Ann loaned a few hundred dollars of her own money to fund the “Mary Ann loans”, but these loans quickly outgrew her ability to use her personal funds. She then started “borrowing” money from a trust for which the bank was trustee. Over forty people received these “Mary Ann loans” over a twenty-year period. Some of the loan recipients paid back their loans, while others simply continued to borrow more and more money through Mary Ann’s undocumented process. It was not until the trust was found to be missing over $1,000,000 that the problem was discovered. When interviewed, every teller said they always thought it was suspicious, but they assumed everyone in the bank was aware of the “Mary Ann loans”. Additionally, the tellers said that they did not know whom to contact to report the suspicious activity. The Importance of Open Communication THIS IS ARTICLE 2 OF 7 STAY TUNED FOR MORE