2. • DEFINED
– A decep.on deliberately prac.ced in order to secure
unfair or unlawful gain or causing loss to another party
• Fraud may originate from clients and/or
employees of the bank.
• Fraud can happen in all stages of the loan process
– loan solicita.on, collec.on, account monitoring,
and delinquency management.
4. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
“Ride‐on” Loans
Bribes
Commissions
“Processing Fee”
Over‐appraised collateral
Dummy Accounts
Ghost Accounts
False iden.fica.on
5. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Recycled Borrower
6. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Non‐remi=ance
of collec.on
Non‐issuance of OR
Altering OR details
Fake OR
Lapping
Cashing‐out cheques
“Hold‐up”
Altering MIS records
7. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Inten.onal Mispos.ng
Unauthorized
withdrawal
8. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Non‐remi=ance of
penalty fees
Unauthorized
restructuring or
extension
“Foreclosure scams”
Wri.ng‐off recoverable
accounts
9. Possible Perpetrators
Fraud Type Other
Borrower Center AO Supervisor Others
Officers Bank Staff
Overclaiming/
False claim of expenses
Stealing discounts
“Private Business”
False benefit claims
Financial reports
manipula.on
11. While fraud cannot be totally eliminated,
it can be prevented and controlled.
12. • Essen.al components why fraud occurs
– Mo.ve
– Opportunity
1. Internal control systems are loose
2. Policies are not being followed
3. Managers and owners run the business on the basis of
“trust” rather than “sound internal controls”
• The benefits of preven.on outweigh the costs.
13. • “Ul.mately, reducing the risk of fraud is a ma=er
of good management, of crea.ng a work
environment that reduces the incen.ves for
employees to commit fraud.”
Richard Hook
Microenterprise Development Brief, June 1995.
14. • Tips:
– Minimize mo)va)on to commit fraud:
Ins.tu.onalize a culture of professionalism, to include
honesty and compliance
– Close the window of opportunity to commit fraud:
Evaluate your bank’s Internal Control System
effec.veness, its policies and implementa.on, based on
iden.fied risk areas.
15. • Main ways in which fraud may be uncovered:
1. Discoveries by management, usually emerging from
management monitoring and controls;
2. Rou.ne policies/system or specific audit checks;
3. Opera.ons review;
4. A “.p” from a concerned individual – either internal
or external party
• Learn to “think like a thief to catch a thief”
16. • Tips:
– Check proper implementa.on of management controls
– Do documenta.on checks
– Do trend analysis
– Review properly‐generated MIS reports
– Have competent, courageous, and efficient auditors
– Do regular opera.ons review – preferably not from the
opera.ons team
– Do field valida.on visits
– Set‐up customer hotlines
17. • Managing the Inves.ga.on:
– Consider how to minimize any further loss;
– Ensure that adequate resources are provided to carry
out the inves.ga.on;
– Subject to appropriate disciplinary procedures from the
Human Resource directorate;
– Iden.fy and preserve all original documents and other
exhibits rela.ng to the intended complaint
– Submit .mely reports to management, third‐party
stakeholders, and regulators
– Define the .meline from report submission to
implementa.on of sanc.ons
18. • Recovery of Loss:
– Quan.fy any loss and account for affected loans/
deposits
– Seek recovery of losses from:
1. Bonds – fidelity, property, cash
2. Personal assets
3. Legal ac.on
20. • Aher the Inves.ga.on:
– Iden.fy system weakness/es
– Assign responsibility for making changes to address
weaknesses. Set an ac.on plan.
– Check if revisions were made and if these revisions are
working efficiently
