fraud prevention detection and management

FraudPreven+on,Detec+on,ManagementGirlieLopez

MABS

2010RBAP‐MABSNa.onalRoundtableConferenceHya=HotelandCasino,ManilaJune2‐3,2010

• DEFINED– Adecep.ondeliberatelyprac.cedinordertosecureunfairorunlawfulgainorcausinglosstoanotherparty

• Fraudmayoriginatefromclientsand/oremployeesofthebank.

• Fraudcanhappeninallstagesoftheloanprocess–loansolicita.on,collec.on,accountmonitoring,anddelinquencymanagement.

DIFFERENTFACESOFFRAUD

FraudTypePossiblePerpetrators

Borrower CenterOfficers

AO Supervisor OtherBankStaff

Others

“Ride‐on”Loans

Bribes

Commissions

“ProcessingFee” Over‐appraisedcollateral

DummyAccounts GhostAccounts

Falseiden.fica.on




Others

RecycledBorrower




Others

Non‐remi=ance

ofcollec.on

Non‐issuanceofOR AlteringORdetails

FakeOR Lapping

Cashing‐outcheques “Hold‐up”

AlteringMISrecords




Others

Inten.onalMispos.ng Unauthorized

withdrawal




Others

Non‐remi=anceofpenaltyfees

Unauthorizedrestructuringor

extension

“Foreclosurescams” Wri.ng‐offrecoverable

accounts




Others

Overclaiming/

Falseclaimofexpenses

Stealingdiscounts

“PrivateBusiness”

Falsebenefitclaims

Financialreportsmanipula.on

HANDLING FRAUD

While fraud cannot be totally eliminated, it can be prevented and controlled.

• Essen.alcomponentswhyfraudoccurs– Mo.ve– Opportunity1. Internalcontrolsystemsareloose2. Policiesarenotbeingfollowed3. Managersandownersrunthebusinessonthebasisof“trust”ratherthan“soundinternalcontrols”

• Thebenefitsofpreven.onoutweighthecosts.

• “Ul.mately,reducingtheriskoffraudisama=erofgoodmanagement,ofcrea.ngaworkenvironmentthatreducestheincen.vesforemployeestocommitfraud.”

RichardHook

MicroenterpriseDevelopmentBrief,June1995.

• Tips:– Minimizemo)va)ontocommitfraud: Ins.tu.onalizeacultureofprofessionalism,toincludehonestyandcompliance

– Closethewindowofopportunitytocommitfraud:

Evaluateyourbank’sInternalControlSystemeffec.veness,itspoliciesandimplementa.on,basedoniden.fiedriskareas.

• Mainwaysinwhichfraudmaybeuncovered:1. Discoveriesbymanagement,usuallyemergingfrom

managementmonitoringandcontrols;2. Rou.nepolicies/systemorspecificauditchecks;

3. Opera.onsreview;4. A“.p”fromaconcernedindividual–eitherinternal

orexternalparty

• Learnto“thinklikeathieftocatchathief”

• Tips:– Checkproperimplementa.onofmanagementcontrols

– Dodocumenta.onchecks– Dotrendanalysis– Reviewproperly‐generatedMISreports– Havecompetent,courageous,andefficientauditors

– Doregularopera.onsreview–preferablynotfromtheopera.onsteam

– Dofieldvalida.onvisits– Set‐upcustomerhotlines

• ManagingtheInves.ga.on:– Considerhowtominimizeanyfurtherloss;

– Ensurethatadequateresourcesareprovidedtocarryouttheinves.ga.on;

– SubjecttoappropriatedisciplinaryproceduresfromtheHumanResourcedirectorate;

– Iden.fyandpreservealloriginaldocumentsandotherexhibitsrela.ngtotheintendedcomplaint

– Submit.melyreportstomanagement,third‐partystakeholders,andregulators

– Definethe.melinefromreportsubmissiontoimplementa.onofsanc.ons

• RecoveryofLoss:– Quan.fyanylossandaccountforaffectedloans/

deposits– Seekrecoveryoflossesfrom:

1. Bonds–fidelity,property,cash

2. Personalassets

3. Legalac.on

• PublicRela.ons:– Coordinateanypublicrela.onswork– Decideandmanageinforma.ondissemina.on– sendaclearandfirmmessagethatfraudistakenseriously

andwillnotbetolerated

• AhertheInves.ga.on:– Iden.fysystemweakness/es

– Assignresponsibilityformakingchangestoaddressweaknesses.Setanac.onplan.

– Checkifrevisionsweremadeandiftheserevisionsareworkingefficiently

FRAUD:Canbeprevented,detectedandmanaged

Maraming Salamat po!