How to tackle Bank Frauds in India

All the major operational areas in banking represent a good opportunity for fraudsters with growing incidence being reported under deposit, loan and inter-branch accounting transactions, including remittances. A broad analysis of various frauds that have taken place throw up the following high-risk areas in committing frauds: Misappropriation of cash by fudging accounts. Unauthorized withdrawal or transfers of funds, mostly from long dormant accounts. Opening of fictitious accounts to misappropriate funds from illegal activities ie. Laundering through the fictitious accounts Use of interbank clearing for accommodation, kite-flying and misappropriation. Cheating in foreign exchange transactions by flouting exchange control provisions. Withdrawal from deposit accounts through forged documents. Fraud in collusion with bank staff in emerging areas and services under the computerized environment. Frauds take place in a financial system only when safeguards and procedural checks are inadequate or when they are not scrupulously adhered to, leaving the system vulnerable to the perpetrators. Anecdotal evidence shows that whether the agency or individual committing the fraud works for the bank or deals with it, careful planning is done by the culprit before he attacks the system at its most vulnerable point. The most effective defence banks could have against fraud is to strengthen their operational practices, procedures, controls and review systems so that all fraud-prone areas are fully sanitised against internal or external breaches. However, the huge expansion in banking transactions consequent to the transition of banks to mass banking and the large scale computerization have played a major role in the perpetration of the frauds.Hence mere reliance on the internal controls is of no use. The ten fold ”*INDIA FORENSIC” approach to tackle the bank fraud will definitely play a crucial role in coming days. Expect fraud:* Nowhere in the world the fraud can be avoided hence the banks can be no exceptions. It is a human tendency of taking the risk to commit the frauds if he finds suitable opportunities. So it is wise to expect the occurrence of the fraud. If the fraud is expected, efforts can be concentrated on the areas, which are fraud prone. Fraud is the game of two. The rule makers and rule breakers. Whoever is strong in the anticipation of the situations wins the game of frauds. Fraud is a phenomenon, which cannot be eliminated, but it needs to be managed. Develop a fraud policy . The policy should be written and distributed to all employees, Borrowers and depositors. This gives a moral tension to the potential Fraudster. Maintain a zero tolerance for violations. The Indian bank needs to roar against the action that is taken against the Fraudsters. The media publicity against the fraudsters at all the levels is necessary. The announcement by US president George W. Bush that the “Corporate crooks will not be spared” gave the deep impact to the Corporate America. In India also we need to consider it as a sever problem and need to fight against it. Assess Risk . Look at the ways fraud can happen in the organization. It is very important to study the trend and the style of frauds in the bank. Some of the big nationalized banks maintain the databases of the fraud cases reported in their banks. But the databases are dumb. They yield nothing unless they are analyzed effectively. Establish regular fraud-detection procedures. It could be in the form of Internal audit or it could also be in the form of inspections. These procedures alone discourage employees from committing fraud. In addition to this the Institute of Chartered Accountants of India has issued a “Accounting and Assurance standard on internal controls which is a real guideline to test internal controls . Controls break down because people affect them, and because circumstances change.
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mayur at indiaforensic dot com