How to tackle Bank Frauds in India

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Segregate duties in critical areas . It is the absolutely basic principle of auditing a single person should not have the control of the books of accounts and the physical asset. Because this is the scenario which tempts the employee to commit the fraud. Hence it becomes essential to see that no one employee should be able to initiate and complete a critical transaction without involving someone else. Most of the banks in India have the well-defined authorization procedures. The allocation of the sanctioning limits is also observed in most of the cases. But still the bankers violate the authorities very easily. They just need to collude with the outside parties. However the detection of the collusions is possible in most of the cases if the higher authorities are willing to dig the frauds. Maintain the tone of Ethics at the top: The subordinates have the tendency to follow their superiors. When the signals are passed on to the middle management about the unethical behavior of the top management the fear of punishment gets reduced and the tendency of following the superior dominates. Fear vanishes when the tendency of “If I have to die I’ll take along the superior and die” tendency rises. Review and enforce password security . The incidences of hacking and the Phishing have troubled the Indian Private sector banks to a great extent. In addition to this most of the Indian banks are running behind the ATM and credit cards to compete with each other but have conveniently forgone the fact that ATM cards and the credit cards are the best tools available in the hands of the fraudsters. Inappropriate system access makes it possible to steal large amounts of money very quickly and, in many cases, without detection. Hence the review and the enforcement of the security policy is going to be a crucial. Promote the Whistle blowing Culture: Many of the surveys on Frauds have shown that the frauds are unearthed by the “TIPS” from insider or may be from outsiders. Internal audits and internal controls come much later. The message about contacting the vigilance officers is flashed in most of the branch premises. However the ethics lines are very rarely seen. The ethics lines are the help lines to the employees or the well-wishers of the bank which tells them whether a particular activity constitutes a fraud or not. Conduct pre-employment screening: Since the raw material of the Banks is cash the banker needs to be more alert than any other employer before they recruit. Only testing the aptitude of a person is not of any use. Know whom you are hiring. More than 20 percent of resumes contain false statements. Most employers will only confirm dates of employment. Some times post employment condition might create the greed in the minds of employee,hence atleast the bankers should test check the characters of their subordinates by creating real life scenarios such as offering the bribes by calling on some dummy borrower. Screen and monitor Borrowers: Bad borrowers cause the biggest losses to the banks. What are they ? Who they represent themselves to be? Look at their ownership, clients, references, and litigation history. In many cases the potential fraudsters have history of defaulting in some other bank or Financial Institution. Though this is not the foolproof solution to the disease of the frauds to some extent it helps to combat the frauds.
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mayur at indiaforensic dot com