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Below some of the Lapses & Improvements from the report of Analysis of Top 100 Bank Frauds published by CVC. Apart from failure of controls systems, its alarming to see connivance of Valuers, Chartered Accountants/Chartered Engineers, Advocates, Auditors in these top 100 high profile cases.
Systemic Improvement:
Bank must immediately delist such third party valuers, Chartered Accountants/Chartered Engineers, Advocates etc. who have questionable credentials/have been negligent in their professional duties or have caused financial loss to the bank by their willful acts of omission/commission/dishonesty. A periodical review of all empanelled professionals should to be ensured by banks for weeding out undesirable third party service providers.
For frauds in Sectors : Gem & Jewellery Sector, Agriculture Sector, Trading Sector, Information Technology (IT) Sector
Loopholes/Lapses :
The Company had committed the purported fraud with the connivance of Chartered Accountant of the agency responsible for due diligence. The balance sheet of the company does not reveal true picture of the financial position of the company.
Systemic Improvement:
The Government should consider examining the role of third parties such as Chartered Accountants, Advocates, Auditors and rating agencies that figure in accounts related to bank frauds and put in place strict punitive measures for future deterrence.
For frauds in Sectors : Media Sector
Systemic Improvement:
The Banks should pay the required attention to internal control and fraud prevention measures in addition to instructions issued by them from time to time. The controlling offices should play their role of overseeing the functioning of branches effectively.
For frauds in Sectors : Service/Project Sector
Systemic Improvement:
The monitoring system should be strengthened to detect the frauds. Offsite monitoring by the offsite monitoring cell at Head Office and respective Regional Offices should also be strengthened.
For frauds in Sectors : Discounting of Cheques & other issues
Systemic Improvement:
The business model, especially in an IT company needs to be understood in its entirety. Highly technical/complex projects need to be subjected to independent verification by subject expert, invariably.
The Government should consider examining the role of third parties such as Chartered Accountants, Advocates, Auditors and rating agencies that figure in accounts related to bank frauds and put in place strict punitive measures such as cancellation of the registration by respective regulatory authorities for future deterrence.
For frauds in Sectors : Information Technology (IT) Sector
Loopholes/Lapses:
The Chartered Accountants including Statutory Auditors tended to collude and conspired to be a party in submitting false, fabricated and misleading financial statements and certificate to the institutions/banks with the only intention of obtaining disbursement of the financial assistance.
Systemic Improvement :
Fraud monitoring in financial services should be a specialized area and a specialized cadre may be created to monitor and investigate such cases. The skill gaps in banks should be addressed through proper training.
Management of fraud risk in large value advances need a comprehensive approach. It requires being changes in mindsets, fine tuning of work progress and human resources skills. Banks need to have a system of real time information sharing among them. To deal the fraud effectively, there has to be better support from enforcement agencies coupled with strong legislative.
For frauds in Sectors : Export Business Sector
Loopholes/ Lapses:
In SWIFT system one bank official is designated as a maker, another verifier and third as authorizer. All have different logins and passwords and work independently of each other. But in the case all functions were performed by a single person.
Systemic Improvement:
CBS-Finacle should be integrated with SWIFT (STP-Straight Through Processing) for all payment messages.
Each and every login into SWIFT system would be only through biometric authentication thereby virtually preventing any unauthorized login through password compromise.
SMS alert feature should be introduced wherein all SWIFT users will get an alert message in their mobile phones for every login into the SWIFT with their roll number and password including failed login attempt.
The access to SWIFT connect should be restricted based on IP address-only 2 PCs per branch should be permitted.
For frauds in Sectors : Fraud Committed by Staff member (Letter of Comfort)