Pub. 7 2017-2018 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S March • April 2018 13 employee, which can be the most damaging in the severity of what they are able to steal, and a relatively new employee, whosemotivations can include anything fromgambling or drug addiction—and the growth in desperation that comes with it. In the beginning, the employee may intend to take out a “loan,” paying back the money when possible. For example, Ewing recalls a situation in which an employee’s nephew was diagnosed with cancer and needed an expensive operation. The employee intended to pay the money back, but there were other expenses and the amounts stolen grew to hundreds of thousands of dollars. “It snowballs,” she says. “Any hope of repayment is gone.” Oftentimes there are clues or signs that may point to a dishonest employee. For example, look for signs of financial stress—employees needing help paying their mortgage or rent or unexpected medical expenses. Also watch for extravagant or unusual spending habits, such as expensive jewelry or cars and, in general, living beyond their means. The good news The good news is that there are ways to prevent and catch this type of crime. “Proper controls can go a long way to either eliminate or mitigate loss,” Ewing explains. “The big issue is how quickly you catch on to an embezzlement scheme. The longer it goes on, the larger the loss.” One successful method is the mandatory vacation policy— two weeks of uninterrupted vacation or, at a minimum, one full week, including the weekends before and after. Employees should not be allowed to enter the bank, use the drive-thru or remote into the bank’s systems. If the employee has a VPN (Virtual Private Network), it should be temporarily disabled so the employee can’t make transactions while on vacation. “In my 30 years in the banking industry, the most tried and true method of catching an employee is the mandatory vacation policy,” Collins said. Both Ewing and Collins agree that employees and some- times banks will fight it. Employees will say they are too busy to take that many days off. Smaller banks may say they can’t afford to have an employee out of the bank for that length of time. “Dishonest employees are crafty,” Collins adds. “They will stop in the office and say, ‘I left my cabin key onmy desk.’ Then they’ll log on and make a couple of changes to keep bad data from arising until they return.” Segregation of duties and job rotation is another way to minimize employee dishonesty. The idea behind having dual controls in a bank is to prevent an employee from following a transaction from start to finish. For example, Collins says, more than one employee should be involved in a loan trans- action; the bank employee who helps the customer fill out the loan application should not be the same employee who distributes the proceeds. Job rotation involves having employees trade duties. This serves as a deterrent because the dishonest employee knows that whatever gaps in internal controls exist will likely be closed by the other employee and the ability tomake fraudulent transactions over multiple years will go away. In addition, it’s especially important that banks have an open-door policy, so that employees feel comfortable confi - dentially reporting suspected employee dishonesty cases to management. Collins recalls a situation in which Las Vegas casinos paid for chartered planes to take a vault teller to and fromLas Vegas. “Everybody thought that was unusual, but nobody talked to anybody else at the bank until she was caught,” Collins says. “You will catch an awful lot of the bad guys with a policy that says if you see something, say something.” Unpredictable internal audits are another deterrent. Dis- honest employees will have a more difficult time hiding fraud if they don’t know when their cash drawers will be audited. Collins recommends that banks never go in an order when they audit banks and branches. There have been cases where employees of two bank branches collude. For example, if one employee takes $100,000 from a vault, a colluding employee from another branch will bring the $100,000 from his or her vault and take it back after the audit. What to watch for? Dormant accounts need strong controls, Ewing says. Any time you see a transaction made in a dormant account, it should be reviewed by an officer or third party. Also, tellers have taken advantage of elderly or disabled customers. It’s very common for elderly customers to have a favorite teller because he or she is particularly helpful and friendly. In rare instances, however, dishonest employees have used this as an opportunity to steal from their accounts. Dishonest employees have preyed on customers who aren’t accustomed to having large amounts of money, says Collins. For example, with the growth of fracking, many customers getting oil residuals have put the money into banks because they don’t trust the stock market. Many times, they put the money into a bank and forget about it. This opens up an opportunity for a dishonest employee to take advantage of them. Change of address requests shouldbe verifiedby the custom - er tomake sure they are legitimate, especially if they are rerouted to a post office box. If customers don’t receive their statements, they are unable to see transfers in an out of their accounts. Another potential area for abuse is in lending. There have been cases of collusion with the borrower, where a loan is made to an individual and a loan officer or administrator gets a kickback. There is no intention of paying it back. Or, the customer can pay back the loan to keep it current, but in a pyramid-type scheme another loan is opened. “They   continued on page 14