Risk WATCH with Alberta Quarcoopome: Best practices for reducing internal fraud(I)—Recruitment and Induction

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Risk WATCH with Alberta Quarcoopome: Best practices for reducing internal fraud(I)—Recruitment and Induction
Alberta Quarcoopome
  • “Start with good people, lay out the rules, communicate with your employees, motivate them and reward them. If you do all those things effectively, you can’t miss” – Lee Lacocca

Dear readers, the latest Bank of Ghana Fraud Report for 2019 sent shivers down my spine. “Not again”, I muttered to myself. It is almost seven years since this weekly column (Risk Watch) came into existence with the sole aim of sharing risk management insights with young bankers and other professionals. Hardly does a week go by without mention of various types of risks that bedevil the financial services sector.

Risk is found in every aspect of life, and without considering or looking at banking processes, services and products with an eagle eye to see ahead, losses will continue to overwhelm financial institutions. I therefore never get tired of writing or talking about risk, errors, frauds and losses.

The Bank of Ghana Fraud Report 2019 and 2020

Let me give you some extracts from the reports according to the B&FT.

“The Banking Industry Fraud Report published by the Bank of Ghana shows that the industry’s reported frauds increased in 2019 and 2020

Of the types of frauds, cases relating to cyber-crime involved email fraud, crime perpetrated through Internet banking and other localised payment and mobile banking platforms during the year under review continue to increase. Others included suppression of cash and deposits.

This type of fraud accounted for the largest portion of the reported cases, with some of those cases being perpetrated by staff of the banks. Staff who suppressed cash or deposits were usually ‘frontline staff’, particularly tellers, mobile bankers or sales agents”.

The Directives therefore given by the BOG include the following:

  • Contract or temporary staff of banks must be adequately vetted by the Police Service in order to curtail the practice of employing fraudsters in the industry.
  • Licensed institutions are required to strictly monitor staff (including contractual staff) and every transaction executed by staff, by implementing appropriate internal controls.
  • Remuneration and working conditions of contract staff and mobile bankers in banks and specialised deposit-taking institutions should be reviewed and aligned to that of permanent staff since they are often found to be involved in suppressing the value of cash and deposits.

Internal Fraud: the ‘Taboo Subject’

Many banks hate to talk about this, despite the fact that every bank has experienced it. Due to confidentiality issues and regulatory damage implications, it may seem as if this topic is swept under the carpet. However, it is still a high priority issue.

Recruitment and Induction

Human Resource departments of banks have policies that include hiring, training, compensating, and terminating staff members. All four activities serve as potential controls for preventing the misappropriation of assets.

Hiring:

There is a school of thought that banks should identify sources of prospective staff members with high moral integrity, such as certain schools or religious communities, and actively recruit new staff members from these sources. In addition, they should use staff screening mechanisms, like personality tests and employee references, to ensure that they are hiring persons with great potential.

This school of thought about hiring from selected groups or communities is highly debatable and downright discriminatory. However, I believe that the ultimate should be the person’s character. Aside from these, background checks should not even be an option. It is a must have! In these days of social media, background checks should be more detailed with close monitoring of the person’s social media lifestyle.

Employees with a work history should be seriously investigated to know why they have left. Human Resource Managers in financial institutions have a close relationship of using both formal and informal means of enquiring about potential appointees.

With respect to outsourced staff, the bank should be part of the selection mechanism to ensure that the best-fit persons are recruited

Induction

According to Wikipedia, “An induction programme is part of an organisations’ knowledge management process and is intended to enable the new starter to become a useful, integrated member of the team, rather than being ‘thrown in at the deep end’ without understanding how to do their job, or how their role fits in with the rest of the company”.

We all know that the induction process is critical to welcoming new starters and getting them effective as quickly and painlessly as possible. Sometimes the dire need for extra hands makes the situation so precarious that some new staff are not even given any orientation. They are just asked to report to duty at their destinations and bingo, they find themselves being placed behind a desk or counter to start work.

For most beginners it is quite stressful. There have been many grounds for some people to complain (both inductees and their line managers) that they were rushed through induction and released feeling almost as raw as they entered the bank on the first day.

From my banking experience, I have cause to believe that many losses or internal frauds perpetuated in financial institutions could have been reduced to the minimum by effective induction, training, coaching and mentorship schemes. These can be quite costly at the beginning, but it is much more costly at the end when the financial institutions suffer huge losses which could have been avoided.

Many bank staff who appear before Disciplinary Committees find themselves lost for words and sometimes even break down in tears for things they did out of ignorance of the implications of their actions, as well as the sanctions attached to the activity. Every banker has in one way or another committed a mistake out of ignorance, but the important thing is whether there are lessons learnt and lessons shared among staff. Induction programmes followed by coaching and mentorship make employees get the best while also giving off their best.

Indoctrination of the bank’s culture

This is a critical aspect of induction programmes. One would ask why we even bring new staff together for induction. Induction programmes are so critical that organisers need to make them leave indelible marks in the memory of the inductees. This is the ideal opportunity to promote the organisation’s core values of honesty and integrity, and demonstrate the zero-tolerance policy.

In addition, the reference to examples of fallen employees who succumbed to temptation and suffered the consequences for inadequate job performance can also be a preventive control, especially for employee fraudulent activity. The programme should also include a swearing of the oath of secrecy. Ideally, the involvement of a few management personnel during the induction would be advantageous, as the recruits are made to imbibe the code of ethics of the institution.

Putting the ‘Fear of God’ in the Inductees

The need for risk awareness creation is very critical in induction programmes. Having organised several induction programmes for beginners, one of my memorable experiences was during the fraud awareness sessions. These sessions were usually handled by managers of the Risk and Audit Departments, as well as the Security Coordinator (who in most cases may be former law enforcement official).

The fact that the names, the types of fraudulent activities perpetuated and even sometimes pictures of ‘fallen employees or heroes of the banks are sometimes exposed to the inductees, not forgetting the consequences they suffered. These usually leave a clear message that staff members will be immediately terminated, lose their valuable source of income and benefits, and even prosecuted if they perpetrate fraud. The use of pictures of the ‘fallen’ employees shows how anyone on the job can be very vulnerable and succumb to temptation.

It also proves the fact that fraud is no respecter of age, gender, status, grade or position. The inductees usually sober up when they are exposed to the hard truths and the mode of operations used by the internal fraudsters. They were taught to trust each other but still verify and ensure work done is according to the rules and regulations in the bank. In fact, such sessions on frauds reiterate the fact that the bank does not tolerate fraud of any type.

I will pause here and say that bankers must be able to train staff to prevent internal fraud right from the start. Let us remember that a stitch in time saves nine.

TO BE CONTINUED

ABOUT THE AUTHOR

Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of Three books: ‘The 21st Century Bank Teller: A Strategic Partner’ and ‘My Front Desk Experience: A Young Banker’s Story’ and ‘The Modern Branch Manager’s Companion’. She uses her experience and practical case studies in training young bankers in operational risk management, sales, customer service, banking operations and fraud.

CONTACT

Website www.alkanbiz.com

Email:[email protected]alkanbiz.com  or [email protected]

Tel: +233-0244333051/+233-0244611343

 

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