“You can’t shake hands with a clenched fist.” – Indira Gandhi
Dear Reader, another week is here with us again and my binoculars is continuing its zoom on fighting red flags in banking. This series is actually for all bank staff and not just the managers. Despite the differences between the old time and the modern-day branch managers, the generic functions of branch banking have not changed. It is the automation and computerization which has changed the processes while still encompassing the banking principles.
In the banking sector, “red flags” are warning signs that suggest potential fraudulent or illicit activity, such as money laundering or terrorist financing. These flags are not definitive proof of wrongdoing, but rather indicators that require further investigation. They help banks and financial institutions identify and prevent suspicious transactions which can implicate the bank and its staff. Here are some examples of red flags in banking:
Transaction-related:
- Unusual transaction size, nature, or frequency:Transactions that deviate significantly from a customer’s usual behaviour or business activity.
- Immediate withdrawal of funds after deposit:Money deposited and then immediately withdrawn without a clear business justification.
- Frequent transfers between accounts or different financial institutions:Repeated transfers without a plausible explanation.
- Large cash deposits or withdrawals:Significant amounts of cash deposited or withdrawn, especially if the source or destination is unclear or inconsistent with the customer’s profile.
- Use of shell companies or offshore entities:Involvement of companies or entities in jurisdictions known for secrecy or lack of transparency.
- Unusually complex corporate structures:Structures designed to obscure ownership or the true nature of transactions.
- Short repayment periods for borrowing:Borrowing with excessively short repayment terms.
Let us look at the following customer-related transactions:
- Customer exhibits secretive or suspicious behavior:Avoidance of questions, reluctance to provide information, or unexplained urgency.
- Customer provides inconsistent or incomplete information:Inconsistencies between customer information and supporting documentation.
- Customer uses multiple aliases or addresses:Use of different names or addresses than those reported.
- Customer’s occupation or business is not clearly defined or lacks a legitimate purpose:Unclear or suspicious business activities.
- Customer engages in excessive cash transactions or exchanges:Frequent exchange of small bills for large bills or vice versa.
- Customer has a large number of accounts with the same financial institution:Multiple accounts without a clear explanation.
- Customer’s profile does not match the size or nature of transactions:Transactions that are disproportionate to the customer’s apparent wealth or income.
- Customer requests investment management services where the source of funds is unclear:Requests for investment services with no clear explanation of where the money is coming from.
What is People Risk?
Out of the four types of operational risks in banking (people risk, systems risk, process risk and risk from external factors), the most critical continues to be the people risk. For now, I intend to concentrate on red flags arising out of people risk.
This is a risk associated with an employee’s intentional or unintentional action. Some people risk may include high staff turnover, internal fraud, inadequate staff training, over-reliance on key staff, health and safety issues.
A manager should be able to combine technical knowledge and leadership skills to be effective. I believe that a manager should not necessarily be a “Know it all”. In today’s banking, segregation and delegation of functions enable decision making to be decentralized. However, a manager should put his or her eyes and ears to the ground, while monitoring all delegated functions, and watch out for any personality red flags. Just as we have “Know Your Customer” or KYC, a manager should also practice “Know Your Staff” or KYS, in order to be in full control of affairs and not be taken by surprises.
Personality Red Flags
Before I continue, I wish to caution that the under-listed characteristics exhibited by a worker does not necessarily mean that the person may be fraudulent. There is generally a belief that such persons have a high propensity to resort to illegal activities. The following red flags should therefore not be taken lightly:
- Unusual or Change in Personality (ALCOHOL, DRUGS, SLEEP, IRRITABLE, DEFENSIVE, ARGUMENTATIVE)
- Too good to be true performance
- Excessive Overtime
- Living beyond Means or extravagant lifestyles
- Poor money managers and financially desperate people
- Dissatisfied and always disgruntling.
- Unable to relax
- Unwillingness to take leave or Sick Time
- Extremely close customer/vendor relationship
How can a branch manager identify all these personality red flags without being seen as prying into people’s personal lives? Let us look at some red flags and cases from people risk issues and see whether they sound familiar.
- The Compulsive Gambler
There was a case of a young man of twenty-eight years, tall dark and handsome who worked as a clerk in a bank. There was a general impression about him among the branch staff that he was from a rich home and had inherited wealth from his family. He lived with his mother. It was alleged that his father left two storey buildings for them. Nobody wondered whether his flaunting of wealth could be sustained with the so-called rent income received from the buildings. He later purchased a custom-made Benz saloon car although he had no auto loan from the bank. He was known to sponsor regular “omo-tuo” joints every week end with a group of friends. After a few years, it was detected that he had stolen a lot of cash through some fraudulent deals in the office. It eventually came out that he was a compulsive gambler at one of the popular spots in the city. His gambling was so excessive that he resorted to stealing from the office to maintain the habit!
Mr. “Too Good to be True”
He was twenty-six years old. A “sharp brain” and a darling of the branch manager. He was a CA Level 2 holder and had good prospects of becoming a Chartered Accountant within the next year or two. He was also known to be a “praise and worship leader” in his church. He spoke and wrote good English. He closed late regularly, always the first to arrive at the office, doing other people’s uncompleted jobs and coming to work on Saturdays. The branch manager relied on him even more than the operations manager. What happened then? He was found to have been diverting funds from general ledger accounts into his girlfriend’s account. The branch manager broke down when he heard of the case. With the absolute trust he had in him, he was not monitoring and checking his transactions as expected. When appearances are too good to be true, beware.
Laxity in Segregation of Duties
Too much trust is not good. Life is a journey full of ups and downs. What happened to the case of two vault custodians with keys to the vault who trusted themselves to such a degree that they interchanged the keys to the vault and allowed each other to go to the vault alone? This is a no- no in banking, but the absolute trust ended up into a near brawl when Ghc20,000 shortage was detected! The two friends became enemies forever, trust broken.
The Hermit/Recluse
We have to respect each other’s privacy. However, do you have an “odd one out” among the staff? Such persons are not sociable and become uncomfortable when they are asked about where they reside. Is it because they feel their house does not match their status, or is it the other way round? Perhaps colleagues will raise question marks when the house looks too expensive for the person’s status. What about the case of a contract clerk who had built a storey-building housing a chain of stores in his hometown and owned a fleet of cars. Yet, he came to work in “tro-tro”. Apparently, he was using his boss’s password to erase and reactivate transactions received and diverting the credits!
I will pause here and continue the other people risks/red flags next week. Knowledge is indeed power. Sharing knowledge is also a blessing. Like Indira Gandhi’s quote above, don’t clench your fist. Open your palm to shake hands.
…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, training young bankers in operational risk management, sales, customer service, banking operations and fraud.
CONTACT
Website www.alkanbiz.com
Email:alberta@alkanbiz.com or [email protected]
Tel: +233-0244333051/+233-0244611343
