“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
Let me give you some extracts from the report, according to the B&FT.
“The Banking Industry Fraud Report published by the Bank of Ghana shows that the industry’s reported fraud in 2019 increased by more than 5.5 percent, recording 2,295 cases and valued at GH¢115 million. Approximately GH¢33.4 million representing 28.9 percent this amount was reported as losses and 71 percent, i.e., GH¢82 million was unsuccessful or unrecovered.
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 decreased by 34.4 percent from 174 cases in 2018 to 114 cases in 2019. However, despite the decrease in 2019, cyber fraud accounted for the highest value of attempted fraud amounting to GH¢50.5 million, with actual loss of GH¢14.3 million.
Suppression of cash and deposits, another type of fraud, cases increased by 43.1 percent from 1,239 cases in 2018 to 1,774 cases in 2019. The total value of reported cases under this fraud type was GH¢5.05 million, with a loss amount of GH¢4.07 million. This type of fraud accounted for the largest portion of the reported cases, with 94 percent 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 specialized deposit-taking institutions.
This 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, regulatory damage implications, it may seem as if this topic is swept under the carpet. However, it is still a high priority issue.
Despite the numerous articles I have written on fraud since 2013, I wish to resume another series on internal fraud, and recommend some best practices to help banks reflect upon, when building an internal fraud prevention program.
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.
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
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 programs followed by coaching and mentorship makes employees get the best while also giving off their best.
Indoctrination of the bank’s culture
This is a critical aspect of induction programs. One would ask why we even bring new staff together for induction. Induction programs are so critical that organizers need to make them leave indelible marks in the memory of the inductees. This is the ideal opportunity to promote the organization’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 program 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 programs. Having organized several induction programs 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 heros” 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 usual 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 reiterates 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 two books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.