Prevention of Frauds in Investment

Recently there has been an increasing trend in the number of frauds detected at the Circle and the Bank as a whole, which is a cause of concern for the Management. There is an urgent need to establish adequate safeguards to reduce the incidence of frauds being perpetrated, especially in view of the huge amounts involved which has a significant impact on the Bank's profit. Another area of concern is the increasing number of frauds with insider involvement/support coupled with low recovery percentage.
The major areas where frauds are frequent in our Circle are Savings Bank/Current account, Advances, Payment of forged instruments presented in clearing mainly Dividend Warrants and Internal accounts.
In general, the frauds can be prevented by :

  • Updating of Knowledge constantly.
  • Meticulous implementation of the Bank's laid down Systems and Procedures.
  • Scrutiny of staff accounts at frequent intervals and keeping a watch over the lifestyle of officers/employees.
  • Prompt rectification of irregularities pointed out in the Inspection & Audit Reports and exercising due diligence while carrying out the rectification process.
  • Proper control over security forms.
  • Job rotation and transfer policy.
  • Complaints are dealt with promptly.
  • Timely submission of Control Reports/Returns and Irregularity Reports.
  • Controllers to visit the branches at frequent intervals, especially to fraud prone branches. The visits should be made meaningful by random checking of VVR, Exception reports, Office Accounts, Staff accounts and spending time educating the staff members about the latest frauds and preventive action.
  • Avoiding misuse of passwords and restricting the entry to System Room (use of System Room Access Register to note the reasons for entering the system room).
  • Allocation of Capability level in the system should be as per the grade of the staff/officer and any deviations should be substantiated by suitable office order/approval from higher authority.
  • VVRs (both Home Branch and Non-home Branch transactions) to be checked on daily basis by staff members/officials other than those who had posted or passed the vouchers.
  • System Suspense Accounts are to be checked to ensure that all entries are zeroised on daily basis without fail. Office Accounts to be scrutinised on daily basis to ensure that only genuine transactions are posted.
  • Outward Oaks are entered meticulously in the Oak Register and dispatched on daily basis. Inward Oaks are also to be entered in proper registers and diarised for action accordingly.
  • Additional care should be taken while paying non-home instruments and high value instruments.
  • Non payment advice should not be issued without verification about the status of the original draft both in CBS and Bankmaster for issuance of Duplicate Draft.

Prevention of frauds in Deposit accounts:

  • Checking of VVRs (both Home Branch and Non-home Branch transactions) / Exception Reports/Control Reports is to be done meaningfully.
  • Opening of accounts as per KYC norms.
  • Scanning of signatures is to be done properly and kept up to date. Special care should be taken in case of current accounts operated by power of attorney holder. In case of change of signatories, the earlier signatures are to be deleted from the system.
  • Extra care should be taken while dealing with Trust accounts and updation of authorised signatories.
  • Verification of the drawer's signature and ascertaining the genuineness of the payment before posting/passing.
  • Exercising due diligence while issuing ATM PIN to the customers.
  • Exercising due diligence and precaution while issuing the cheque books, Duplicate pass books etc. Acknowledgement of cheque book issued through bearer must be obtained before making payment against these cheques.
  • Material alterations made in the instruments are to be scrutinised properly and should have the authentication of the drawer.
  • Conversion of accounts form ordinary to cheque facility or from joint account to single/either or survivor or from former or survivor to either or survivor has to be done with caution.
  • Special care to be taken while authorising operations of a Dormant/inoperative account.
  • Cheque referred/returned register should be used to seek or give instructions regarding payment of high value cheques/ withdrawals and payments in dormant and inoperative accounts.
  • Care should be taken while issuing duplicate pass book and the pass book overnight retained register should be maintained to avoid missing/misuse of the pass books.

Prevention of frauds in Advance:

  • Meaningful verification of assets during pre-sanction and post-sanction inspections.
  • Not being over dependent on Bank's Advocates and Valuers. Independent verification of assets has to be carried out for ascertaining the genuineness.
  • Proper verification of title deeds and creation of Equitable Mortgage for securing the assets.
  • Ensure that middlemen are not engaged for sanction of loans.
  • Stock statements are verified meticulously and physical verification of stocks carried out at the stipulated intervals.
  • Quick Mortality advance accounts are to be followed up.
  • KYC on prospective borrowers are to be strictly complied with.
  • Bank Guarantees/Letter of Credits are to be sanctioned by the appropriate authority and accounts are to be opened in the system before delivery of BGs and LCs to the applicant/beneficiary.

Prevention of frauds in ATM:

  • Undelivered ATM Cards and PINs are to be destroyed at stipulated intervals and PINs should be delivered only to the account holder.
  • Hotlisting of lost ATM cards should be immediately carried out on receiving the information on the loss of ATM card from the customer and before requesting for the duplicate ATM cards in the CBS Module. Mere changing of ATM transaction flag in the account to restrict withdrawal through ATM is not enough.
  • JP logs (in case of non EJ enabled branches) are to be retrieved duly ensuring that they are complete without any discrepancies and held at the branch.
  • Instructions in respect of combination keys (passwords) used by the Joint custodian as elucidated in the ATM manual (13.09.2004) are to be meticulously followed.
  • Periodical balancing and mandatory verification of cash in ATM is to be meticulously ensured. (ATM physical cash = Admin Balance = ATM cash balance).
  • ATM cash disbursed but customer account not debited has to be monitored daily and entries if any have to be reversed.
  • Digital Video Surveillance system are to be in working condition without any interruption in all ATMs.
  • The customers should be educated not to throw the ATM receipt in to bins as new frauds are taking place by using the information available in those receipts.

Prevention of frauds in Clearing :

  • Making payments of SBIMF Warrants through Dividend Warrant Module only and checking the genuineness of the instruments through Warrant Details of SBIMF at SBI Times. No warrants are to be purchased as DDP's.
  • Checking the genuineness of the cheques by careful examination. Paper quality, prints and design also to be verified.
  • The entries in Transfer Responding Advices are to be passed after due verification of the check signals and the signatures of the officers. All TR's of Rs.50,000/- and above are to be signed by two officials and check signal has to be affixed.
  • The internal accounts like suspense accounts and intermediary accounts in the branches are to be scrutinised regularly for any suspicious entries and all the outstanding entries are to be checked.
  • The entry/access to the System Room and the system has to be restricted and monitored.
  • The outstanding in Branch clearing accounts is to be followed up vigorously for early settlement, particularly debit entries.
  • Enquiry memos/ Reconciliation are to be dealt with promptly.
  • Reporting of Frauds :
  • In terms of Reserve Bank of India Master Circular on Frauds, any fraud detected should be reported to RBI within a period of three weeks from the date of detection. On detection of Fraud, the Administrative Office concerned should send a flash report on fraud immediately to the Local Head Office followed by the detailed report on fraud, FMR-1, so that LHO can send the same to Corporate Centre before two weeks from the date of detection for onward submission to RBI within three weeks. Banks have to pay penalty, which could be as high as RS.5.00 lacs per instance of delayed reporting, in addition to financial loss, coupled with reputation loss to the Bank. The RBI has advised to take stern actions against the officials who are responsible for the delay and the actions taken are to be advised to RBI.
  • Pressure should be exerted on the fraudsters for recovery.
  • The introducer or any other person who could influence the fraudster should be approached for recovery of the amount.
  • FIR is to be filed immediately with the Police on detection of the fraud. The FIR should be signed by the Controller as per the latest RBI guidelines.
  • Complaint has to be lodged with CBI for frauds where amount involved is Rs. 1.00 Crore and above.
  • Initiating/taking action under SARFAESI Act without delay.
  • The Civil suits/DRT suits are to be filed promptly.
  • Connivance of staff has to be taken seriously and dealt with effectively to avoid recurrence of such type of frauds in future.
  • The fraud cases after reporting should be closely followed up with the Police/Court for early closure.

SOURCE :- SBI, Disciplinary Proceedings Department,
Local Head Office N.E. Circle, Guwahati.