• The vacation day

    A banker's fraud scheme is caught when he takes a day off

    A common red flag of occupational fraud is the unwillingness to use paid time off. This is sometimes incorrectly attributed to a diligent work ethic when it is actually a way for rogue employees to ensure no one will uncover their schemes. One fraud victim learned this the hard way.

    Steve* was a loyal customer of his local bank, City Credit Union*, for 30 years. He held basic accounts and mutual fund-driven investment vehicles. However, his ties to the bank went deeper than just business. Steve’s daughter was previously married to a man whose brother, Chuck*, was the branch manager at City Credit Union. Although the marriage didn’t work, Steve remained friends with Chuck.

    Steve recovered his money, but felt betrayed by someone he considered family.

    Steve would visit the bank on the same day and time every month to check on his mutual fund account. He never withdrew from it, but reviewed the interest earned. Chuck was all too happy to greet him every time with a printed statement of his account. This monthly meeting between the two men went on for eight years until the day Chuck was on vacation and a different bank employee gave Steve his account statement. The statement showed that the account was empty. Chuck had slowly drained Steve’s account and had been supplying him with falsified statements each month.

    City Credit Union had controls in place to prevent a fraud like this. They required the cashier to authenticate any payments or withdrawals with clients; ideally with the clients being present. They also required cashiers to get authorization from managers or supervisors for withdrawing large amounts. Unfortunately for City Credit Union and Steve, Chuck was able to circumvent both of those controls.

    Chuck fostered a climate of trust among the employees in his branch. He often stressed what a close personal relationship he had with Steve and he abused his position as a manager by using his employees to make the withdrawals that he would then approve. The employees assumed that he was carrying out Steve’s wishes as opposed to lining his own pockets.

    Once Steve discovered his account was empty, Chuck was fired from the bank and criminal charges were filed. City Credit Union reimbursed Steve for the full amount lost — approximately $130,000. Steve recovered his money, but felt betrayed by someone he considered family. City Credit Union shared the fraud scheme with employees to raise awareness among them that they should not omit controls even if a superior asks them to do so. This was an opportunity to train and refresh employees on the importance of using the bank’s hotline to report any misconduct or red flags.

    Lessons from the CFE: We should never forget that the omission of controls are mostly made by people who occupy positions of trust. The third line of defense (audit) needs to be more preventive — that includes performing periodic audits. But the main lesson is training people not just to comply with the norms but to understand the real cost of fraud. It is not just a monetary loss, but it negatively impacts the client's experience and thus the reputation of an organization.