OPERATIONAL RISK & FRAUDS CASE STUDIES

TRANSASIA HAS THE BENEFIT OF HAVING REAL LIFE SITUATIONS HANDLED BY THE MANAGEMENT TEAM IN THEIR PREVIOUS PROFESSIONAL EXPERIENCES. AS PART OF THE CONFIDENTIALITY THE NAME OF THE ORGANIZATION IS NOT DISCLOSED IN THE CASES ILLUSTRATED:

A) A large MNC banking and financial institution was impacted by a terrorist strike in SriLanka. The bank vault was damaged in the blast and US $7 million worth of non moving Saudi Riyal blank travelers cheques were misappropriated from the damaged vault. Our team member was the Team Leader for India & Area countries for Financial Control operating out of New Delhi, India who was flown into SriLanka, to assist in task of the disaster recovery process. During the course of this exercise the he stumbled upon this fraud that was later established after an intense investigation with the support of the local management and the security agency of the country as an employee induced fraud. The Risk Management process involved various teams across geographies to help minimize the monetary impact to US $ 2 Million and most of it recovered through global insurance coverage for Operational Risk as mitigation and risk transfer proactively covered by the bank. The key learning in this instance: Frauds in a Bank has an embedded internal risk angle be it customer information or customer account handling for financial transactions. Employee system access profile management, lifestyle monitoring, and segregation of duties with periodic rotation of staff helps early identification of operational risks. In an event of disaster the key vulnerability is the bank vaults, employees and customer holding data.

B) A new private sector bank was floated in India as part of the economic reform process and opened the opportunity for technology enabled new generation banks being ushered into India. Our management team members were inducted at strategic positions to create centralized and scalable processes for the institution that has more than 3500 branches today. As part the initial set-up and early foresight of the team to identify potential areas of operational risk the team identified an internal fraud of connivance between a senior manager with a vendor supplying computers and peripherals in large quantity to the bank to markup the prices under the guise of advance annual maintenance cost although the suppliers were providing built in warranties for 3 years. This was led by our team member who was the Accounting Control head for the bank. As learning the bank set up an independent centralized purchase committee for Capex & premises procurement for the bank.

C) Based on a resigned employee of the team calling up on erroneous credits and debits to his earlier salary account with the bank, an instance of including dummy employees in the outsourced agency payroll by an HR Manager was unearthed as part of the Operational Risk Management process audits conducted by the member as the Head of Operational Risk in a leading private sector bank of recognition in terms of size and business in India. This instance exposed the connivance of the outsourced payroll processing vendor with the HR Manager to accommodate this fraudulent activity.

D) A Branch Manager of a large branch exploited the weakness in the bank's internal control and reconciliation process of the Central Bank mirror account held by the bank for cheque clearing and settlement account. The employee manipulated the daily reporting of the account balance generating a fictitious statement of account of the Central Bank and sending it to the CFOs office. This mismatch of the balance was noticed after the employee left the organization and as part of the annual audit wherein the source account statements from the Central Bank did not match to the balances in the GL accounts. The bank recovered this amount through their professional indemnity that covered employee embezzlement and thefts as part of the coverage. The TransAsia team helped the bank in terms of the claim settlement process and recoveries.