It compelled me to scrutinize policies on anti fraud & forgeries of few local and foreign banks while I had opportunity to review some cases of frauds & forgeries for making conclusive reports there on. Based on my review I drafted Anti Fraud Policy suitable for a bank involving all the aspects. It gives me immense pleasure to put it up for general information. The nomenclatures used , for various functional units in the document might be of the bank, presently I am associated, but the process and flow of function differs to large extend, any similarity is accidental and without intention.
1) Purpose and Scope
It is the Bank’s intent to investigate any suspected acts of internal fraud, misappropriation, or other similar irregularity. An objective and impartial investigation, as deemed necessary, shall be conducted regardless of the position, title, length of service, or relationship with the Bank of any party who might be or becomes involved in or becomes or is the subject of such investigation.
This Anti-Fraud policy has been created to support the …………. Bank’s (the “Bank”) commitment to protecting its revenue, property, reputation and other assets; to clearly emphasize the need for accurate financial reporting; and to establish guidelines for the investigation and handling of allegations of fraud, should they occur. This policy applies to all employees, officers.
It is intended to address not only instances of internal fraud at the Bank, but includes fraud detected by our dealings with our members, including issues related to their collateral or loan origination process and other vendor relationships. Any suspected act of external fraud, misappropriation, or other similar irregularity may be investigated by the Bank.
To ensure implementation of SBP’s directives on Fraud & Forgery Reporting, introduced from time to time.
2) Definition of Fraud
The term “fraud” generally means an act of deception, bribery, forgery, extortion, theft, misappropriation, false representation, conspiracy, corruption, collusion, embezzlement, or intentional concealment or the omission of material facts. Fraud is a violation of trust that, in general, refers to an intentional act committed to secure personal or business advantage.
While fraud can cover many activities, this policy is directed primarily at financial matters that could be legally defined as fraud. There are numerous criminal and civil definitions of fraud. Listed below are additional examples of “financial fraud”, which generally fall into three broad categories and may include, but are not limited to, the intentional:
- Misappropriation of Assets
i. Forgery, alteration or misappropriation of checks, drafts, promissory notes, or securities
ii. Unauthorized non-business acquisition, use, or disposition of funds, inventory, furniture, fixtures, equipment, records, or other assets
v. Falsifying time sheets or payroll records including, but not limited to, reporting hours not worked or a supervisor not allowing the reporting of all hours worked by hourly employees
vi. Falsifying travel and entertainment expenses and/or utilizing Bank funds to pay for personal expenses
vii. Fictitious reporting of receipts from suppliers or shipments to customers
viii. Misappropriation of Bank-owned computer hardware, software, data, or other records including intangibles (e.g. proprietary information, trade secrets, patents, etc.)
- Fraudulent Financial Reporting
i. Improper earnings management
ii. Improper revenue recognition
iii. Overstatement of assets
iv. Understatement of liabilities
v. Misapplication of generally accepted accounting principles
- Expenditures and Liabilities for Improper Purposes
- Financial Instruments
Fraud in connection with a financial instrument may include (but is not limited to):
i. False information contained in loan documents, such as identification, employment, income or appraisal documents;
ii. Theft of custodial funds;
iii. Misrepresentation of collateral in loan or other documents;
3) Fraud & Forgery Committee
An internal Committee on Fraud and Forgery is formed with following as their members with primary roles of recovery, disciplinary & legal actions.
The following members will comprise the above-mentioned committee.
- Group Head Audit & Inspection Secretary / Member
- Group Head HRD Member
- Group Head Systems & Operations Member
- Head of Compliance Member
- Head Of Establishment Member
A minimum of three members including Group Head Audit & Inspection shall comprise the Quorum for the committee.
Role of the Committee:
1) Ensure receipt of initial report from the Group Head Audit & Inspection.
2) Evaluation of the Final Investigation Report & plan further line of action based on the recommendations of the report which may inter alia include:
i. Removal of individual/suspected staff from their assignment(s) if not already done so.
ii. To ensure implementation of necessary changes in policy & procedure to rectify procedural follows.
iii. Recovery of Insurance Claim if any.
iv. Adjustment of the loss from liabilities of the concerned employees.
v. To put up the case to Disciplinary Committee and implement its decision.
vi. If need be recommend police investigation and filing the case in the court of law after legal opinion.
vii. Recommend CMC approval, with concurrence of COO/CEO, of payment to an aggrieved party in consequence of the incident either by way of write off or by recovery from the concerned employee.
4) REPORTING PROCEDURE
i. On the occurrence of one of the situations covered under this document, the Branch Manager/Unit Head shall immediately, with 24 hours of coming into the knowledge of the incident shall inform the concern Area Manager/Group Head and submit a preliminary report marked as “Strictly Private & Confidential”.
ii. On receipt of preliminary report from the Branch / Unit the Area / Regional Manager shall immediately, shall inform the concerned Group Head.
iii. The relevant Group Head, within 24 hours of receipt of such report will arrange to forward the report to FIU (AIG) as under for initiating investigation on the incident.
– All Areas / Units located in South Region to FIU South Karachi.
– All Areas / Units located in Central and North Regions to Head Quality Assurance Department (AIG) Lahore.
iv. This preliminary report of the Area / Unit must contain the following information / facts:
– The detail of the incident, mentioning the date and any other pertinent details.
– A brief note as to how the situation arose, indicating responsibility for the same;
– Steps taken to mitigate further monetary or non-monetary loss;
– Amount of expected loss;
– Possible recovery sources;
– Immediate steps taken to prevent recurrences.
v. The concerned Group Head should forward the copy of the report immediately to CEO and COO for information.
vi. The Area Office should submit a detail report of each attempt / incidents of Fraud/Forgeries/Dacoties of Rs.1 Million and above, within 12 days of incident as per Annexure A, to concerned FIU for onward submission to SBP.
i. The Fraud Investigation Units should ensure receipt of Quarterly statements of Frauds/Forgeries/Dacoties along with soft copy within 7 days after the end of that quarter from all Area/Units.
ii. The Area / Units should invariably submit a “NIL” report in case no such instance is to be reported.
iii. It is ensured that the periodical Statement/Reports must be accurate and submitted to Fraud Investigation Unit within stipulated time frame as mentioned above.
iv. Any penalty imposed by SBP on account of inaccurate information/delay in submission of information or due to any other reasons will be recovered from concerned branch/unit.
v. FIU would ensure timely submission of Quarterly consolidated Fraud / Forgery / Dacoties Statement to SBP as required under BPRD Circular # 1 of 2005 dated Jan. 19, 2005.
vi. SBP Reporting formats are requied to be enclosed with the policy document (http://www.sbp.org.pk/bsd/2005/C1.htm).
5) INVESTIGATION & INTERNAL REPORTING
i. All incidents of frauds, forgeries etc shall be investigated by FIU [AIG].
ii. Within 24 hours of receipt of the PRELIMINARY REPORT from the branch/unit, the designated officers of concerned FIU 7 (a) iii above shall carry out investigation of reported fraud, forgery, theft and unauthorized advances cases and submit report to the Group Head AIG.
iii. The CEO/COO may nominate an officer to coordinate with AIG in the investigations.
iv. The Group Head AIG may associate any member of the concerned branch/unit staff in carrying out the investigation and the Branch / Unit shall extend full cooperation where such an Officer is stationed.
v. The report must incorporate full details of the fraud, forgery/dacoties etc. reasons leading to the commissioning of the fraud, names of staff responsible for or due to whose negligence the fraud was committed, procedure lapses if any, possibilities of recovery, recommendations for disciplinary action(s) and steps needed to avoid it recurrence, etc.
vi. The Group Head AIG shall forward initial as well as comprehensive Investigation Report on the findings to the concern Group Head with copies to CEO/COO, and all members of Fraud & Forgery Committee for information and necessary action and Board Audit Committee.
vii. The following is the timeline for submission of the investigation report:
– Within 7 working days and
– If more time is needed an interim report is submitted, giving reason for extended period, but within 15 working days.
viii. The Staff member(s) suspected of any involvement or abetting in the fraud, forgery, defalcation, etc shall stand suspended till completion of inquiries and clearance from Head Office. The AIG shall initiate such suspension orders based on the initial judgment/assessment and accordingly HRD shall issue requisite suspension order(s) to the concerned Group Head / Unit Head for onward delivery to the employee(s).
6) REMEDIAL / RECOVERY PROCEDURES
i. On receipt of the comprehensive/final report from AIG, the concerned Group Head (the Area / Unit) in coordination of Fraud & Forgery Committee, immediately initiated further action . He/she may coordinate with other Group Heads for lodgment of necessary insurance claim, in case the relevant insurance policy provides for compensation, legal advice and police investigation, if required.
ii. Every effort must be made by the Branch / Unit where the fraudulent act has been commissioned to effect recovery expeditiously.
iii. The Group Head HRD will take up action for removal of individual/suspected staff, as recommended by FIU [AIG] from their assignment(s) if not already done so and would put up the case to Disciplinary Committee and implement its decision
iv. The Group Head Establishment shall coordinate for lodgment of insurance claim if the policy provides for it.
v. Systems & Procedures Group shall take immediate steps to rectify procedural flaws which resulted in the fraud, forgery, etc as identified in the Investigation Report. All Business Group Heads shall provide active assistance in putting in place such remedial action in the Branches.
vi. In case payment has to be made immediately to an aggrieved party in consequence of fraud, forgery, etc prior authorization for such payment must be obtained from CMC through relevant Business Group coordinating with Fraud & Forgery Committee. The approval shall contain the mode of payment including the head of account through which temporary payment has to be effected shall also be mentioned.
vii. All conditions laid down by Head Office must be complied with in totality by the Branch/Unit before effecting payment.
viii. Any amount that is determined as unrecoverable, after the due process of law has taken its full course, the same shall be written off after obtaining approval from CMC on the recommendation of Fraud & Forgery Committee and concurrence of the CEO/President /COO or the Board of Directors, if required.
ix. Any amounts written off during the year after obtaining approval of the CMC, shall be reported to the Board of Directors at end of the year through Board Audit Committee.
7) DISCIPLINARY ACTION
i. During pendency of investigation, staff member(s) suspected of involvement shall remain suspended.
ii. If need be Disciplinary Committee is constituted and proceedings thereof are carried out in fair and transparent manner as per procedure and decision is communicated to all concerned.
iii. In case of any dispute the matter is referred to the court after legal opinion, however, every effort should be made to settle the case out of the court.
iv. On proof of involvement in any fraud, forgery, defalcation etc. the concerned staff member shall be disassociated from the services of the Bank, ensuring recovery/ maximum recovery of the amount of loss and other liabilities as may be outstanding against him/her in the books of the Bank.
v. The service terminal benefits shall be first fully utilized to extinguish the bank’s liabilities.
vi. Any liability outstanding thereafter shall have to be adjusted by the concerned staff member, failure to do so shall invite such action as recommended by the Group Head and or the President may consider necessary, which may include recourse to legal action.
vii. In case connivance in an act of fraud, forgery, etc. is not proved conclusively against a staff member, but there is adequate reason to deduce negligence on his/her part which enabled such an act to occur, disciplinary action as deemed commensurate with the seriousness of the negligence shall be taken with the approval of the CMC.
i. All directives of the State Bank of Pakistan with regards to frauds, forgeries, etc. shall always prevail over the rules and regulations at any time in force.
ii. The President/CEO/COO or any Group Head may direct/request AIG to arrange investigation into any matter that is brought to his/her knowledge either through sources within or outside the Bank which may have led to financial loss to the Bank or damaged Bank’s image/ reputation.
iii. The AIG shall attend to the queries of SBP / Ministry of Finance and other concerned quarters with respect to the cases.
Note: Every Central Bank requires that banks under its purview should submit periodical reports on fraud related activities on prescribed frequencies and formats likewise State Bank of Pakistan [SBP] has also introduced such reporting vide BPRD Circular # 1 of 2005 of Jan. 19, 2005 (http://www.sbp.org.pk/bsd/2005/C1.htm).