Loan fraud in a bank, part 1: here is how internal staff commit loan fraud

After several years of investigating fraud, I have come to the realization that in many cases, internal staff are involved in one way or

After several years of investigating fraud, I have come to the realization that in many cases, internal staff are involved in one way or the other. It is so difficult to pull off a fraud without involving an insider.

When it comes fraud examination, everyone is a suspect until proven otherwise. I have found it important to take everyone’s statement to account for their time, roles and activities immediately before, during and after the fraud or theft incident.

Looking carefully through those statements, you get to realize how some of their information is inconsistent either in an attempt to protect their colleagues or outright lies. And it is these small inconsistencies that solve the case.

When it comes to fraud, finding the smoking gun is never easy. That is why digital forensics, on its own, is useless. You have to put it into context, within the entire fraud examination process.

When doing an assignment, we looked everywhere and could not find the missing link. The dots just could not connect.

This changed once we decided to interview the office cleaners. They told us everything we needed to know. The cleaner was able to tell us how the credit officer comes very early in the morning, and ensures the cleaner opens the door for him instead of using his own access pin code! This information helped punch holes in the statement of the manager that he had come to office at 9:00 am; and had given us a printout of the access log to prove the point.

Case study

If you’ve worked in a bank, you know that most people there have some bank loans as they come at preferential interest rates. These staff loans are of course ‘insider lending’ and must be kept at a minimum.

Some people are so shrewd that they have multiple loans.

Others understand the system so much they see no reason in obtaining an official loan. That is how one of the staff in the operations department decided to ‘give themselves’ free money. Welcome to the staff loan fraud.

Here is how it was done:

(i) This fraud involved several loan officers.  

(ii) They obtained loans through fictitious clients’ accounts.

(iii) The loan officers would make a fictitious client, complete the loan application documents, and submit to the bank for approval.

(iv) Since the fraudulent staff is also the reviewer of the loan application, the loan would be approved. Thereafter, funds would then be advanced or disbursed to the fictitious bank clients. You guessed, small loan amounts were involved; they had no genuine collateral security. The fraudsters were so smart that they would make these applications at up-country branches where majority of the people lack land tittles. So what they would do, is to forge an LC 1 letter, and move around the village take photographs of the farm and house and attach to the loan application! The fraudulent loan officer would sign on the application and approve, certifying to have visited the land, and that it has no title.

(v) The loan staff would then access the funds by using the fictitious bank client’s signed cash withdrawal slip.

In the next part 2, we explore how the fraud was uncovered.

Copyright Mustapha Mugisa, 2013.  All rights reserved. 

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