Pub. 4 2014-2015 Issue 2

12 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S cases on a smaller scale can develop into significant dollar amounts. In one instance, a teller would make a withdrawal from a customer’s account as a cashier’s check and change the account status to “do not mail.” This process was performed on dozens of accounts and cashier’s checks were cashed in a wa- terfall pattern. This instance resulted in more than $500,000 in unauthorized withdrawals. In a separate instance, a branch manager instructed tellers to leave their drawers unlocked over lunch. While tellers were out of the building, the branch man- ager would process withdrawals on customer accounts using cashier’s checks and cash the checks using other teller drawers while employees were away at lunch. This particular scheme resulted in more than $80,000 in unauthorized withdrawals. In both examples, internal control structures were either weak or completely ignored, creating the opportunity to commit fraud. A growing area of fraud risk is internal demand deposits accounts (DDA). In our testing of various financial institutions, clients have had difficulty producing a complete listing of inter- nal DDAs. The Indianapolis Business Journal recently published the story of a former bank employee who embezzled more than $400,000 by transferring money directly into her person al checking account via internal demand deposit and clearing accounts using falsified general ledger tickets. The fraud was discovered while the employee was away on vacation and one such ticket had the incorrect account number on it. Upon further review, it was discovered the ticket had been created under the name of a terminated employee and the credit was to be posted directly to the fraudster’s personal account. In another case, an ATM/proof coordinator was making manual journal entries to 25 personal accounts. More than 350,000 entries were made during a three-year period to divert approximately $175,000 into the employee’s account. The other side of these entries was typically to ATM clearing and suspense accounts. Unfortunately, the reconciliation of these accounts was not being reviewed. This underscores the importance of having internal DDA as well as all clearing accounts reconciled and reviewed, with responsibilities for performing the recon- ciliation assigned to individuals without system access to the accounts being reconciled. In these examples, losses could have been prevented if proper controls were designed and operating effectively at the financial institutions. While areas such as kiting, official checks and internal accounts may appear to be low-risk, the potential for fraud in all of these areas is real. Combining this risk with an employee who feels pressured and can rationalize committing an “insignificant” fraud may result, over time, in significant losses to a financial institution. Brok Lahrman is a Senior Associate at BKD, LLP. This information was written by qualified, experienced BKD professionals, but applying specific information to your situation requires careful consideration of facts and circumstances. Consult your BKD advisor before acting on any matter covered here. Article reprinted with permission from BKD, LLP, bkd.com . All rights reserved. A legal partner you can trust. Our advantage is simple—we understand the business. Stinson Leonard Street’s banking attorneys have broad experience in matters related to financial services, including commercial lending, mergers and acquisitions, regulations and compliance, litigation and payment systems. Bank on our reputation and knowledge. stinsonleonard.com Ernie Panasci Kristin Godfrey The choice of a lawyer is important and should not be based solely on advertisements. 5613 DTC Parkway, Ste. 970 | Greenwood Village, CO 80111 | 303.376.8400 Offices in Denver as well as Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix; Washington, D.C.; Wichita and Overland Park, Kan.; Omaha, Neb.; Bismarck, N.D.; and Decatur, Ill. Perry Glantz Deborah Bayles 20638 CO Banker Ad_Half pg 1/6/14 11:20 AM Page 1  Make a Comeback – continued n