Many historical internal frauds stem from teller theft or Customer Representative personnel theft. Unfortunately branch personnel can become intuitive in figuring out ways to redirect funds from the cash box or from a customer. This is a concern that keeps Senior Management and even Board members often worried. The need to implement controls to manage such risk often can run counter against the need to facilitate transactions faster and in a convenient manner for customers. In order to reduce the potential for internal theft one control that most banks implement is the limiting the amount of cash that each teller keeps in their cash box on a daily basis. Another control is to perform surprise cash counts. At least once every month each teller is audited by the head teller or the branch manager on a surprise basis and their box is counted and agreed to the system balance. Maybe a teller needs to “borrow” money for the weekend. A surprise cash count first thing in the morning on Monday before the branch opens would help to detect this situation. Maybe a teller tries to “borrow” cash and put it back when they get their paycheck. A surprise cash count just prior to payday may help to detect this situation. And yet another control could be to position your branch security cameras to ensure that the teller activity behind the counter is being adequately captured.
But who monitors the transactions that are being approved and performed by the branch manager?
A new teller starts working at a branch and learns all of her teller duties. She is there for a few weeks and the branch manager comes over with a withdrawal ticket and tells her that he needs to make a withdrawal for a customer. The teller does not question the branch manager. That’s her boss. She does whatever her boss tells her to do. So, she cashes out the withdrawal ticket and hands over the cash to the branch manager. The branch manager has no intention of giving the cash to a customer.
The branch managers know their customers. They know which ones have troubles proving their bank statements or checkbooks. They know which ones will be going away on vacation. They know which ones rarely use their accounts. They have a good knowledge of which customers may not reconcile their accounts every month. And while we would like to trust everyone, everyone cannot always be trusted. Even the branch managers that have been with the Bank for a long time have figured out ways to perform fraud and theft. Unfortunately in most internal fraud case studies dealing with internal fraud, the culprit is generally the long time employee who is well respected within the organization.
Here’s another situation. A branch manager goes to the teller with a withdrawal slip and asks the teller to issue a cashier check to a business account customer. She was going to hand deliver the cashier check to the customer’s business as a customer service gesture. The teller processes the transaction and the branch manager leaves. A little while later, the branch manager comes back to the Bank and tells the teller that the customer decided they want cash instead of the cashier check. So the teller cashes out the cashier check and hands the cash over to the branch manager. Once again, the branch manager has no intention of giving the cash to the customer.
So what controls should we consider implementing to reduce the likelihood of such unauthorized transactions by a branch manager?
One control that is often dismissed at the risk of inconveniencing a customer is requiring the customer to get up from the CSR desk and go to the teller directly to conduct such transactions. Such a requirement would help to reduce the likelihood of intervention by unauthorized branch personnel. Requiring all cash out from a withdrawal or cashed check to be physically handed directly into the hand of the customer can have a strong impact in strengthening controls. To balance customer service, CSR personnel could accompany customers to the teller to minimize their need to wait on a line. This could also be accompanied by having training performed for new tellers by someone other than the branch manager. As part of training, tellers could be informed of certain instances that can happen and it be explained to them, that while the branch manager is their boss, they still work for the Bank and must protect the customers at the same time. Ensure that it is required for the teller to verify all customer signatures on checks cashed and on withdrawal slips and ensure that they review the supporting documentation prior to cashing any transactions out.
In weighing out the options of which is more important, would you put a higher risk on a customer service issue, or controls that mitigate internal fraud. It’s a discussion continually worth having.
Senior Quality Control and Review Specialist
Sharon Geiger has 27 years banking experience, 21 of which have been involved in internal audit. She has extensive knowledge of all aspects of the banking industry, with a particular emphasis on regulatory compliance and identifying risks and controls. As QCR Specialist, she performs Quality Control Reviews to ensure all workpapers and reports are completed in compliance with the firm's standards.