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Prevention of Corruption and Fraud in Banks

by Rinku Khumukcham
0 comment 6 minutes read

By: Vinod Chandrashekhar Dixit
Prevention is always better than cure. Managing the risk and consequences of fraud and corruption requires one to have in place appropriate pro-active fraud and corruption management measures. No organisation or administrative process is free of risk.
If the Bank is to help to tackle corruption, it needs to take corruption more explicitly into account in its own economic work and in its internal processes. The first requirement in mainstreaming a concern for corruption is for the Bank to bring the issue out of the dark. To a significant extent this is already happening. Discussions about the effects of corruption on development have been intensifying within the Bank in recent years.
Fraud is a serious risk that all businesses need to manage, especially in today’s globalised economy, where fraud and corruption can easily create a cascading domino effect causing serious financial and reputational loss. Fraud is not defined in criminal law, yet it is commonly understood that it contains an element of cheating or an intention to chat or deceive. All banks are fully alert against multiple types of frauds, time to time. Possibly there is absence of effective system of verification whether branch machinery is kept well geared up to foil any attempt of incidence of frauds.
New of perpetration of frauds in Banks is pouring in at regular intervals. As days pass on, numbers and amounts are on an increasing spree. According to one survey, 60% of bank frauds have occurred with the connivance or collusion of employees. Staff involved in frauds compared to total strength many not even be 1% means the redeeming feature is that majority of employees are honest. Banking is the only industry where no test check but 100% checking is in force and any transaction involves at least 2 people. Alas ! Yet in the name of trust and also due to sheer laziness many employees have undergone mental agony as well as punishment on account of frauds committed by the so called colleagues.
Many people feel that the unprecedented growth of business without matching increase in staff-strength is one of the main reasons for incidence of frauds in public sector banks. While others believe that since there is no system of rewards for good work and punishment for negligence of duty in the banking industry, there is deliberate attempt n the part of some insiders to neglect their duty. On probing deeply into working of banks, it is clear that the real factor for proliferation of frauds is negligence of non-observance of the prescribed systems and procedures by bank-staff. One can trust but never over trust another person. If any work can be done by a single person, why the bank has devised a system of 2 people? Periodical job rotation should be the order of the day; non one is indispensable, if anyone is there, it is better to be watchful.
“Anywhere/Anytime banking” and “Convenience banking” has also brought attendant risks. One of the major risks that loom large is the risk of frauds being perpetrated in a computerized environment.
Technology risks imply risks such as loss of security, financial loss due to lack of controls or ineffective implementation of controls, the risk of software attacks occurring due to lack of adequate safeguards, and so on.
The Deficiencies that occur due to some important reasons are:-
ü Weaknesses in the internal control system: non-segregation of duties, beach of password security etc.
ü Manipulations at the data entry level by unauthorized or manipulated entry of data.
ü Manipulations of due dates of loans, altering names and addresses of customers etc.
ü Internal controls are very important and necessary in a computerized environment. Computer-related frauds have, in a number of instances, been attributed to lack of internal controls or ineffective implementation of controls.
ü There are basically five controls that are to be implemented in a computerized set-up. They are Management, Organisational, Operational, Environmental & Application controls.
ü Security of credit card numbers and personal information are among the most important concerns to customers.
ü The highest possibility of breach in E-Commerce systems was reported through the Internet/other external access.
ü The greatest areas of security threat were considered to be system administrators, outsourced service providers, former and current employees, vendor products with weak security controls, denial of service attacks, lack of employee awareness, poor implementation of security policies and hackers.
ü Auditing in a computerized environment involves, among other things, the test-checking of controls to ensure that such controls are actually functional.
A clear statement of commitment to ethical business behaviour throughout the organisation should help to ensure that staff know that they are expected to follow the rules without circumventing controls and that they should avoid or declare any conflicts of interest.
Ø Managers should try to create the conditions in which staff has neither the motivation nor the opportunity to commit fraud.
Ø The maintenance of good staff morale may help to minimize the likelihood of an employee causing harm to the organisation through fraud.
Ø Under the right conditions staff is themselves an excellent deterrent against fraud.
Ø There should be avenues for reporting suspicions of fraud. Staff should be encouraged to report suspicions of fraud either to their line mangers, to internal audit or possibly to a hotline set up for the purpose.
If you are prudent you are saved 90%, even if you are not aware of certain well laid down procedures. 10% is consciously left out, as, fraud is a normal business hazard. Never ignore or brush aside any of the curiosity or doubt that may arise in your mind, while doing any of your duties. In fact that is prudence, if there is a lakh of rupees credited in a watchman’s account, naturally you should have the curiosity to know how he got that money. Enquire in a friendly way. That will save you from any future harassment.
Be a defensive driver and follow the traffic signals seriously. Chances for accident in that case, are limited. Think it over again what is defensive driving and what the traffic signals in Banking are.
Banks in India can protect themselves against frauds by appreciating and managing technology risks & understanding the implications of software attacks and security and also by understanding the legal recourse available.

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