The Risk Watch: Betrayal of Trust -- The “People” Risk in Financial Institutions (2)

Dear Readers, we started a series on the people-risk factor in financial institutions, which if not controlled eventually results in fraud and losses to the institution. The startling statistics in the case of the US shows why fraud is really no “respecter” of persons. Anybody regardless of status, age, class, gender is capable of committing fraud. However the only thing that stops people from committing fraud is the honesty factor that is inbuilt within one’s self. It is an inner beauty that surpasses all understanding.

In my previous article on “The 21st Century Bank Teller”, I stressed on honesty as the major attribute that a bank teller should have. I made reference to a case of a thirty-five year old teller whose children have been sacked from school and whose wife was also sick in the hospital. Can you imagine what this gentleman would feel inside? With all the temptations around him, it is honesty that would stop him in his tracks if he is on the way to misappropriate some cash to meet his family commitments.

When we think of fraud in a financial institution, most peoples’ thoughts go quickly to staff handling cash. There is a saying that fraud can be perpetuated on any desk or department in the office – but, one day, the law will catch up on the perpetrators. In some departments, fraud takes a long time to be uncovered. The benefits come either in kind or cash. Sometimes the ones in kind are far in excess of the cash frauds.

How can financial institutions prevent the few bad nuts in the system from perpetuating these crimes in such supposedly “honourable” environments? Let us start from the recruitment process.

The Recruitment Process

I believe that for a financial institution, apart from including an industry specialist, there are specialised recruitment agencies currently performing wonderful jobs out there. It is very expensive to hire and train staff, only to dismiss them within a short period; there is therefore a need to get it right the first time. How do we get it right? We can’t read “honesty” on a person’s face, can we?

Face to face

Sitting on a panel of interviewers for young professionals is a very interesting phenomenon. With the global environment that we currently live within, one can easily check the Internet to learn various tips on how to write a CV, and even how to answer and respond to interview questions.

It is interesting to watch these applicants rattle the same old jargons in response to the generic questions asked in all interviews. However long the interview takes, the panel will be unable to determine the inner attributes of the applicant. Certain attitudes can however be spotted within a few minutes of an interview, and any red flags noted down.

A couple of decades ago, long after staff had been recruited, you would find the examination result-slips and certificates being certified by the HR department. There were even stories of staff quickly vacating their posts due to the detection of fraud perpetrated on their certificates. Currently, most educational institutions have a reliable database to rely on for checking applicants’ educational backgrounds and results.

Police records-checking is also improving, but definitely we have a few problems there. I recall a story about a young gentleman who was employed in a financial institution and did not report at the induction programme for the first few days. As expected, he was able to submit a medical report that he had been admitted at a hospital during that period.

It was however a good Samaritan who met him and quickly alerted the bank that he was wanted for fraud in one of the rural banks! Subsequently, it was confirmed that during his three-day absence he was actually in the police cells! You can imagine what would have happened if he had been taken on by the bank. The irony is that he was one of the top performers during the assessment at the end of the programme.

E-Recruitment

Recently E-recruitment or online recruitment is considered one of the important tools for attracting new candidates, as using information technology helps in speeding up the recruitment process. Many financial institutions are now using E-recruitment to reduce cost by advertising available vacancies on their web sites.

Sometimes this can be cost-effective, instead of resorting to recruitment agencies or advertising in newspapers.

This enhances their talent pool data base, as it is an open page available to more browsers to access. The job seeker is able to view a list of job-openings and provide information about themselves via an online application form for the job they see as suitable for their qualification. These consequently avoid organisations being confused with masses of emails from candidates with differently formatted CVs and irrelevant information.

Online ability tests -- These will test your ability in key areas such as numeracy and verbal reasoning and are usually known as physchometric tests. They are an ideal way to test your performance and behaviour. The key to these tests is working quickly and accurately.

Assessment centre

Apart from e-recruitment, modern institutions include capability-based interviews, group exercises and analysis exercise. These tests determines one’s range of skills and see how one would cope within a workplace environment. Analysis exercises are used to assess the applicants’ analytical skills and commercial awareness, while also helping to assess how they would tackle problems within the workplace.

For the group exercises, imagination and teamwork will be key. This process judges their personality and major capabilities.

All these are perfect. Assuming all these modern techniques are combined and confirmation sought from previous employers, police records prove clearance from previous criminal activity etc., what happens next?
Modern fraud detection technologies

Obviously, recruitment is followed up with induction or orientation programmes. Several institutions continue to rely on personnel training and background checks but do not have technology in place to monitor activities of the staff.

The internal fraud-detection technologies allow banks to identify suspicious employee behaviour by monitoring their online activity, customer inquiries, flash-drive or pen-drive usage, E-mail activity and telephone use. Solutions also can restrict employee-access to systems and information. Nothing comes easy. In the US, financial institutions spend over US$400million on vendors of fraud detection software.

The Ghanaian Scene

Getting closer to home, the fact still remains that almost all fraud is discovered eventually: either by specially-designed audits, observation of lifestyle; complaints by customers, employees or friends; by information obtained from law enforcement; and sometimes by accident or intuition. The challenge has been monitoring for suspicious behaviour. Banks need to move from being reactionary to being more proactive when it comes to internal fraud.
Early detection of fraud is critical

Despite the reluctance or inability of financial institutions to patronise technology on fraud detection, I still believe that any human error can also, maybe better, be identified through human interventions. If we remember that employees are recruited and trained by human-beings, supervised by their fellow human-beings, lapses monitored and controlled by these same human-beings, then fraud can also be detected through a strategic review and back-tracking of all these same procedures, identify weaknesses in the system, and block any loopholes to combat fraud. How can these things be identified? One does not need to have twenty years experience to identify and flush out the bad nuts in the system.

Next week we shall look at some signs that peers, subordinates, supervisors, managers and employers need to watch out for with potential fraudsters on the job. Remember, fraud is no respecter of persons.

Points to Ponder
• Almost all fraud is discovered eventually:
• Either by specially-designed audits, observation of lifestyle; complaints by customers, employees or friends; by information obtained from law enforcement; or sometimes by accident or intuition.
• The challenge has been monitoring for suspicious behaviour.
• Banks need to move from being reactionary to being more proactive when it comes to internal fraud.

To be continued.....

Alberta Quarcoopome is a Chartered Banker, and an Operational Risk Manager, with several years experience in training young bankers. You may post your comments and suggestions to [email protected].