How to detect and prevent fraud


• The biggest challenge facing the banking industry worldwide today is fraud.

• The banking industry loses billions of dollars annually due to fraudulent activities.

• Some of the frauds are successfully executed by outsiders, while a reasonable number are successfully perpetuated with the collusion of an insider/staff member.

• Anyone can perpetuate fraud.


Here are some false assumptions about fraud:

1. Most people will not commit fraud.

Answer: The vast majority of people, under certain circumstances, will commit fraud, especially if they are convinced that it will not be detected. Therefore, it must be assumed that everyone has a tendency to commit fraud.

2. The fraud is not material.

Answer: Fraud is very material and is capable of eroding the working capital of any organization, consequently resulting in illiquidity and insolvency.

3. Most scams go unnoticed.

Answer: Most fraud is detected over time, especially if due process and procedure are followed.

4. Fraud can be well hidden and cannot be detected by the auditor.

Answer: There is usually a loop hole that will eventually come to light. With a good internal control procedure, such fraud will eventually be detected.

A well-trained auditor can easily detect fraud by following a properly designed audit program.

5. Those who are caught and persecuted are not wise.

Answer: Staff with fraudulent intentions think that those caught are not smart and the mindset of a first-time scammer is: I’ll do it just once or I’m too smart to get caught.


Common types of banking fraud include the following:

1. Every substitution

2. Every elimination

3. Check the clone

4. Check the equipment

5. Every alteration

6. Filling and loading

7. Claim for unearned overtime

8. Dry Post

9. Accumulated charges owed for long duration unauthorized and unofficial phone calls

10. Exaggeration of refund requests

11. Deposit removal

12. Add fictitious names to payroll

13. Overcharging customers

14. Taking money directly from the vault, cash register, petty cash, etc.

15. Obtain payment for false invoices, either from a supplier or vendor prepared by you or obtained (eg, hotel, airline ticket, etc.).


• Increasing complexity in the structure of an organization

• Increased speed of transaction dynamics

• Enhanced technological advances that contribute to the ease with which transactions are concluded

• Supervisor neglect history

• Lack of staff that could cause a breakdown of dual control

• Acceptance of some level of fraud as a ‘cost of doing business’.

• Outdated and ineffective control measures that do not meet acceptable global standards.

• Increased staff turnover which could technically lead to staff shortages

• Aggressive accounting entries all in an attempt to post earnings.


The following are characteristics of fraudulent staff that should put supervisors and associates on guard:

1. An employee who regularly borrows small amounts of cash from other colleagues

2. An employee asking to “hold” your personal check before trading it

3. A staff that frequently closes late and does not go on vacation.

4. Employees with low or inadequate salary levels

5. Employees showing resentment for not being treated fairly or being taken advantage of

6. Superiors who lack respect and appreciation for employees

7. Highly domineering senior managers

8. Employees who seem to be living and spending beyond their means

9. Split purchases

10. Irregularities in the bidding process

11. The same bidders over and over again

12. Pay bills from a copy instead of an original

13. Unusual sequence of numbers on supplier invoices


Fraud has a far-reaching effect on the organization and society in general.

• Fraud can drain the working capital of any organization which will ultimately lead to difficulties.

• The dismissal of staff and the social risks associated with staff and their dependents.

• Loss of confidence of customers, suppliers, creditors, contractors and shareholders about the organization and the industry.


1. Assume that everyone can commit fraud under the right circumstances.

2. Use your knowledge of internal control to “think dirty” and then verify your suspicions.

3. Remember that good documentation does not mean something happened; only someone said it happened.

4. Pay attention to the documents themselves and supporting paperwork, noting consistency of numbers, amounts of dates.

5. Consider the reasonableness of account balances and accounting entries, especially adjustments

6. Develop relationships and pay attention to signs or rumors of wrongdoing. Follow up. Remember that people are often torn between their moral standards and their reluctance to get involved. They rarely tell everything they know in the first interview.

7. Take a look at the hunches; first impressions are usually correct.

8. Be inquisitive; Do not easily accept explanations, especially if you do not understand them.

9. Use Statistical Sampling to Force You to Look at Items You Generally Wouldn’t Examine Otherwise

10. Look for unusual transaction patterns. (If you’re surprised, it’s unusual!)


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