Bank Fraud Management

Bank Fraud Management – 3

Managing fraud in an organization involves three important activities.  These are prevention, controls, and detection. The CEO or COO of any organization should have fraud management as one of his or her main functions with strong emphasis on “prevention”.


Bank Fraud Management – 3

Fraud Prevention Techniques

Managing fraud in an organization involves three important activities.  These are prevention, controls and detection. The CEO or COO of any organization should have fraud management as one of his or her main functions with strong emphasis on “prevention”.  Prevention is more effective in reducing the impact of fraud than controls (which can be compromised) detection (which is not easy) or litigation (which can take many years before arriving at any reasonable closure). However, in this piece, we will discuss how prevention, controls, detection and litigation are all related and help to prevent fraud.   

Controls to prevent fraud and forgery should be built into the corporate policies and strategies.  A point to remember always is that there is no control or check point that the fraudsters cannot beat. Fraudsters are more focused in how to beat controls than other members of Staff.  If you have a staff that breaks down controls in the name of “serving customers with speed” keep a close watch on him or her.  He or she could be a ‘lone ranger’ or an agent for ‘fraud syndicate’.

Managers and Supervisors should not trust or distrust people absolutely.  Keep your mind open. It is not advisable to put 100% confidence on any Staff.  There is no way to know the “inner mind of a man or a woman” i.e. there is no art or science to know what a Staff is planning to do next. Controls should be reviewed regularly to ensure that they are adequate for your operations. Bankers have discovered that it is near impossible to eradicate fraud.  Greed or avarice and covetous will always form part of human weaknesses.    

Against the above background the following preventive steps may be taken within the organization to prevent fraud:

    1. Adequate Staff Welfare i.e. salaries, wages, allowances and bonuses that are open and fair to all Staff should be provided.  It is not safe to allow some members of staff to feel that they are being cheated or oppressed on the basis of tribe, ethnic or gender.  An organization must consider the general human factors which usually trigger up the decision to perpetrate fraud or even commit crime at the point of crafting the internal preventive measures.
    2. The CEO of an organization should – in words and actions – show that he will not tolerate a Fraudster and would not hesitate to dismiss anybody who shows signs of doubtful integrity.  There must be no preferential treatment or sacred cows in this regards.  
    3. There must be daily reconciliation of all accounts that involves cash and cheques receipts / disbursements.
    4. Every organization should have standard disbursements or payments limits that the officers can approve and any violation should be penalized.
    5. There must be a conscious installation of internal checks i.e. the work of one staff should directly or indirectly be checked by another.  This is important.  


  • The cashier or ledger clerks should be taught during the induction training to say “no” to any order from their Supervisors or Bosses whose instructions or directives are against the normal standard procedure.


    1. There must be rotational policy in the organization.  It is dangerous to keep one man or woman on the same desk for more than two years except you want to make him or her, a specialist.
    2. There should be open reward for honest behaviours while the public sanctions should also be administered for lack of integrity or honesty. This will send a strong message to the entire staff about Management’s preference.
    3. When a fraudster is caught he or she should be handed over to the law-enforcement agents for necessary action that may ultimately lead to recovery of funds and / or court litigation.  This will also deter others who are thinking of doing the same thing.
    4. Regular audit of branches and surprise checks should always be conducted to ensure that some people are not taking advantage of internal control loopholes.
    5. There must be a standard operating manual to ensure that nobody breaks down corporate controls and checkpoints without a trail.


  • Have formal control:  


Formal controls include internal audit department, internal check, daily call-over of postings, Regiscope or photographic equipment, close circuit television, specially designed cheque books,  daily lodgement of cash – for non-bank institutions and DUAL control for vaults, doors, fireproof safe and confidential stores.


  • Informal Controls:


Informal controls have been effective in ensuring failure of fraud attempts even after the fraudsters have crossed the “check points”.  Many organizations do not pay attention to informal controls because these are not written in the operating manuals.  Examples are:

Verbal Confirmation of high valued cheques from the Customers before payment by a bank i.e. Apart from written confirmation, the account officer and the customer can agree on a mode of confirmation that will not be part of the formal mandates submitted.  A specific time and code can be agreed.  


  1. Other methods are:
    1. Syndicated Watch – This is a process whereby the Manager or Head of a Department selects a group of trusted staff to constitute members of fraud watchers.  The process is difficult because the team must be carefully selected to avoid inclusion of a fraudster.  
    2. One Man Spy – This is a process whereby the head of department or divisional head selects a trusted staff to constitute “a one-man” fraud watcher or spy.  His duty is to watch out for any of the staff whose behaviour, action or utterances indicate that he or she is a potential fraudster.  Other members of staff must not know him as a fraud spy.  He also must not engage in careless or unguarded comments.
    3. The Boss as a Watcher – The Boss should take interest in what his members of staff do outside the office without giving the impression that he is actually spying.  He must not allow “lone rangers” to suspect that he is watching their flashy lifestyles or suspicious actions.  He should patiently but discreetly check the source of His or Her Staff’s extra wealth.  This may bring out a lot of revelations.
    4. Friendliness – The boss should operate an open door policy (with caution) and also be friendly with junior staff without surrendering the respect for his office or status.  This class of staff will come forward to give him information on suspicious or unusual movements.

Generally, a low – level Staff considers it a rare privilege to be friendly with the boss and will want to inform him, in confidence, if he or she observes any “fraud attempt” that may embarrass the “friend”.


  • The Regulators Dimension


The Central Bank of Nigeria must be informed about fraud attempts in a bank.  In the report to CBN, details of the fraud e.g. names of the culprits, amount, dates, mode of operation and instruments used should be included.  CBN will circulate the information to all operating banks.  

The purpose of the circulating the information to all Banks is to ensure that in addition to other punishments, such Fraudsters would not be able to get jobs in the banking industry in future.  Some banks that failed to obey the directive had found out through bitter experience that it was dangerous to recruit a fraudster into a bank.   

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