Prevent Cash Theft from a Bank Branch

Bank tellers routinely have access to huge sums of cash. With so much money in easy reach, having the oversight in place can ensure that cash doesn’t walk out the door.

Consider the case involving a Citibank employee at a California branch (see right-hand box for details). During an 11-month period, she allegedly embezzled $217,000. To combat cash theft within branches of your bank, there are a number of steps that can be taken:

Investigate “overs and shorts.” During the regular course of business, a teller’s cash drawer may have more or less cash than the bank’s accounting records indicate should be present. Depending on the teller’s experience and overall volume of branch transactions, mistakes can happen. If these mistakes are not thoroughly investigated, frontline employees may believe over time that they can commit fraud and remain undiscovered. The “perception of detection” where employees believe that fraud will be uncovered quickly is crucial to ensuring that employees don’t steal in the first place.

Always follow the money. To cover the alleged theft from her cash drawer, the Citibank teller moved money from her cash drawer to the branch’s “vault” cash or ATM cash account. By doing so, she was able to hide the fact that her cash drawer was short. To uncover such a fraud, it is important to “follow the money” as it moves around the branch. In Pena’s case, had the bank periodically monitored journal entries performed at the branch level, they may have uncovered her activity.

Separate duties. If the same employee is routinely allowed to function as a teller and oversee the vault cash count, the chances of fraud increase significantly. Due to staffing levels, it may be difficult at your bank to ensure that a teller does not also take part in the vault cash count. However, without additional controls such as more than one employee conducting the cash count, employees may begin to believe that they can commit fraud and remain undetected.

 

Rotate duties. In addition to separating duties, consider rotating duties as well. Ideally, the rotation should be unpredictable so that a would-be fraudster is unable to predict which employees will be assigned to certain functions within the branch. No matter how much an employee may express a personal preference for certain functions in a branch, he or she must not be allowed to maintain the same role over an extended period of time. Allowing an employee to control one process or procedure for extended periods dramatically increases the probability that fraud will occur.

Mandate vacation time. To remain undetected, fraudsters often conduct frequent adjustments or entries to hide their activities. Mandating that employees use their allotted vacation time can remove the employee who is stealing from the bank long enough for the fraud to be uncovered. If an employee visits the branch while on vacation to complete a transaction that he or she “forgot” to initiate before leaving, consider this a red flag. Before that person is allowed to complete the transaction, ask for specifics. Ideally, permission to complete the transaction should be withheld until the employee returns to the office and a suitable review can take place.

Conduct surprise cash counts. Although it is time consuming, as well as costly to implement, a surprise cash count can be invaluable in the fight against fraud. Surprise cash counts are normally conducted by individuals from outside the branch that arrive unannounced to count and reconcile the branch’s cash on hand. These counts might be conducted by operations management or staff from the internal audit function. To be effective, avoid inserting any elements that are predictable in to the process. For example, do not conduct the surprise cash count using the same employees at certain intervals such as every third month. In circumstances where there is already substantial evidence of fraudulent activity, your bank’s corporate security or fraud department may take the lead on performing the cash count.

Check kiting detection. In the Citibank case above, in addition to embezzlement, the employee also undertook a check kiting scheme. The FBI defines check kiting as the following:

“Check fraud artificially inflates bank account balances, in accounts that are under control, for purposes of obtaining unauthorized use of bank funds, through the systematic exchanging or swapping of checks between these accounts, in a manner which is designed to misuse the float that exists in the banking system.”

Check kiting fraud is typically perpetrated by customers, not employees. However, employees are ideally placed to maintain a kiting scheme as they have firsthand knowledge of the bank’s internal processes associated with check clearing. In order to prevent check kiting, a technology solution is likely required to monitor debit and credit activity. You also need skilled investigators that are adept at “following the money” as it moves across and between banks.

Employee account monitoring. Check kiting is just one of many schemes that bank employees can be tempted to commit. If you have not done so already, consider implementing a review focused on bank employee account activity. There are a number of solutions on the market to detect internal fraud. Before purchasing such a solution, take time to meet with your bank’s information technology department to determine if they have the ability to produce employee fraud detection reports in-house. By using internal reports, you can determine the scope of internal fraud within your bank as well as justify future investment in more advance third-party solutions.

For more information on how we can help your community bank, please contact Sonny MacArthur at smacarthur@pkm.com or 404-420-5631.