The head teller at the Union Dime Savings Bank in New York took advantage

of an error correction routine built into the computer system to embezzle $1.5
million over a period of three years. The head teller was responsible for training
new tellers in the operation of the bank’s on-line system. Because these trainees
made numerous errors, the head teller explained his entries to several accounts
each day using the error-correction routine as necessary to correct the errors of
these trainees. Toward the end of the embezzlement period he was making
upwards of fifty supervisory corrections per day to support a $30,000 per day
gambling addiction. The following controls were prescribed for the system:
a. A daily review of all supervisory transactions was made by a control clerk at
the center. Although the control clerk had been told to look for an unusual
volume of corrections, such a condition for this branch did not cause any
alarm because the condition had existed since the first day the clerk
performed the review.
b. A report of all supervisory corrections sent to the branch manager each day
was ignored by that individual because he did not understand the purpose
of the report.
c. The head teller was required to take a vacation each year, but problems that
arose during his absence because of the defalcation were saved for him to
resolve upon his return.
d. Exceptions turned up by the auditors when they confirmed account balances
were taken to the head teller for resolution. Blaming the errors on recently
hired tellers, he would correct the misposting with the error-correction
routine.

1. Discuss the relevance of the controls that were prescribed.

2. Describe the reviews and tests of compliance that might have detected
the fraud.