GROUP MEMBERS

UBAB ASLAM

MUNAZZA JABEEN
HUMA QASIM HIRA SHAMIM

INTRODUCTION
In this presentation we are going to explain
what is fraud and forgery in banks. What are the modes and impacts of frauds What are the main fraud prone areas in bank accounts How frauds can be prevented What is the role of KYC and customer due diligence in

preventing frauds

FRAUD
Fraud is an intentional deception made for personal

gain or to damage another individual.

Different types of business frauds include identity

theft, falsifying tax information, making false financial statements, insurance fraud e.t.c.

FORGERY
The creation of a false written document or alteration

of a genuine one, with the intent to defraud.

Forgery may include: signing another person's name to a check To write payee's endorsement or signature on a check without the

payee's permission or authority. Making an instrument in a fictitious name or the name of a nonexisting person. The making of a whole written instrument in the name of another with a fraudulent intent.

REASONS OF FRAUD
GREED : Inordinate desire to posses wealth, beyond

the dictates of basic survival and comfort.

LACK OF TRANSPARENCY : Complex financial

transactions are ideal method to hide fraud.

LACK OF ETHICS : lack of moral values in individuals

leads them towards fraud.

 POOR MANAGEMENT INFORMATION: where a

companys management information system does not produce results that are timely and accurate.
FAST BUCKS : attitude of earning quickly and easily

through short cuts leads to fraud.

COMPLEX ORGNISATIONAL STRUCTURE :

designed to obfuscate the revenue streams; and so hide reality from third parties.

 POOR ACCOUNTING CONTROLS: such as a

monthly reconciliation of the bank account, are lapse the signals that a fraud has occurred will be missed.
EXCESSIVELY GENEROUS PERFORMANCE

BONUS: the more generous the bonus, when coupled to a demanding target; the more temptation there is to manipulate results.

IMPACT AND MODES OF FRAUD

IMPACT OF FRAUDS
Economic decline due to direct physical damage.
Indirect economic losses endured by prominent

corporations due to losses suffered by their clients. Physical injury or death to innocent victims caught in the middle of a scam gone wrong. Emotional and psychological burdens placed on the fraud victims

MODES OF FRAUDS IN BANKS

1.

Insider Bank Fraud

Identity theft Illegal insider trading Fraudulent loans Fraudulent institutions Forged documents Wire house

2.

Outside Parties Bank Fraud

Check Fraud Credit Card Fraud Fraudulent Accounting Stealing Identities Money Laundering

FRAUD PRONE AREAS IN DIFFERENT ACCOUNTS

Savings Bank Accounts The following are some of the examples being played in respect of savings bank accounts: (a) Cheques bearing the forged signatures of depositors may be presented and paid. (b) Specimen signatures of the depositors may be changed, particularly after the death of depositors, (c) Dormant accounts may be operated by dishonest persons with or without collusion of bank employees, and (d) Unauthorized withdrawals from customer's accounts by employee of the bank maintaining the savings ledger and later destruction of the recent vouchers by them.

Current Account Fraud The following types are likely to be committed in case of current accounts. (a) Opening of account in the names of limited companies or firms by unauthorized persons; (b) Presentation and payment of cheques bearing forged signatures; (c) Breach of trust by the employees of the companies or firms possessing cheque leaves duly signed by the authorized signatures; (d) Fraudulent alteration of the amount of the cheques and getting it paid either at the counter or though another bank.

Frauds In Case Of Advances Following types may be committed in respect of advances: (a) Spurious gold ornaments may be pledged. (b) Sub-standard goods may be pledged with the bank or their value may be shown at inflated figures. (c) Same goods may be hypothecated in favour of different banks.

Role of CUSTOMER DUE DELIGENCE in FRAUD PREVENTION

FRAUD PREVENTION
These are the critical elements that all institutions must

possess to most effectively combat fraud by employees: Strong corporate governance. up to date accounting system. IT systems and operational risk management processes must be up to date to reduce the risk of fraud due to system breakdowns, hackers, and processing errors. Effective internal controls and risk management Duplication of power Rotation of employees Training of employees Independent audit

CUSTOMER DUE DELIGENCE

Objective: To mitigate the risk of fraud and forgery Due diligence is an investigative process companies use

to inspect a clients operational or financial information. This process helps organizations make decisions about the company and assess its strength in the business environment. Customer due diligence measures ensure that businesses know who their clients are, so that they do not accept clients outside of their normal risk tolerance.

KYC
CDD involve use o f KYC ( Know your customer )

polices. Know? What you should know? True identity and beneficial ownership of the accounts Permanent address, registered & administrative address Making reasonable efforts to determine the true identity and beneficial ownership of accounts; Sources of funds Nature of customers business

 Know? What constitutes reasonable account activity? Who your customers customer are?
Your? Who should know? Branch manager, audit officer, monitoring officials. Customer? One who maintains an account, establishes business

relationship, on whos behalf account is maintained, beneficiary of accounts maintained by intermediaries, and one who carries potential risk through one off transaction

Core elements of KYC

Customer Acceptance Policy
Customer Identification Procedure- Customer Profile Risk classification of accounts

Risk Management
Ongoing monitoring of account activity Reporting of cash and suspicious transactions

CONCLUSION
Frauds and forgery in banks can be controlled efficiently if banker, while opening an account of a customer, consider and fulfil all elements of KYC. Customer due diligence plays a vital role in mitigating the risks of fraud and forgery in banks.

THANK YOU