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PRESENTED BY:

71 Nishit Patil.

72 Nouman Khan.

73 Paresh Jain.

74 Parvaz Shaikh.

75 Prashant Verma.

76 Pratik Bacche

77 Pratik Saraiya

78 Priyanka Baheti

79 Purvesh Alandikar

80 Riddhi Dalal.

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Paul Lower 2010

Loan Fraud

Internal loan fraud

Loansto Phantom borrowers

Loan lapping

Kickbacks on illegal loans

Reciprocal loans

Commercial loans Suspense account fraud

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Paul Lower 2010

EmployeeLevel Fraud

Scale of employee level fraud

Many ways for bank employeesto commit fraud

Loan fraud isthe area of highest risk

But embezzlement remains high onthe list

Two categories of employee fraud for banks

Looting customer accounts Exploiting weaknesses in operations

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EmployeeLevel Fraud

Two types of employee fraud

Looting customer accounts

Theft from customer accounts

Dormant account fraud

Cashiertheft of cash or Skimming

Cheque fraud

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Paul Lower 2010

EmployeeLevel Fraud

Two types of employee fraud


Exploiting weaknesses in operations

Theft of consignment items

Invoicing fraud

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Paul Lower 2010

EmployeeLevel Fraud

Theft from customer accounts

Employees divert funds from customer accounts

Fraud isthen concealed with false records

Hudson Savings Bank fell victim to thisscheme

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Harshad Mehta - Rs 4,000 crore

He triggered a rise inthe Bombay Stock Exchange inthe year 1992 by trading inshares at a premium acrossmany segments.

Taking advantages ofthe loopholes inthe bankingsystem

Harshad and his associatestriggered a securitiesscam diverting fundsto the tune of Rs 4000 crore (Rs 40billion) from the banksto stockbrokers between April 1991to May 1992.

Core

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Mehta mastered the tricks ofthe trade and set out ondangerousgame plan

Mehta hassiphoned off huge sums of money fromseveral banks and millions of investors were conned inthe process.

Hisscam was exposed, the markets crashed and hewas arrested and banned for life from trading inthe stockmarkets.

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He was later charged with 72 criminal offences

He died in 2002 with many litigationsstill pendingagainst him.

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Ketan Parekh - Agrregate Borrowings Rs 1,500 Cr

Ketan Parekh followed Harshad Mehta's footstepstoswindle crores of rupees from banks.

A chartered accountant he used to run a familybusiness, NH Securities.

He targeted smaller exchanges like the Allahabad StockExchange and the Calcutta Stock Exchange, and boughtshares in fictitiousnames.

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Impress your audience with graphic analyses.

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His dealings revolved around shares of ten companies

like Himachal Futuristic, Global Tele-Systems, SSI Ltd,

DSQ Software, Zee Telefilms, Silver line, pent media

Graphics and Satyam Computer (K-10 scripts).

Ketan borrowed Rs 250 crore from Global Trust Bank tofuel his ambitions.

Ketan along with his associates also managed to getRs1,000 crore from the Madhavpura Mercantile Co-operative Bank

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Was convicted in 2008, for involvement inthe indianstock market manipulationscam in late 1999-2001.

Currently he has been debarred from trading intheindianstock exchangestill 2017

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C R Bhansali - Rs 1,200 crore

The Bhansali scam resulted in a loss of over Rs 1,200crore (Rs 12 billion).

He first launched the finance company CRB CapitalMarkets, followed by CRB Mutual Fund and CRB ShareCustodial Services.

He ruled like financial wizard 1992 to 1996 collectingmoney from the public through fixed deposits, bonds

The money wastransferred to companiesthatneverexisted.

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C R Bhansali - Rs 1,200 crore

CRB Capital Markets raised a whopping Rs 176 croreinthree years.In 1994 CRB Mutual Funds raised Rs 230crore and Rs 180 crore came via fixed deposits.

However, hisgood days did not last long, after 1995 hereceived several jolts.

Bhansali tried borrowing more money from the market.This led to a financial crisis.

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Cobbler scam

Sohin Daya, son of a former Sheriff of Mumbai, wasthemain accused inthe multi -crore shoesscam

Daya ofDawood Shoes, Rafique Tejani of Metro Shoes,and Kishore Signapurkar of Milano Shoes were arrestedfor creatingseveral leather co-operative societies whichdid not exist.

They availed loans of crores of rupees on behalf ofthese fictitioussocieties. The scam was exposed in 1995.

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Cobbler scam

The accused created a fictitious cooperative society ofcobblersto take advantage ofgovernment loansthrough variousschemes.

Officials ofthe Maharashtra State Finance Corporation,Citibank, Bank ofOman, Dena Bank, DevelopmentCredit Bank, Saraswati Co-operative Bank, and Bank ofBahrain and Kuwait were also charge sheeted..

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The UTI Scam - Rs 32 crore

Former UTI chairman P S Subramanyam and twoexecutive directors -- M Kapur and S K Basu -- and astockbroker Rakesh G Mehta, were arrested inconnection with the 'UTIscam

UTI had purchased 40,000 shares of CyberspacebetweenSeptember 25, 2000, and September 25, 2000for about Rs3.33 crore (Rs 33.3 million) from RakeshMehta whenthere were no buyers forthe scrip.

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The UTI Scam - Rs 32 crore

The market price was around Rs 830. The CBIsaid itwasthe conspiracy ofthese four people which resulted inthe loss of Rs 32 crore (Rs 320 million).

Subramanyam, Kapur and Basu had changed theirstance on an investment advice ofthe equities researchcell of UTI.

The promoter of Cyberspace Infosys, Arvind Johari wasarrested in connection with the case.

The officials were paid Rs 50 lakh (Rs 5 million) byCyberspace to promote itsshares.

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Citibank India; fraud worth 400 crore

A case of possible fraud was reported atDLF-II branch,Gurgaon and is reportedly estimated at Rs 300-350 crore.

The scam was engineered by none otherthan anemployee Shiv Raj Puri who was working as aRelationship Manager forthe past 7-8 years.

Puri had opened a joint account inthe names of PremNath, Sehna Prem Nath, and Deeksha Puri in September2009; initial investigations reveal thatthe joint account (no5011666247) had transacted a huge sum of money.

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Police reportssay that Puri managed to get largedeposits and made fake bank slips and statements forthecustomers

. Puri siphoned offthe money to invest inthe stockmarket.

Citibank has intimated the Reserve Bank ofIndia andSebi aboutthe fraud.

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The suspected employees had accessto high net worthindividual (HNI) clients ofthe bank

They were in roles which involved servicingtheirrequirements for investment products, accordingto abank employee who spoke on condition of anonymity.

. The employees claimed thatthe products wereauthorized by the banks investment product committeeand used forged bank documents and letterheadstoprove the same.

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Paul Lower 2010

FRAUDDETECTION & CONTROL

MANAGEMENT LEVEL FRAUD

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Paul Lower 2010

EmployeeLevel Fraud

Milton Pereira, former management of Hudson City Bank, wasconvicted on charges of embezzling more than $650,000 from hisformer employerto fund hisgambling and credit card debts.

Overseven years Pereira tampered with more than 60 customeraccounts by executingthousands of fraudulent debits and credits

CASE STUDY

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EmployeeLevel Fraud

How he did it:Pereira repeatedly withdrew funds from customer accounts andtransferred them to accounts he had created and controlled and from

which he illegally withdrew funds.

He evaded detection by moving funds between accounts andpreventing customers from receivingstatements.

CASE STUDY

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EmployeeLevel Fraud

How he was found out:When a few customers became aware of unauthorised activity ontheir accounts, Pereira corrected the errors by transferring funds

from other customers accounts.

Then he sent lettersto the customersto tell them there had been anerror inthe bankssystem that caused the error and thatthis hadsubsequently been corrected.

Some ofthe customers remained suspicious and the ensuing policeand FBIinvestigation uncovered Pereiras fraudulentscheme.

Pereira wastried and sentenced to two years in prison.

CASE STUDY

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EmployeeLevel Fraud

When bank employees have too much control overcustomer accounts

How could this fraud have been prevented?

Which controlsshould have been in place to prevent it?

CASE STUDY

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EmployeeLevel Fraud

When bank employees have too much control overcustomer accounts

Surprise audits of fund transfers might have revealed red flags of

unusual patterns in accounts being looted by Pereira and anunusually high number of creditsto the accounts he controlled.

Sampling ofsuppressed statements by auditors or regionalmanagersshould have pointed to Pereira as being responsible forrequestingthe statementsto be held.

Use automated fraud pattern detectionsoftware; ensure IT

professionalsset up to include flagging bank manager activity.

Thorough background checks on Pereira might have revealed hispersonal debt and gambling problems

CASE STUDY

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Management Level Fraud

Fraud atsenior management level

Occurs less frequently than employee level fraud

But when it occurs lossestend to be greater

Management hasgreater authority

Possibly better knowledge ofsystems

Better equipped to execute complex frauds

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Paul Lower 2010

Management Level Fraud

Types of management level fraud

Same as employee fraud but on a largerscale

Cheque fraud

Skimming


Loan fraud approving loansto oneself Loan fraud kickback schemes & bribery

Illegal financial transactions and corruption

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Management Incentives

Meeting market expectations

Stock prices are tied to meeting earnings forecasts

Focus is onshort-term performance only

Companies are heavily punished fornot meeting forecasts

Executives have been endowed with hundreds of millions of dollars worth ofstockoptionsfar exceeds compensation (tied to stock price)

Performance is based on earnings & stock price

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Management Disclosure Fraud

Meeting market expectations

Overall misrepresentations aboutthe nature ofthe company or its products, usually madethrough news reports, interviews, annual reports, and elsewhere

Misrepresentations inthe management discussions and othernon-financial statementsections of annual reports, 10-Ks, 10-Qs, and other reports

Misrepresentations inthe footnotesto the financial statements

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Roleof Credit Reference Agencies

Independent credit agencies play a part

The three major credit rating agenciesMoodys, Standard & Poors and Fitch/IBCAreceived substantial fees from Enron

Just weeks priorto Enrons bankruptcy filingafter most ofthe negative news was outand Enronsstock wastrading for $3 pershareall three agenciesstill gave investmentgrade ratingsto Enrons debt.

Paul Lower 2010

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Roleof Auditors

They must be independent

Auditors mustnot provide internal and external audits. Anderson was paid $52 million in2000 by Enron, the majority fornon-audit related consultingservices.

Auditors mustnot be solely reliant on one client.Enron was Andersenssecond largest

client and kept a whole floor of auditors assigned atEnron year around Auditors mustnot have been employed by the client CFOs and controllers were formerAndersen executives

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