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#308039 - 01/25/05 04:22 PM Employee account review procedures...
A_G Offline
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Anyone willing to share theirs, assuming you have one. Thanks.
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Audit
#308040 - 01/25/05 04:49 PM Re: Employee account review procedures...
EdOils Offline
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EdOils
Joined: Jan 2004
Posts: 553
Louisiana
I don't have anything written, but here's what I do.

Each quarter, I review the most recent months worth of statements on all employees who have accounts here. It's about 20, so it doesn't take that long. I'm looking for any unusual deposits, mostly, but do skim the w/d. Like I tell the employees, I'm only looking for a few things, not how much they spend at Walmart. All non-regular deposits over $100 are researched, but I will look at the smaller ones, if they are frequent. (I hate looking at the ones that deposit their Avon or Mary Kay checks into it. ) I also review transfers to accounts not owned by the employee. Loans are reviewed for source of payment quarterly and proper approval/booking annually.

This is all I can think of off the top of my head. I'd like to know what others are doing.
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#308041 - 01/25/05 07:32 PM Re: Employee account review procedures...
Anonymous
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Isn't that extreem level of oversight an incentive for staff to take their accounts across the street to another institution?

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#308042 - 01/25/05 08:14 PM Re: Employee account review procedures...
Jokerman Offline
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Quote:

Isn't that extreem level of oversight an incentive for staff to take their accounts across the street to another institution?




(a) How does it effect the staff? (b) Boy, how I wish they would!!!

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#308043 - 01/25/05 08:44 PM Re: Employee account review procedures...
A_G Offline
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Quote:

Isn't that extreem level of oversight an incentive for staff to take their accounts across the street to another institution?




Or safe and sound banking...especially in light of the Enrons, Tycos, Worldcoms, etc.
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#308044 - 01/25/05 10:17 PM Re: Employee account review procedures...
Gigi2Three Offline
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Gigi2Three
Joined: Mar 2004
Posts: 277
Employee accounts are reviewed monthly here. I thought that was pretty standard.

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#308045 - 01/25/05 11:03 PM Re: Employee account review procedures...
Cathy P Offline
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Cathy P
Joined: Jan 2003
Posts: 318
NE
I review employee checking accounts monthly. Like EdOils I look mostly at deposits for things out of ordinary, but also at withdrawals (noticed one employee who seemed to be doing a lot of online gambling). It's amazing how many tellers will make little dinky deposits. I make sure that transfers into the account are coming from another of their accounts and not a relative's account or if it is, that a different teller performed the transaction.

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#308046 - 01/26/05 02:42 PM Re: Employee account review procedures...
WV Banker Offline
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Joined: Jan 2005
Posts: 11
West Virginia
I review employee accounts quarterly, looking for unusual activity. I look mostly at deposits and transfers. To establish a baseline for "normal" activity, I've set up a spreadsheet to monitor the number and total amount of deposts in addition to the number and total amount of deposits that aren't attributable to payroll deposits.

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#308047 - 01/26/05 04:59 PM Re: Employee account review procedures...
litmachog Offline
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litmachog
Joined: Apr 2004
Posts: 83
Arkansas
We have done employee account reviews annually for the last several years. We have reviewed all the primary and secondary accounts for each employee each year and then reviewed accounts of other known family members. That has been where we have found issues with employees. We were looking at all employees each year but are now backing off to 25% each year.

We look at the cash deposits (is there a pattern or any large deposits), withdrawals/transfers out (are employees doing their own transactions), potential for kiting, if overdrafted - are they being charge (we caught an employee in I/T reversing her OD charges with this). Plus we will look at anything unusual that needs to be reviewed.

We do a lot of review but we have never had an employee leave the bank for that reason. I don't really believe that causes employees to leave their employment.
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#308048 - 01/26/05 05:09 PM Re: Employee account review procedures...
Anonymous
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We discourage our employees from banking with us. Rather than have free account with us, they can have a free account at either one of our two largest correspondents (their choice). Being in a fairly large city, these institutions have dozens of offices in our area. If these two choices are not to their liking, they can of course have their pay direct deposited at any financial institution. Let's be honest, the extra handling of employee accounts makes almost all of them more trouble than they are worth.

Even if you have employee accounts, I am surprised by the definition some posters are using as material! Anything over $100, unbelievable!! I didn't know that being a bank auditor qualified you as a proctologist or gynecologist.

I think I will print this thread and post in the lunchroom so our employees realize what we are saving them from!

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#308049 - 01/26/05 06:00 PM Re: Employee account review procedures...
Jokerman Offline
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Quote:

I am surprised by the definition some posters are using as material! Anything over $100, unbelievable!!




I think it depends on the employee - for a senior officer, I agree that would be silly. For a new teller, though, I might want to see the other side of that transaction. Not that if it was cash I would do anything, necessarily, but if there were several in the month, I might ask the supervisor about it.

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#308050 - 01/26/05 06:24 PM Re: Employee account review procedures...
Anonymous
Unregistered

Anon here-

Jokerman, valid observation. My intent was to show these procedures to be performed on a risk-focused basis and "fishing expeditions" must be minimized.

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#308051 - 01/26/05 11:41 PM Re: Employee account review procedures...
Anonymous
Unregistered

You might check your state code to make sure you are not out of compliance with that review-Oklahoma's says to review all officer's accounts quarterly and all other employees (note again, the word that says "all") semi-annually.

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#308052 - 01/27/05 05:31 PM Re: Employee account review procedures...
Anonymous
Unregistered

We have over 900 employees. 5 auditors. No way to review their accounts with any detail. We use exception reports to look at employee NSFs and potential kiting. Otherwise, we only look at them if there is a specific suspicion.

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#308053 - 02/02/05 05:24 PM Re: Employee account review procedures...
Anonymous
Unregistered

So, once found out that an employee has been kiting (proven)
what will be your recourse? Is this a valid ground for termination? Reason I'm asking is , we have an employee whose account has been closed due to kiting (2002) and said employee/teller is still working in the bank. Interesting thing is, they recently opened a new account for her (2004).
I appreciate all your thoughts on this. Thank you.

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#308054 - 02/02/05 05:42 PM Re: Employee account review procedures...
Anonymous
Unregistered

Most financial institutions have ZERO TOLERANCE when in comes to employee dishonesty. 'just my 2cents.
'by the way I'm not a lawyer either. :-)

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#308055 - 02/02/05 05:51 PM Re: Employee account review procedures...
Jokerman Offline
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I wonder what your bonding company would say? I just don't see how you can justify keeping an employee for which you filed an SAR.

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#308056 - 02/02/05 06:14 PM Re: Employee account review procedures...
Lu Offline
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Joined: Apr 2002
Posts: 597
We had to let a teller go for kiting. We were under the impression that there was no choice. We filed a SAR. Great employee too!
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#308057 - 02/02/05 09:07 PM Re: Employee account review procedures...
Jay-Risk Offline
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Joined: May 2004
Posts: 274
New England
Quote:


Isn't that extreem level of oversight an incentive for staff to take their accounts across the street to another institution?




Anon's comment above is not entirely off the mark. The 2004 Report to the Nation on Occupational Fraud and Abuse, published by the Association of Certified Fraud Examiners, and available at www.cfenet.com, noted that for any type of anomaly testing to be valid, it should target a "universe" population and the inspection standards should be documented and adopted by the Board.

Unless you somehow mandate employees' direct deposit of their bi-weekly payroll into your institution's accounts, the review of employees' accounts will decidedly reflect a population that desires free accounts -- i.e., employees who earn less and want to avoid the costs of accounts with other institutions. In other words, higher paid loan officers, investment staff, underwriters, accounting and financial professionals will bank elsewhere, while lower paid administrative staff will be banking with you. Looking at $100 inbound transactions for any employee is obtrusive. A preventive awareness campaign, where employees are fully informed of your anomaly testing process, coupled with your having documented standards in place, is the way to promote and encourage ethical behavior.

Without a systematic anti-fraud process, any employee exhibiting obvious indicators of fraud (e.g., very high end cars, clothes, jewelry, etc., which are obviously well beyond the employee's legitimate means), but who knows how to defeat your process by keeping very little inbound activity into your bank's accounts, can easily stay below your radar.

Finally, I am troubled by one poster's mentioning of "Avon and Mary Kay" deposits and I am hopeful that this was just an off-handed comment mentioned only for the BOL audience and not something that would be discussed lightly over coffee in the lunch room. An audit professional who employees know conducts periodic reviews of personal identifying information of employees and then lets comments slip, even ever-so-lightly, is most assuredly headed for trouble.

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#308058 - 02/03/05 01:41 AM Re: Employee account review procedures...
Anonymous
Unregistered

Our code of conduct is very specific on how employees are expected to handle their account relationships with our institution. Kiting is grounds for immediate dismissal. We report them to the bonding co & file a SAR. After two warnings about NSFs, we close their accounts closed. Etc.

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#308059 - 02/03/05 02:09 PM Re: Employee account review procedures...
Anonymous
Unregistered

I have found that just the knowledge that someone is reviewing employee accounts regularly is somewhat of a deterrent to unusual transactions. I will even have employees stop by my office and let me know that they are having a large deposit, etc. and tell me what the circumstances were. They also know that another officer reviews my account regularly.

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#308060 - 02/03/05 10:18 PM Re: Employee account review procedures...
Anonymous
Unregistered

we are thinking about starting an employee account review program. can anyone post the disclaimer/policy they give to employees regarding review of their accounts? we are trying to go about this the best way possible. thanks!

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#308061 - 02/04/05 06:03 AM Re: Employee account review procedures...
EdOils Offline
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EdOils
Joined: Jan 2004
Posts: 553
Louisiana
I've been out of pocket, but I wanted to respond to this, as I think this is an important subject.

We all risk weight things differently, based on the amount of time we have, past experiences, etc. I agree that $100 is immaterial to the bank, but what about your employee? I don't know about you, but $100 is a lot of money to me personally. I also don't have that many accounts to look at, so time is not really a factor. My whole audit takes less than a day.

I have also had some bad experiences with employees stealing from another bank that I worked at. In the 3 years that I worked there, we had 2 head tellers steal over $100,000 from the vault and no less then 5 employees were fired for various transactions made in their own account. Also, an FDIC examiner friend of mine told me about a bank in another state where a 15yr employee stole over $750,000 (and still counting) using her own account. So am I worried that it will happen here? You better believe it. Is it a big risk? Absolutely!

Another poster said that this was a "fishing expedition". Isn't that what audit is about? Aren't we just fishing around for something that may or may not be there? The only thing is that on this fishing trip, I would rather come home with an empty ice chest, then the "big one".

Now Jay, let's talk about your post -

Quote:

Unless you somehow mandate employees' direct deposit of their bi-weekly payroll into your institution's accounts



This is not allowed by Reg E. An employer cannot tell an employee what financial institution he/she has to make their direct deposit into.

Quote:

the review of employees' accounts will decidedly reflect a population that desires free accounts -- i.e., employees who earn less and want to avoid the costs of accounts with other institutions. In other words, higher paid loan officers, investment staff, underwriters, accounting and financial professionals will bank elsewhere, while lower paid administrative staff will be banking with you.



This is not true. Where I live, every bank offers free checking. Our employees who do bank with us range from the lower paid employees to senior management and everywhere between. I do not personally bank here for various reasons, which I've discussed in other threads.

Quote:

Looking at $100 inbound transactions for any employee is obtrusive.



How so?

Quote:

A preventive awareness campaign, where employees are fully informed of your anomaly testing process, coupled with your having documented standards in place, is the way to promote and encourage ethical behavior.



I agree 100%. All employees know that I audit their accounts. They don't know what I look at, but they know that the audit is perfomed. In my book, that is enough.

Quote:

Without a systematic anti-fraud process, any employee exhibiting obvious indicators of fraud (e.g., very high end cars, clothes, jewelry, etc., which are obviously well beyond the employee's legitimate means), but who knows how to defeat your process by keeping very little inbound activity into your bank's accounts, can easily stay below your radar.



I don't believe that the cars you drive or the clothes you wear are definite fraud indicators (but they can be). For example, your teller can be driving a new Lexus, but her husband may make $100,000/yr. By the same token, another teller can drive a beat up Civic and steal you blind.

As for flying under the radar, it could happen. However, that $100 was not a hard rule. If I see someone making $20 deposits everyday, I'm going to look at it a little closer. You look for patterns, not just single deposits. If it looks like a duck and walks like a duck, it may be a duck. However, it could also be a goose.

Quote:

Finally, I am troubled by one poster's mentioning of "Avon and Mary Kay" deposits and I am hopeful that this was just an off-handed comment mentioned only for the BOL audience and not something that would be discussed lightly over coffee in the lunch room. An audit professional who employees know conducts periodic reviews of personal identifying information of employees and then lets comments slip, even ever-so-lightly, is most assuredly headed for trouble.



Lighten up, man. This was a joke and only made in here. Professionalism and decorum are always used when dealing with fellow co-workers, regardless of audit area.

Jay, I hope you don't think I'm picking on you, because I'm not. I love a good debate. If I'm off-mark here, let me know.
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#308062 - 02/04/05 04:03 PM Re: Employee account review procedures...
Anonymous
Unregistered

Come on, are you going to go up to an employee and demand an explanation of where they got that $20?? It sounds like someone enjoys this a little too much and might be on a power trip.

After this thread, I agree with the poster who got rid of employee accounts. If I were a CEO and saw some of these posts, I'd do it too. I don't know about you, but with all of the new regulatory expectations and requirements, I have more important things to do than break out the thumbscrews for every non-payroll deposit.

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#308063 - 02/04/05 04:29 PM Re: Employee account review procedures...
A_G Offline
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Joined: Jul 2004
Posts: 18,957
Quote:

Come on, are you going to go up to an employee and demand an explanation of where they got that $20?? It sounds like someone enjoys this a little too much and might be on a power trip.




I wouldn't demand an explanation, but I might just take an extra look to ensure the deposits are not coming from a source such as, say, some hidden GL expense account(!) or being transferred from a non-related account. If you see a pattern, investigate, it's an auditor's job, NOT a glorified power trip.
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#308064 - 02/04/05 05:06 PM Re: Employee account review procedures...
EdOils Offline
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EdOils
Joined: Jan 2004
Posts: 553
Louisiana
Quote:

Come on, are you going to go up to an employee and demand an explanation of where they got that $20??



Nope. I'll follow the paper trail.

Quote:

It sounds like someone enjoys this a little too much and might be on a power trip.



Not at all. I do it because it is a risk to the bank. If I wanted to get on a power trip, I could, but then I would be ineffective as an auditor. AuditGuy was right, it's our job. It ain't pretty, but someone's gotta do it.

Quote:

I have more important things to do than break out the thumbscrews for every non-payroll deposit.



I've also talked to auditors who didn't believe cash counts were an effective use of their time, either. All I have to say is that once you've been burned, you look at things differently.
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#308065 - 02/04/05 05:45 PM Re: Employee account review procedures...
Jay-Risk Offline
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Joined: May 2004
Posts: 274
New England
Quote:


Jay, I hope you don't think I'm picking on you, because I'm not. I love a good debate. If I'm off-mark here, let me know.




Of course not. You are not speaking out of school, or off-mark. As you've noted, BOL is about gathering varied professional views based on our collective experiences, training, and background.

One problem with any professional site, such as BOL, is that we all come from different banking backgrounds with varied levels of risk-solution methodologies. Someone who works for a $100 billion regional office of $1 trillion Bank of America in Boston or Providence can at any moment be discussing an issue with another professional who might work in an $80 million institution from Salina, KS, or Norman, OK. Their commitment, professional motivation, and recognition of the need to solve the problem are the same; however, their solution methodology is vastly different.

When I'm speaking of overseeing the conducting of account anomalies, I'm referring to having ACL perform the analyses of various data populations in multiple ERP systems (i.e., for each employee's direct deposit, checks issued, savings, CDs, household) to evaluate trends, pinpoint out-of-pattern account activities, and to highlight potential issues for further investigation. (ACL can also be used in the same way for deposit and DDA accounts to aid in your BSA/AML/PATRIOT/OFAC programs).

Some people, on the other hand, manually review employee account transactions. My concern with this level of detail is that if you observe an employee's account with a $100 deposit not from your bank's payroll (which could easily be a gift from Aunt Helen), are you then approaching the employee to inquire of the transaction's purpose?

I still support the ACFE study wholeheartedly, and I believe that a scheming employee who might have an account with you is smart enough to also have another account elsewhere -- even having the account in a wife's, girlfriend's, or someone else's name. Setting exception threshholds at $100 transactions might occasionally capture minnows, but the $750,000 sharks you speak of are not banking that carelessly and will seldom be detected in that manner. My personal view is that an anti-fraud measure must follow written, well-understood standards; must be communicated to employees to serve as a preventive measure and to gain senior management buy-in; and must complement long-held, industry-accepted indicators of fraud -- such as the indicators provided by seeing an employee who annually earns $60,000 suddenly driving a $55,000 car; wearing a $4,200 Raymond Weil watch; wearing expensive jewelry and expensive clothes; and generally demonstrating an out-of-pattern lifestyle. Our fraud audit motivation is the same, but I'd rather target the $220 thousand commercial loan officer who can collude to set-up phony businesses and take the institution for millions, versus targeting the single-mother teller who takes that hundred dollar bill, but who eventually gets caught anyway.

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#308066 - 02/04/05 06:18 PM Re: Employee account review procedures...
Anonymous
Unregistered

I like the solution my mentor in banking had at his bank. He first arranged in the 1970's.

He arranged for free accounts at a correspondent for all employees. Employees were informed this was done for the mutual benefit of the bank and employee. This way bank was assured of the confidentiality of payroll information (i.e. no payroll checks at the teller line or in proof) and employees were likewise assured of privacy in their financial affairs - no fellow staff members or auditors (well intentioned or power tripper) poking around their accounts.

Remember this was in the 70's and hard copy trial balances were the rule instead of on-line inquiry with access control. This arrangement also eliminated the problems of inadvertent overdrafts, Reg O violations, turning down employee loan requests etc.

For employee convenience, since branch banking had yet to come to Illinois, they could cash a check (up to a certain limit) at the teller line. However, this privilege was suspended if they bounced a check.

Not having an employee account in the bank also functioned as an internal control by eliminating the opportunities - as previously noted - for G/L fraud (debit expense/suspense credit my account) and EDP programing fraud (e.g. round all the pennies into my account).

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#308067 - 02/04/05 07:03 PM Re: Employee account review procedures...
Anonymous
Unregistered

I'm a firm believer of risk-based auditing. It happens that tellers sneak that extra $20 into his/her pocket, but the function of an audit department isn't to look for mice, unless there is a good reason. Given limited audit resources, that kind of employee theft should show up in routine balancing and controls. If you focus too much on the small stuff, then it's more likely that the large losses are being overlooked. We've generally found the higher losses to be generated from the more highly compensated staff and the smaller losses are normally identified by our customers.

It would be interesting to hear how much your auditors make per hour and how much it is costing you to catch that $20.

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#308068 - 02/04/05 09:28 PM Re: Employee account review procedures...
EdOils Offline
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EdOils
Joined: Jan 2004
Posts: 553
Louisiana
Jay - you're right about the different approaches for different sized banks. What is good for my $110M bank is not good for the BoAs and Chases of the world. A $750M loss from an employee stealing would take up a year's worth of earnings for us, but would not be material for the big boys. So Anon, do you now understand that I am using a risk approach to my audit? It's just that my risk is different than yours.

Let me tell you about the $750M fraud, without going into detail (I don't know all of the details, since it happened somewhere else). This person was the operations officer for the bank. She used her knowledge to get around the controls that were in place. She used her own checking account to make daily deposits from GL accounts that she reconed. She audited all of the employees accounts, except hers. Her boss was supposed to audit hers, but he didn't. The transactions were small amounts over 15 years. The $750M was all that the bank could prove, but they suspected that she took well over $1MM. This lady was addicted to a lifestyle, so they should have noticed the nice clothes, cars, etc. Just like Jay said.

Now, let me tell you about the head teller that took over $100M out of the vault at a bank that I work at. She had been with the bank over 10 years and was a trusted employee. Cash audits were being performed by the branch manager, but not very well. Again, she was a trusted employee. She was addicted to video poker. She didn't drive a new car. She wore the same clothes she always had. You would not know she had a problem (no one did until she confessed). We may have eventually found it, but she could have gotten away with much more. This was a $150MM bank and it was a big loss, but the bigger then the loss of $s was the drop in employee morale. They were in shock that a well trusted employee had done this.

So, maybe I am being a little cautious, but I think I have good reason. Jay and I (and others) may disagree on the level of risk, but we are in different situations. Moral of the story is that no one program fits all in any area of audit. You have to audit based on what you feel is important. I think we can all agree on that.
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#308069 - 02/04/05 10:33 PM Re: Employee account review procedures...
Anonymous
Unregistered

Quote:

I'm a firm believer of risk-based auditing. It happens that tellers sneak that extra $20 into his/her pocket, but the function of an audit department isn't to look for mice, unless there is a good reason. Given limited audit resources, that kind of employee theft should show up in routine balancing and controls. If you focus too much on the small stuff, then it's more likely that the large losses are being overlooked. We've generally found the higher losses to be generated from the more highly compensated staff and the smaller losses are normally identified by our customers.

It would be interesting to hear how much your auditors make per hour and how much it is costing you to catch that $20.




I would have to agree with you on auditors doing all of this review. I am one of three auditors for a three bank holding company of 1.2 billion. We have recently moved the regular review of the employees to the banks themselves. They perform roughly 20 - 25% of employees each year. Audit is only brought in on issues that raise a question. This allows the time for Audit to be spent more wisely while still being able to be involved when necessary such as the employees with issues in their accounts.

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#308070 - 02/05/05 01:24 AM Re: Employee account review procedures...
Anonymous
Unregistered

The point was made that the problems with the employee theft was really a problem with the strength of cash controls, and that in the other instance she got around the controls that were in place. If controls are weak or are not tested, then losses may occur through carelessness as well as by theft. Relying on employee account reviewsfor very small amounts would tend to dilute the ability to review and test those major controls. That being said, you gotta do what you think is best and you're in the best position to decide how low to go in your examinations given your circumstances.

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#308071 - 02/07/05 09:30 PM Re: Employee account review procedures...
H Ford Offline
New Poster
H Ford
Joined: Oct 2002
Posts: 23
California
We review monthly-it is not my functional area so I'm unsure of any threshold amount. I know our attorney advised us to keep disciplinary measures separate between employee mishandling their account (ie: NSF) and actual fraud (kiting, stealing, etc) Be careful, especially those in CA. We treat employees' accounts as any other customer. If they are NSF repeatedly, we will attempt to educate, if that doesn't work we will close the account because we don't want any customers like that(fees or no fees). If there is actual fraud it would be handled on a case by case basis, according to incident and severity.

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