We are trying to implement some internal controls on loan disbursements to detect if a loan officer is committing fraud by creating a phantom borrower or other ways to manipulate the loan disbursement process.

Does anyone have any ideas on this matter?

thanks

Get a report generated that groups all like-addresses. When a phantom borrower is created, the loan officer may use his/her home address or may use one PO box (opened especially for this purpose) for all the bogus loans.

Ensure there is segregation between the loan officer, disbusement and/or booking onto the system. There should be someone other than the LO seeing the completed loan package.

The system we have in place now is the loan officer has the ability to disburse funds. The auditors recommended we change our process and take this away from the loan officer, but management and the board wants to keep the process the way it is so as not to slow down the process and hurt customer service. I am trying to come up with some good detective audit steps to help mitigate some the risk.

Good luck - standard separation of duties requires these be separated. Here is a quote from the FDCI Exam Manual and I'm sure you will find like references in the other regulator's manuals also. What makes your bank so special to require otherwise??

Segregation of Duties
The participation of two or more persons or departments in
a transaction causes the work of one to serve as proof for
the accuracy of another. Additionally, when two or more
persons are involved in a transaction, the possibility of
fraud diminishes considerably. Ideally, duties should be
arranged so that no one person dominates any transaction
from inception to termination. For example, a loan officer
should not be allowed to disburse loan proceeds..........

I would have to look at the entire process. If by "disburse" you mean close the loan and hand out checks, I believe risks can be mitigated by others preparing the loan documents and checks. A good monitoring program of closed loan can also support this. But the process and controls would need to be reviewed.