Preventing Employee Dishonesty in Your Bank

Internal crime is a reality when it comes to risk exposures for banks. Despite thorough background checks, open communication and best practices, these incidents do happen. As employee dishonesty can cause significant losses in a financial institution, (hundreds of thousands of dollars is not uncommon), we’re dedicating this blog to providing some preventative strategies to protect your bottom line and, ultimately, your reputation.

Create a chain of command.

Limiting authority in the bank can prevent money from going missing. If possible, sign all of the checks going out yourself to ensure there isn’t any internal fraudulent activity going on without your knowledge.

Promote vacations.

This might seem odd, but ensuring the people who handle the flow of money are out a few weeks a year will expose any suspicious activity.

All accounting employees must take their vacation every year and in a minimum of full week increments. By forcing these employees to take their vacation it becomes much more likely that you will be able to uncover fraudulent activities. This is because they are not there to cover their tracks, says AEC Management Solutions.

Implement a check-signing system.

Rather than have employees come up to you and have you sign checks as they come in or when someone needs to be paid, create a system for doing so. For example, set specific dates for when employees are paid and when consultants are paid. This makes accounting much simpler and prevents employees from easily having you sign a fraudulent check while in a haste.

Separate functions.

The person who writes the checks should not be the person reconciling the account. By separating these duties, you increase the likelihood of preventing and uncovering employee dishonesty. It is easier for a dishonest employee to cover their tracks when they are handling both functions.

Avoid company credit cards.

If possible, avoid issuing company credit cards to employees. If you must issue them, require an expense report at the end of each month for each person to make sure no one is sneaking in personal expenses on the company’s tab.

Don’t rely on others to pinpoint fraud.

Accounting firms should be used to handle expenses, especially for large operations. However, don’t rely on them to identify red flags. Instead, be proactive about your policies and tracking where the money goes and who it goes to. After all, the focus of an audit isn’t to identify a scam or fraud, it’s to make sure the statements and taxes are accurate.

Get insurance.

The best way to recover from an act of internal fraud is to file a claim with your Employee Dishonesty Insurance provider.

About Financial Guaranty Insurance Brokers

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals.

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