A recent article published by LoanSafe reports that a U.S. district judge has sentenced a former loan supervisor at a Maryland credit union to prison for bank fraud and aggravated identity theft.

In her plea agreement, the woman stated that she created fraudulent checking and share accounts, loans, lines of credit, and credit card accounts in the names of at least five customers, one of whom was deceased. She also manipulated these customers’ existing lines of credit and credit cards to increase limits without their knowledge.

For four years, the woman concealed the fraud — which totaled more than US $219,000 — by using a portion of the funds to repay some of the accounts, backdating transactions and changing terms, and altering the accounts’ mailing instructions to prevent statements and notifications from being sent to the customers.

Lessons Learned

This bank fraud illustrates the importance for internal auditors to recognize red flags that can indicate segregation of duties issues as well as bypassing key preventive controls. In this case, the red flags included the ability of the loan supervisor — without additional signatures or approvals — to:

  • Create and approve lines of credit, credit cards, and checking and savings accounts.
  • Alter the terms and conditions associated with customer accounts.
  • Backdate transactions.
  • Bypass or remove controls around the financial statement requirements and mailing process.
  • Be the only person involved with customer accounts (e.g., creating, modifying, or processing transactions).

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Subscribe_June 2014