Preventive VigilenceDr. D V Srinivasa Rao, Faculty, IMAGE

GOOD AFTERNOON

An Interaction

on

05/02/23

Class Flow

? ? ? Vigilance angleVigilant functions

Punitive Vigilance

PreventiveMeasures

Whistle BlowerPolicy

Fallout of

Frauds

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What? Why? Where?

‘Vigilance’ for keeping

careful watch to avoid possible

danger or difficulties.

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Why Vigilance ?

1. Disciplining the wrong doers; 2. Protecting honest performers; 3. Increasing transparency and fairness; 4. Ascertaining accountability; 5. Reducing wastages/leakages; 6. Promoting culture of honesty and integrity; and 7. Reforming systems for corruption-free delivery. 8. Vigilance is a Management ToolIn brief; it helps in striving for zero tolerance for corruption and thereby enhancing the image of the organization.

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Where Vigilance ?Vigilance is essential in every unit of the organization and that is why it is stressed that every manager & staff becomes vigilant. However, a focused attention is required in each unit where:

1. Officials have high discretionary powers; 2. There is scope for doing wrong things; 3. Rules and procedures are complex; 4. Accountability is low; 5. Delay in decision making6. Opportunities to negotiate make money and 7. Individuals are known to be corrupt.

Mind-boggling 1.6 lakh frauds took place between 2009-10 and 2012-13 Nationalised banks account for just 17.5 per cent of the fraud casesBut contribute 83 per cent of the cumulative losses of Rs 29,910 crore Over 94 frauds involving a sum of over Rs 50 crore were reported by PSBs adding up to a whopping Rs 10,081.7 crore. private sector only 6 & foreign banks 3

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Main reasons:New TechnologyActive involvement of StaffViolation of laid down systems and proceduresNon adherence to preventive vigilance measuresApathy amongst staff membersLack of oversight by the managers on deviation from systems and proceduresBusiness pressures to meet unreasonable targetsLack of tools to identify potential tools

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WHAT IS VIGILANCE ANGLE ?

-Demanding / accepting illegal gratification-Obtaining valuable thing with / without inadequate consideration from a person with whom he is likely to have official dealings-Obtaining for himself or for any other person any valuable thing or pecuniary advantage by corrupt / illegal measures or abusing his position as a public servant-Possessing assets disproportionate to his known source of income-Misappropriation / cheating / forgery or other similar criminal offence

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Vigilance functions

Punitive Vigilance

SurveillanceVigilance

Preventive Vigilance

Punitive Vigilance

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Negligence

Blatant Violation

Recklessness

Exceeding discretion

Actions attracting punitive Vigilance

Non/Not Reporting

Gross and willful negligence

In decision making

Systems & Procedures

Exercise of discretion where no ostensible or public interest is evident

Failure to keep controlling authorities informed in time

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MisappropriationKYC / AML

Loans

CBS Environment Bribery

?

? ?

Branch Official

Controls & Systems

Preventive Vigilance

Jewel loan

Dormant a/cs

Lapses Customer Identification procedure not

followed Monitoring of transactions not done Connivance / collusion with customers Recklessness / Negligence / Blatant violation

of systems / procedures

Preventive Measures: Identification of Customers Categorisation of customers Suspicious Transactions Monitoring of Transaction

KYC & AML

Full KYC exercise required to be done at least every two years for high risk individuals and entities.

Full KYC exercise will be required to be done at least every Ten years for Low risk and at least every Eight Years for medium risk individuals and entities.

Positive confirmation (obtaining KYC related updates through e-mail / letter / telephonic conversation / forms / interviews / visits, etc) will be required to be completed at least every two years for medium risk and at least every three years for low risk individuals and entities

No middlemen to be entertained under any circumstances

Loans to be disbursed directly to the vendors Follow Terms of pre – post sanction Loan documents should be secured safely Ensure end use and asset creation Cross verification of documentation by BM of

another branch CIBIL report should be scrutinized Conduct Stock and Receivables Audit

periodically 2 Valuation reports and title investigation

reports in respect of loans of > Rs. 1 Crore, where collaterals are available

FRAUDS IN LOANSPreventive Steps

Proper due diligence on the builder / seller / borrower and property

Independent visit and discreet and detailed enquiries

A thorough study on loan proposal and related papers

Independently obtaining and verifying Encumbrance Certificate / Search Reports

Registering EM in favour of Bank Inclusion of Flat Number in the plan

itself to be insisted

FRAUDS IN MORTGAE LOANSPreventive Steps

Borrower: Careful choice of customer – Extensive Enquiry / Cross Verification of details declared – Visiting his residence / Office / Place of business / Enquiries in his office / neighbourhood – Verification of salary with the employer

Builder: Reputation / Integrity of the builder – Details to be brought in the proposal

BPO to be in the name of Builder with Account Number and Bank Name

BPO not to be handed over to borrower. Depute an officer to deliver to builder / seller with acknowledgement

Verify the name of borrower from original registry / records of builder / Society / SIDCO

FRAUDS IN MORTGAGE / HOME LOANSPreventive Steps

Advocate: No middlemen including borrower for obtention of Legal

Opinion Unqualified Legal Opinion Advocate must visit SRO / Authorities for verification of

genuineness of documents, EC, POA, Will, Death Certificate, etc. Every page of document to be verified for genuineness

Final Legal Opinion to be obtained on receipt of Registered Sale Deed – No discrepancies between Agreement to Sell and Final Sale Deed

Engineer: Approved Engineer must visit the property preferably with an

officer discreetly without the knowledge of the party – to be recorded – Boundaries of the property – Photograph

Discreet enquiry with neighbour regarding ownership Verifying approved sanction plan for genuineness Make market enquiries about the value of the property – record

FRAUDS IN MORTGAGE / HOME LOANSPreventive Steps

Certificated copy of title deeds should not be accepted for EM creation – Exceptional cases with permission

EM created by POA HolderConfirmation from the owner for having conferred POA for EM creationLegal opinion regarding flow of title, genuineness of property documentsValidity and genuineness of POA to be confirmed by Panel AdvocatePOA – Irrevocable and registeredTo obtain confirmation from the owner regarding authority to sell

Third party property as security – More due diligence – the reasons – their interest – Permission from Zonal Head

Verification with the CAs who have signed the financial papers

FRAUDS IN MORTGAGE / HOME LOANSPreventive Steps

If there are bulk applications from a single organisation, visit the organisation and verify salary details

If the number of applications are few in number, send a copy of the salary certificate to them and ask them to confirm its genuineness

While sending, do not send to authority mentioned in the salary certificate; Send it to some higher authority

Find out telephone number and speak to the organisation

FRAUDS IN SALARY LOANSPreventive Measures

Tagging with identification card for JL packets Keys of Jewel Safe in dual custody To be operated by both the custodians Maintenance of Jewel Control Register Custodian taking charge should verify no. of

packets Verifying / tallying with Control Register once in

a month Verification of contents once in a quarter by

custodians Jewel Appraisers

JEWEL LOAN FRAUDSPreventive Measures

Obtain life certificate for Pension accounts in November every year

Be cautious when there are large volume of transactions in pensions accounts

Be vigilant when there is sudden operations in the inoperative accounts

Insist for physical presents in case of illiterate Verify photograph, signature, previous entries in

pass book before making payment Passbook updation has to be done Ensure submission of pass book wherever the

payment is made against withdrawal slip

FRAUDS IN DORMANT ACCOUNTSPreventive Measures

Preventive Steps: Practice Honesty, Integrity and Sincerity Honesty should be genuine and real and not false or

fictitious Not keeping commitments amounts to dishonest

behavior. Honesty inspires openness reliability and frankness. It shows respect for one’s self and others

‘When people tell lies, they lose credibility. Once they have lost credibility, even they tell the truth, no one believes them’

‘There is enough in this world for man’s need but not for man’s greed’ – Mahatma Gandhi

BRIBERY – CORRUPTION PECUNIARY GAIN

SUPPRESSION OF FACTS

Maker-checker concept to be strictly followed Maker should prepare, post and checker should

authorize VVR checking should be done meticulously Attend to missing vouchers immediately Office accounts to be reconciled on regular

periodicity Control returns to be thoroughly verified “Must see Reports” should be compulsorily seen

FRAUDS IN CBS ENVIRONMENT

• Always keep your password hard to guess• Avoid relatives’ names, your date of birth,

wedding date, date of joining, etc.• Always have an alpha-numeric password,

preferably interspersed with characters such as dot, hyphen, star, etc.

• Never write down your password anywhere. Keep it only in your memory.

• Keep changing your password as often as you can. Frequent change of password is a deterrent for others to use your password

FRAUDS IN CBS ENVIRONMENTPreventive Measure

• When going on leave, ensure that your user ID is deactivated

• Never leave your terminal open even for a minute, if you have to be away from the computer for attending phone call or for going to the toilet or for drinking water, or for any reason

• Although the system logs you off after a specified time of no-activity, any mischief is possible before the system does auto logoff

• Generate and check other reports such as cash transaction reports

• Rotate checking of VVRs and other reports among the officers periodically and with an element of surprise

• Beware of repetitive operations for small amounts in the same account in a day or during consecutive days

• Such operations in cash payments are a sure sign of fraud

FRAUDS IN CBS ENVIRONMENTPreventive Measure

• Part of effective Corporate Governance to promote culture of openness, setting standards of public services and compliance with rules and regulations

• A mechanism for all staff members to report, in good faith, to the management concerns about unethical behaviour actual or suspected fraud or violation of Bank’s Code of Conduct

• Whistle Blower is only an reporter not an investigator• Designated Authority • No Whistle Blower will be victimised

WHISTLE BLOWER’S POLICY

Fallout of fraudsFallout of fraudsLoss to the BankLoss to the BankFunds locked up by way of provisions Funds locked up by way of provisions Reputational Risk Reputational Risk Employee Morale Employee Morale Loss of livelihood for the employee Loss of livelihood for the employee

who committed the fraudwho committed the fraudDisciplinary proceedings against Disciplinary proceedings against

other staff for attendant lapsesother staff for attendant lapses

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Final word………Final word………

Establish a comprehensive Establish a comprehensive system of controlssystem of controls

Reshape fraud detection effortsReshape fraud detection efforts Use advanced analytics and Use advanced analytics and

related tools, software and related tools, software and applications to obtain more applications to obtain more oversightoversight

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Thank UThank Thank You…You…

Major reason why people commit fraud is because they are allowed to do so.

Have Vigilance friendly approachDo not wait for fraud to take place

&Then chase and punish the guilty

Take proactive actionSo that

the mischief itself does not take placeUpdated on 28.10.2015