Fraud Detection Techniques in Banks | Tips for the Auditors to identify frauds in Bank Branch Audit

Описание: Role and Responsibility of the Auditor - SA 240 | Fraud Detection Techniques in Banks | Tips for the Auditors to identify frauds in Bank Branch Audit discussed by CA. (IP) Vivek Khurana.

Types of Fraud in Banking System:-

There are numerous ways in which banking frauds are committed. The frauds committed in banking system can be classified under different types, based on the historical data available. Some examples of banking frauds are as under:
Account Opening Fraud: This involves an account being opened with either fake or original KYC documents with an intent to depositing and cashing of fraudulent cheques/ instruments.
Cheque Kiting: It is the method where by a depositor utilizes the time required for cheques (which is issued from an account having insufficient funds) to clear, to obtain an unauthorized loan with or without any interest charge.
Cheque Fraud: It is the most common method where frauds are committed through stolen cheques and forged signatures.
Counterfeit Securities: In this type of fraud, forged, duplicated or tampered documents, securities, bonds and certificates are presented as security for availing loan.
Digital Fraud: Under this type of fraud, the fraudster resorts to hacking, tampering to gain unauthorised access to siphon off or misappropriate funds.
Loan Fraud: This type of fraud is committed by lending funds to a nonborrowing customer or allowing a borrowing customer to exceed his credit limit, without adequate sanction / authority.
Money Laundering Fraud: This type of fraud is committed by concealing the existence, source or use of illegally obtained money, by converting the cash into untraceable transactions in banks.
Advanced Fees Fraud: This is popularly known as “419 scam‟. Advanced fees fraud may involve agent with an offer of a lucrative business proposition / promise to make substantial funds available against advance fee or series of advance fees.
Letters of Credit: This type of fraud is most common in international trade but has also been observed in domestic trade

Role and Responsibility of the Auditor:-
Branch auditor’s primary objective is to opine on the true and fair view of branch financial statements.
The audit process needs to confirm compliance with Standards on Auditing issued by the Institute of Chartered Accountants of India (ICAI).
Specific to the area concerning fraud, as laid down in SA 240, the auditor has responsibility to plan and perform the audit to obtain reasonable assurance as to whether the financial statements taken as a whole are free of material misstatement, whether caused by error or fraud. SA 240 requires the auditor to perform procedures with the following objectives:
identify and assess the risks of material misstatement in the financial statements due to fraud;
obtain sufficient appropriate audit evidence about the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and
respond appropriately to identified or suspected fraud.

Audit Approach and Procedures:-
Based on a review of advances consider whether the branch is having an effective credit monitoring for its advances portfolio.
Obtain internal circulars of the bank pertaining to fraud identification and reporting.
Obtain history of fraud in the branch/business area of the branch.
Examine whether the branch has an adequate and effective system in place to identify Early Warning Signals (EWS).

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