Discarded Cash

Internal Auditor, August, 2000 by J. Mike Jacka

An auditor helps to redefine a bank's definition of "mutilated money," and a customer service representative tries to distract auditors with overzealous hospitality.

HILE CONDUCTING A CASH count at a large regional bank, the auditor noticed that one of the tellers held several hundred dollars of mutilated currency in her cash total. A teller deems currency mutilated when it is too badly damaged or worn for distribution to the public. When a significant amount of this currency accumulates at the branch, it is shipped to the central money center and eventually returned to the Federal Reserve Bank.

Upon further inspection of the currency, the auditor noticed that many of the bills appeared undamaged and suitable for distribution. He questioned the teller, who claimed that she had extremely high standards for acceptable currency and that she believed all customers should receive new or like-new bills. She also maintained several thousand dollars of additional mutilated cash in the bank's vault.

The auditor estimated that if each office maintained mutilated currency levels similar to this branch, there could be as much as $5 million throughout the institution in mutilated cash. Since this currency adds no value to the bank, it represents a nonearning asset; and keeping these funds at the branch causes the bank's overall cash needs to increase.

The auditor reported his findings to management and recommended several policy changes. Most importantly, he suggested instructing branch management throughout the institution to remove only truly mutilated currency from circulation and to ship this currency to the central money center as soon as possible so that the institution could receive credit for it.

OCEAN STATE CHAPTER

THE CADILLAC PLAN

Internal auditing was asked to review procedures at a health services organization that provided in-home caregivers. Company procedure required agents from the organization to develop a service plan for each client before they were assigned a caregiver. Plans were based on the number of hours needed for the client's daily living activities; and caregiver activities were separated into categories such as bathing, meal preparation and feeding, medical assistance, transportation, and housekeeping.

The auditors analyzed caregiver expenses and found that one agent's total payments amounted to three times the statewide average. They discovered that one of the agent's clients had received service from three part-time caregivers, whose total hours in each care category exceeded the maximum allowance. For example, bathing time amounted to 65 hours, whereas the client's plan allowed a maximum of 25 hours.

The auditors asked a central program office to assign home-care nursing specialists to investigate the problem further. Following their inspection, the nurses reported that the agent in question was administering "Cadillac" plans, even though the organization limited service authorization to the "Ford" model. The auditors decided to select several other agents and offices for in-depth file reviews and eventually submitted their findings to management.

In response to the audit report, management hired a fraud investigation unit and suspended filling promotional positions in the branch where the suspected fraud occurred until they could determine the extent of lax control attitudes. To prevent such abuse from recurring, the company also initiated research to determine why its exceptions reports failed to catch the excessive charges.

PORTLAND CHAPTER

ULTERIOR MOTIVES

Two auditors for a large regional bank were assigned to perform routine test work at a branch office. Upon their arrival at the branch, the auditors were greeted by a particularly attentive customer service representative (CSR). She offered them coffee, soda, restaurant recommendations, and other information. Although the auditors appreciated the hospitality, the CSR's ingratiating behavior seemed suspicious.

Toward the end of the day, the CSR notified one of the auditors that she had just received a telephone call for him, and that the caller was waiting on hold. The auditor answered the phone on a different extension and began talking. During his conversation, the auditor's instincts told him that something was wrong. He glanced at the CSR and noticed her eavesdropping on his conversation from another phone. When she realized that the auditor saw her, the CSR quickly hung up. The auditors reported this incident to their manager, who then notified the security department.

Several months later, the auditors learned that the "helpful" CSR had been arrested and convicted of stealing approximately $60,000 from a bank customer's account. During police questioning, the CSR admitted to perpetrating theft and stated that she thought her misdeed had been discovered when the auditors arrived at her branch.

Supervisors at the branch office had failed to notice several red flags during the scam. For instance, the CSR had brought the customer to the branch when she transferred from another location and claimed that only she could service this customer correctly. In addition, the CSR lived well beyond her means--another indication of possible fraudulent behavior. Management responded proactively to this incident by distributing a memo on fraud detection to managers throughout the institution that described the warning signs overlooked at this particular branch.