Pub. 10 2015-2016 Issue 6

www.nebankers.org 22 Extraordinary Service for Extraordinary Members. Yes, Banks Have Tangible Inventory Brian Gordon, BKD LLP T HERE ARE PLENTY OF REGULATIONS AND RISK AREAS FOR banks. However, banks often overlook the fact that they do have tangible inventory: vault cash. Since this can be a lower-risk area, some banks have few internal controls over the cash process or don’t enforce the controls already in place. The following examples demonstrate how having and enforcing internal controls can reduce opportuni- ties for embezzlement. Example 1: $400,000 Theft by Head Teller At one bank, the head teller capitalized on the trust she had earned with other employees and lack of due diligence by the internal audit function, in addition to lack of oversight regarding composition of currency and coin in daily vault sheets. She also was the primary person responsible for the vault cash counts. Furthermore, the head teller had sole ac- cess to the vault at several points throughout the day. Over several years, the head teller obtained more than $400,000. Even though another teller would accompany the head teller into the vault for currency counts, the head teller would conduct the actual “count” while the other teller checked amounts against a printed Excel spreadsheet—with- out doing a second count and without counting coin. In ad- dition, the internal auditor conducted counts of currency in the vault but didn’t compare those counts to daily vault count sheets, which didn’t match the internal auditor’s count. Had another teller or the internal auditor noted the amount of coin listed on the daily vault count sheets, he or she likely would have questioned the amount of quarters reported, compared to that in the vault. At one point, the daily vault count sheet showed more than $220,000 in quarters, which equated to more than 22,000 rolls of quarters—more than five tons—in the vault. According to bank management, this amount was unreasonable for a bank of this size. The full count of the vault revealed a shortage of ap- proximately $400,000. Subsequent investigation determined denominations of hundreds and twenties were taken from the vault; the coin amounts were significantly inflated to conceal the scheme. Example 2: Nearly $2 MM Theft by Head Teller At another bank, the head teller againwas able to capitalize on other employees’ trust and lax vault controls. Again, she was the primary person responsible for vault cash counts and had sole accessmany times throughout the course of business, even though policy dictated dual entry. Over 17 years, the head teller stole nearly $2million. As in the previous example, when conducting a vault cash count, the head teller would read the amounts from the tags on large currency bags and another teller would record the amounts. When the bank had a profitability audit performed, it deter- mined there was too much cash in the vault and scheduled a full count of the vault by management. On the day of the count, the head teller did not show up, and the bank con- ducted a true count of vault cash. The bank subsequently found the money bags had amounts written on the tags but were stuffed only with other empty money bags, containing no currency or coin.