Pub. 5 2010-2011

September/October 2010 11 Extraordinary Service for Extraordinary Members. SECURITY OFFICER’S BY-WORD D UR I NG THE LAS T SEVERAL months, seven banks have suffered very large embezzle- ments because one person was in charge of balancing that account. One individual was a $20,000-a-year clerk; some were bank cashiers; and others were bank presidents. The key to all of those embezzlements was that only one person was in charge of balancing the correspondent accounts. in a two-year period from the cor- respondent account. At times, other bank employees balanced the account. When they could not make the account balance, the cashier was questioned. He would make up an excuse and tell the person who had balanced the account to just plug in the amount he gave them to make it work. In truth, the amount he instructed them to “just plug into their figures” to balance was the amount he had stolen from the cor- respondent account. A bank president stole more than $1.4 million from the correspondent account. He always personally bal- anced all three correspondent accounts and gave the cashier the amounts to use in completing the Call Reports. No one in the bank except the president ever saw the correspondent account statements. He was using themoney to speculate in high-risk investments that apparently did not do well, causing him to lose $1.4 million. It is absolutely necessary to rotate the balancing of the correspondent accounts among a number of people in the bank and that a second person bal- ance those accounts at least monthly. In the case of the clerk who had been transferring funds from the cor- respondent account over a three-year period, the bank completely disre- garded the most basic internal control by never checking the accounts of bank employees. That one, very basic internal con- trol of checking all officers’ and em- ployees’ accounts monthly would have prevented four of the seven embezzle- ments and prevented employees from stealing more than $2 million from the banks. Z Correspondent Accounts Need Controls Donald M. Towle , President, Kansas Bankers Surety Co. The l a t e s t c a s e i nvo l v ed a $20,000-a-year clerk who simply had been transferring funds directly from the correspondent account to her personal account for three years and force-balancing the account. The total loss was just over $140,000—seven years of her salary! In another case, the bank cashier transferred more than $400,000 For some banks, the hole in their internal control programs is so big you could drive an 18-wheeler truck through it. That “hole” is the correspondent account. For more information, please contact Kansas Bankers Surety Co. at (785) 228-0000.