Association of Credit Union Internal Auditors
When I was the Internal Auditor/Accounting Supervisor of the North Shore Credit Union, I was a member of a group of Internal Auditors. This was in the first half of the 1980’s .
We would meet once a month and share security concerns. Here was one such concern.
Foreign Exchange Loss?
The situation came to light when our Financial Controller found that one of the branches lost money with Foreign Exchange. This is impossible. All currency transactions would either be buying or selling, and the differential between rates was always better for selling than buying, by up to 2 percentage points.
If currency was purchased during the month, but not sold again, the inventory would increase and the month end calculation would produce an adjustment compared to the previous month end value. This is always a profit.
To have a loss implied something had gone wrong.
I was sent to the branch to check out what happened. The foreign exchange transactions for the month were listed in the FX account, so I had dates and times of these events, as well as who did them.
I came across several transactions which seemed to be buying US dollars only, with no subsequent sales (cash) or clearing items (cheques or American Express Travelers Cheques) for that day. They were all processed by one specific teller. Her US cash holdings had not changed for the month.
I then went to the security company’s offices where the surveillance tapes were stored. When I reviewed the entry times, the teller in question was nowhere near her till. In fact, she was sitting at a processing desk, during each transaction. That implied that they were false entries. There was no proof that she had taken the money out of her till, either before or after. But this was enough of a ‘smoking gun’ to have management bring her into the Head Office for questioning.
When confronted with the information, she admitted the fraud and theft, and, as a consequence, was invited to resign.
When a financial institution leaves an opening that entices an employee into a position of breach of trust, the financial institution needs to close that gap.
The North Shore Credit Union did just that. They introduced a FX voucher system that documented all foreign exchange transactions. If a premium was paid out for cash, the voucher was signed by the Credit Union member (a customer, in banks) as payment was made. This became a traceable document, something that could be ‘proven’ by an internal audit.
As far as I know, this prevented any further instances of FX theft and fraud where a NSCU branch teller was concerned. That’s what Internal Audits are for.