Secrets of Finding Bank Fraud – Loan Maintenance Speaks Volumes

Loan Account Maintenance

Account and customer maintenance activity must be reviewed over elapsed time periods. If this is not done, various types of fraud and manipulation can be easily set up simply by generating maintenance changes over a number of days.

Loan extended through maintenance to avoid payment of principal by advancing the next payment due date and the current maturity date.

• Examine by account number the maintenance to next payment due dates and current maturity dates that occur within 30 days of each other.
• Compare recorded extensions with number of months computed between original maturity date and current maturity date; Analyze accounts with differences

Change interest basis and methods through maintenance.

• Examine selected maintenance by account directly
• Examine overrides or exceptions to product type parameters

Re-write (change) loan through maintenance, e.g. loan amount, P&I constant, loan term, etc.

• Examine combination of changes through maintenance monitor and score multiple events to a single account as high probability.

Manipulate processing modes and key account processing fields over time knowing that the banking system does not keep historical records beyond one day.

• Implement a computer-assisted auditing technique that records in an auditor-owned file all chosen maintenance activity with a before and after maintenance picture. Audit routine should be capable of inquiring on and reporting unusual activity.

Maintain delinquent loans in current and non-charged off status by making small payments using a “force pay” transaction code. These transaction codes typically advance the due dates regardless of the transaction amount, e.g. $1.00.

• Use a computer-assisted audit tool to monitor suspect transaction activity such as force pay transactions, interest accrual adjustments and principal adjustments

Change customers current mailing address each month just before statement preparation to hide deposit fraud.

• Use computer assisted audit tool to monitor flip/flop address changes occurring on the same accounts over a 60-90 day period.

Execute a loan rollover fraud whereby a new loan is repetitively issued for a greater amount and used to payoff a non-performing loan which may have also been extended or whose payment frequency was changed to hide delinquency.

• Use computer assisted audit tool that can recognize relationships between paid-off loans and new loans when keys such as address and SS# are similar and when new loan is issued within two or three days of payoff of non-performing loan. Audit routine should be able to identify repetitive turnovers.
• Use computer assisted audit tool to search out changes in loan payment frequencies and extensions

Use of programmed techniques or manual accrual adjustments to manipulate accrued interest, either by adding interest to deposit instruments or deleting interest from loan instruments.

• Using all transaction activity including interest rate changes, the computer-assisted tool should provide an accrual workup routine that recalculates loan accruals from the origination date of a loan and recalculate deposit accruals from the last time interest was paid. Exception reports and detailed workups should be provided. This type of fraud detection programmed routine guarantees that accrual manipulations are detected.

Use of file adjustment and programmed techniques to reduce loan principal balances.

• The computer-assisted audit tool should provide a principal balance workup routine that recalculates principal balances from the origination date of a loan using all transaction history. Exception reports and detailed workups should be provided. This type of fraud detection programmed routine guarantees that balance manipulations are detected.