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Combatting Bank Frauds by Integration of Technology: Experience of a Developing Country

Madan Lal Bhasin

Objective: Fraud is a worldwide phenomenon that affects all continents and all sectors of the economy. With the rapidly growing banking industry in India, frauds are increasing fast, and fraudsters have started using innovative methods.Shockingly, the banking industry in India dubs rising fraud as an inevitable cost of business. One of the most challenging aspects in the Indian banking sector is to make banking transactions free from electronic crime. There is no “one silver bullet” to stop all frauds forever. By leveraging the power of data analysis software, banks can detect fraud sooner and reduce the negative impact of significant losses owing to fraud.

Methods: The present study is both descriptive and analytical in nature. As part of the study, in 2013-14 a questionnaire-based survey was conducted among 345 bank employees of the National Capital Region area. The questionnaire was structured into two parts. In fact, the first part comprised of several questions that attempted to know their opinions while working in a bank regarding training received, attitude towards the procedures prescribed by RBI, awareness level towards frauds and their compliance level under the following six heads: deposit account, loans and advances, administration of passbook and check book, drafts section, internal and inter-branch accounts, and credit-card section. Moreover, the second part encompassed the issues about how to integrate technology in the banking industry in order to detect and prevent frauds in Indian banks. It also examined the technology solutions available and how to integrate forensic approach to combat bank frauds in the Indian banking industry.

Results: The present study indicates there is limited separation of duties, false documentation, and inadequate or nonexistent control account for 60% of the fraud cases. It found that professional and managerial employees were involved in 45% of the cases. Bank Managers compliance level is the lowest in administration of check/pass book; while highest compliance is noticed in internal checks. Banks in India are not able to follow “zero-tolerance” policy. There is considerable difference in compliance level of employees of various banks on account of differences in the organizational culture, training provided, past experiences and their mental attitudes to strictly follow the RBI procedures.

Mostly ffrauds in the banking institutions are detected through customer complaints, followed by an internal or external tip, which is in line with global trends.Although banks cannot be 100% secure against unknown threats, a certain level of preparedness can go a long way in countering fraud risk. Internal audit professionals should play an integral role in their organization’s fraudfighting efforts. Some of other promising steps to control frauds are: educate customers about fraud prevention, make application of laws more stringent, leverage the power of data analysis technologies, follow fraud mitigation best practices, and employ multipoint scrutiny.

Conclusion: Promising steps to control frauds are: educate customers about fraud prevention, make application of laws more stringent, leverage the power of data analysis technologies, follow fraud mitigation best practices, and employ multipoint scrutiny. In 2015, the RBI has introduced new mechanisms for banks to check loan frauds by taking pro-active steps by setting up a Central Fraud Registry, introduced the concept of Red Flagged Account, and Indian investigative agencies (CBI, CEIB) will soon start sharing their databases with banks. Although banks cannot be 100% secure against unknown threats, a certain level of preparedness can go a long way in countering fraud risk.