There 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 show how having and enforcing internal controls can reduce opportunities for embezzlement.
Example 1: Theft of $400,000 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. In addition, the head teller had sole access 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—without doing a second count and without counting coin. In addition, 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 5 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 approximately $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: Theft of Nearly $2 Million by Head Teller
At another bank, the head teller again was 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 access many times throughout the course of business, even though policy dictated dual entry.
Over 17 years, the head teller stole nearly $2 million. 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 determined 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 conducted 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.
The head teller subsequently admitted to taking the cash. To accomplish this, she would access the vault for large amounts of cash (as much as $90,000 at a time) and put it in her teller drawer area, which was right above where she kept her purse. As in Example 1, her teller tape/journal showed significant amounts of coin recorded, such as more than $100,000 in quarters or half-dollars, on numerous occasions. In addition, she indicated the cash bags were, to her knowledge, never opened or counted by any regulator or bank employee.
In both examples, some controls and measures were in place—at least on paper—to prevent the schemes, but they weren’t enforced. In many other cases, internal controls weren’t in place at all.
Here are some options to implement and mitigate potential embezzlement:
- Dual control procedures over the vault—two tellers access the vault each time activity must be conducted in the vault
- Access log for those accessing the vault
- Surveillance cameras around the vault entrance and inside the vault
- Unannounced cash counts by bank personnel other than those typically accessing the vault
- Bank bags opened and cash unbundled for each count
- Including coin in vault cash counts
- Comparing surprise or audit counts with daily vault records
- Periodic review of daily vault cash count sheets, looking for unusual items such as large amounts of particular coin
- Involving more than one person in flow of currency in and through the bank
- Compliance checks to ensure policies are being followed
For more information on how your institution can prepare for these situations or others, contact your BKD advisor.