The Financial Express

Automating bank's vault system and preventing fraud

Automating bank's vault system and preventing fraud

One branch manager of a bank who used to be a junior colleague of mine was suddenly withdrawn from duty on allegation of missing cash from the vault which was detected by the auditors. It was learnt that he gave the missing amount to one of the valued customers who promised to refund it before day-closing but could not make it on that particular day, and deposited the money on the following morning in presence of the auditors. On investigation, he stated that he did not allow this practice for his own benefit, rather for bank's interest to meet the demand of the high-value customer. His honest confession was found true by the investigation team and he was absolved of the charge with minimum punishment for negligence of duty.

UNAUTHORISED USE OF VAULT'S MONEY: This is not a stray incident, rather a common malpractice in our branch banking where bankers -- either cashiers or branch managers -- use cash from the bank's vault. Sometimes, they allow such unauthorised cash from the vault for meeting customer's undue request and sometimes for indulging in their own interest. In our country, some people, especially those who are known as valued customers having intimate relationship with managers are highly demanding clients and do not want to follow any rules and regulations. Whenever they are in need of money, they approach bank managers who can hardly decline and try to accommodate by any means. In many situations branch managers allow unauthorised cash to the customers in anticipation of receiving before the day-closing, so there will not be any discrepancy in daily cash balance in the vault. Most of those customers refund as per commitment but some cannot. There is another malpractice of using unauthorised cash from bank's vault by some bankers, particularly the managers or officers responsible for the cash department. Those bankers whenever in need, take unauthorised cash from bank's vault early in the morning and refund before the day-closing, so cash balance is not affected. Even, some unscrupulous officers use this type of malpractice for doing business, especially where there is foreign exchange dealing, because at the beginning of day, they buy foreign currency using cash form bank's vault and sell in the afternoon for refunding prior to day-closing. Since movement of such unauthorised cash from bank's vault takes place during the day operation, it remains undetected.     

THIS MALPRACTICE IS NOT NEW:   This type of fraudulent activity using unauthorised cash from bank's vault is not at all new. When I started my banking career in Bangladesh two and half decades ago, I witnessed this type of dishonest practice. After joining, I was placed in the cash department for two weeks as part of mandatory training programme. I noticed some people, believed to be valued customers, used to come to the manger's chamber and took some big amount of money without giving any cheque. Subsequently, in my banking career in Bangladesh, I had to investigate few allegations of such malpractice. So, this malpractice has been continuing for long in our branch banking system. Banking system has tremendously developed with technological advancement and enactment of many new rules and regulation, so it was expected that malpractice of unauthorisedly using bank's vault money would be stopped but in reality, it did not.

SCOPE OF SUCH MALPRACTICE: The reason behind such malpractice is due to loophole in our traditional vault system used by our banks. Modernisation and application of technology have touched many areas of our banking but vault system remains where it was fifty years ago. It is natural that uncontrolled cash will always invite fraudulent activity. Therefore, in the developed world, bank's vault system has been modernised through installation of barrier between Teller and Head Teller through computerised cash movement. In our bank's vault system, as soon as the day starts with the opening of the vault, the Head Cashier is the only control point and even, he is the custodian of entire cash position for the whole day. If he wants, he can take the risk of giving any amount of money to anybody without validating any transaction. If the cash is balanced at the closing of the business, everything is found satisfactory without any error. There is neither automated control to stop releasing money from the vault nor any real-time monitoring with balance confirmation system. Therefore, traditional old-fashioned vault system provides the scope of unauthorised cash movement. 

AUTOMATION OF BANK'S VAULT SYSTEM & PREVENTION OF FRAUD: Modernisation of vault with establishment of control through computerised programming can easily restrict unauthorised movement of cash from bank's vault and thus reduce cash related fraud. Developed countries have automated their vault system long ago and many developing countries are gradually following suit. Under this system, the entire cash section is divided into two parts with clear demarcation between tellers' zone and back-office zone. Tellers who perform transaction with the customer sit in the teller zone facing customers while Head Teller who mainly authorises transaction and control cash sits in the back-office zone. There is transparent window through which communication is carried out between Tellers and Head Teller. A cash dispenser machine is set up in the teller zone which is connected with the tellers' computers and operated under specific technological application.  

HOW AUTOMATION WORKS: In the teller zone, each teller starts the day with very nominal cash and they have maximum cap to hold cash in his / her desk connected with computer network. As soon as teller's cash limit exceeds, he / she is required to deposit the excess amount through cash dispenser machine. Similarly, when any large cheque is submitted for drawing, money will be collected from the cash dispenser machine. Once cheque is validated and posted in the computer, the cash dispenser will automatically deliver the cash which the particular teller collects and pays to the customer. The entire process is controlled and monitored through technology and cash is moved against validation and posting of transaction, so neither teller nor Head Teller will have any excess cash in their custody. Under this process, real-time monitoring and balancing at any point of time of the day can be ascertained. Only when, refilling of cash in the dispenser machine is required, Head Teller performs the job and as soon as refilling is over, new balance is recorded with intimation to all concerned officers. As for example, one customer deposits BDT 10 lac cash to one Teller whose maximum cash cap is only BDT 5 lac, so he / she will first post this amount in the customer's account and then will deposit this cash to cash-dispenser machine pending transaction validation. When both cash deposited to disperser machine and computer posting will match, transaction validation will be effective. Similarly, if one customer places a cheque for withdrawing BDT 20 lac from his/her account, and the amount is over Teller's cap, he / she will have to verify the cheque complying with all terms and condition of cheque payment and if found compliant, pass the cheque as per delegation with simultaneous posting in the computer. With this posting, cash dispenser machine will automatically deliver the required amount of cash which the Teller will collect and pay to the customer after validating the transaction; however this will be effective when cash received from dispenser matches with computer posting.

ADVANTAGES OF AUTOMATED VAULT SYSTEM: This system has many advantages as there is no scope of retaining excess cash in the custody of Teller or Head Teller, so unauthorised movement of cash which invites fraud is completely restricted. The entire cash transaction is processed through computer system, so real-time monitoring and actual cash position at any given point of time can easily be ascertained and resultantly, Teller or Head Teller will not have to struggle in balancing the cash position at the time of day-closing. Even, the scope of short payment, overpayment or short deposit which is very common in our banking transaction can be significantly reduced.

Vault automation programme comes with a package that accommodates both cash dispenser machine and computer technology. Usually, reputed American and European companies supply this facility. This automation package is a bit expensive and difficult to develop in-house. Since banking sector is moving towards complete automation, computerising its vault system is now a timely requirement, so expense in this section should be considered as investment in technology. This automation not only prevents fraud related to unauthorised cash movement but also establishes control and balancing system. Therefore, our banking sector should actively consider automating the vault system.   Bangladesh Bank should also come forward with their guidelines about bank's vault operation. 

Nironjan Roy is a banker based in Toronto, Canada.

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