Fraud Prevention and Operational Risk Management Flashcards
What is operational risk?
This the risk of direct and/0r indirect loss due to the failure of or inadequate internal processes, people and systems or from external events.
What are some sources of operational risk?
- People
- Processes
- Systems
- External events
What are some losses that can occur as a result of operational risk?
- external fraud
- internal fraud
- clients, products and business practices
- damage to physical assets
- system failures such as hacking
- execution delivery and process management
- employment practice & workplace safety
What are the major impacts of operational risk?
- it may prevent the achievement of business objectives
- the business can be closed or suffer severe damages
- it is the risk that can drag or sink an organization completely
- Failure to identify an operational risk can translate into a huge loss.
What are some effects of operational risk failures and inadequacies?
- it can lead to loss of customers
- it can lead to financial loss
- it can lead to reputational costs
- it can lead to increased business costs
What factors affect operational risk caused by internal processes?
- failure to perform proper KYC
- improper handling of cash
- improper handling of cheques
- weak internal control environment
- inefficient or faulty procedures
- inadequate business checks
- poor documentation and maintenance
- poor delivery mechanisms
What factors affect operational risk caused by systems?
- poor system design
- lack of system integrity
- poor system control
- poor or inadequate testing
- denial of service attacks
- identity theft
- virus infections
- poor back up facilities
What factors affect operational risk caused by people?
- high staff turnover
- internal fraud
- inadequate staff training
- over reliance on key staff
- health and safety issues
- Training not linked to business outputs and personal performance needs
- Inadequate compensations and incentives
- Poor staffing situations
What are some personality red flags of bank staff?
- Extremely close customer/vendor relationship
- Unusual or Change in Personality (ALCOHOL, DRUGS, SLEEP, IRRITABLE, DEFENSIVE, ARGUMENTATIVE
- Too good to be true performance
- Excessive late closures
- Living beyond Means
- Poor Money management
- Dissatisfied Worker
- Unable to Relax
- No Vacations or Sick Time
- Financially desperate staff
What factors affecting operational risk are caused by external events?
- Natural disaster (eg. fire, flood, earthquakes)
- Poor or harmful technology
- Inefficient integration
- Pace of change –eg:Too fast for assimilation
- Poor and expensive vendors/ service providers.
- Fraud (external)
- Competition
- Political climate and tension in the country.
Some attacks end up in looting and attack on
banks and ATMs.
9.Terrorist attacks - Pandemics causing losses to business and
inability to repay loans
What are control activities?
Control activities are policies, procedures and activities that help ensure business risk is managed down to an acceptable level.
Who are the parties in a cheque fraud quadrant?
- staff in customers’ company
- fraudsters & criminals
- staff working in the bank
- staff in cheque printing company
What are some of the common types of fraud in traditional banking?
- Cheque suppression.
- Cheque cloning and alteration
- Dry posting
- Deposit suppression
- Stealing from vault or till box, petty cash.
- Mixing denominations
- Fraudulent inter-account transfers.
How can you mitigate operational risks in your job role?
- Leave a clean desk policy
- Avoid leaving documents and stamps in the full glare of customers.
- Do not expose balances of customers to others.
- Customers need privacy, do not interview them within the listening range of others in waiting.
- Keep ATM pins under lock and key.
- Process lost/stop cheque notices with dispatch.
- Shred all extra copies of KYC or customer information documents before leaving
- Do not compromise your password.
