Bank Frauds In India Essay

2407 words - 10 pages

Literature Review:
http://www.business-and-management.org/download.php?file=2009/4_3--1-21-Khanna,Arora
The number of bank frauds in India is substantial. It is increasing with the passage of time. All the major operational areas in banking. There are different area in Bank Deposits, loan, inter branch, accounting, transaction etc. Bank fraud is a big business in today's world. Banks these days are being duped of crores of Rupees, thus destabilizing investor’s confidence. The year 2005 witnessed the wiping of Rs. 1134.4 crores from the banking industry in India due to bank frauds, which was about 2.5 times the amount lost in the previous year. Banks are dealing with public‟s money and hence it is imperative that employees should exercise due care and diligence in handling the transactions in banks. Recent rise in bank frauds calls for tightening of security mechanism. A strong system of internal control is the most effective way of fraud prevention. The banks should increase their efforts to raise the level of security awareness in their organizations to combat frauds.
Ziegenfuss (1996) performed a study to determine the amount and type of fraud occurring in state and local government. The study revealed that the most frequently occurring types of fraud are misappropriation of assets,theft, false representation; and false invoice. The reasons for the increased fraud in state and local governments are poor management practice; economic pressure; weakened society values; people being not held responsible for their actions; and inadequate training for those responsible for fraud prevention/detection. The most often reported “red flags” are weaknesses in internal control; ignoring audit reports; inventory losses; non reliance on internal/external audit reports; not paying attention to employee comments; and actual expenses exceed those budgeted.
RBI has developed many important guidelines for prevention of bank frauds. The security controls prescribed by RBI if followed with 100 percent adherence can greatly prevent frauds. The level of compliance of these security controls were measured under six heads: internal checks, deposit accounts, administration of cheque books and passbooks, loans and advances, drafts, internal accounts and inter branch accounts.
The best way of preventing fraud was to understand why it happened. Fraudster generally identifies loopholes in control procedures and then assess whether their potential rewards will outweigh the penalties should they be caught. A regular control is most effective for prevention of frauds and normally requires little management time or effort. Prevention of frauds starts with identification of weakness in current systems of the organization. Next the organization must improve those systems with new or better controls. The introduction and enforcement of controls will reduce the opportunities for frauds. The control warns potential fraudster that the management is actively monitoring the...

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