Most-Favored Depository Bank

A department head in complete authority has the greatest opportunity for personal gain and to fall into temptation with little possibility of detection.

Modus Operandi

The chief financial officer and treasurer in one subsidiary handled all the banking arrangements of his company. He never relinquished the controllership function. He overrode the credit manager and took over the job of the finance officer next to him when the latter went on leave. For several years, a branch of one the depository banks of his company was favored by a huge float in its savings account. The agreed float in its savings account. The agreed float was P50 thousand but it averaged daily more than P5 million. Unlike other banks, this depository banks, this depository bank required the company to deposit cash and local checks only excluding out-of-town checks. Nevertheless, the cumbersome requirement of the bank was acceded to. Furthermore, it was claimed that a branch gave better service than its main office for which reason the business was given to said branch.

On the other hand, the branch manager of the depository bank was able to request for a payment assignment in the branch which was contrary to the bank's policy of rotating its branch managers. Eventually, the bank branch manger and the treasurer become close friends. The large daily cash balances in the savings account of the company greatly benefited the bank since the central bank authorized the lending of eighty percent of the amount of the savings account of the depositor at a much higher rate of interest. The prime lending rate of the bank averaged eighteen percent annum or an interest of ten percent for the bank after deducting the eight percent per annum it paid to the savings account depositor. For getting the business, the bank usually gave extensive entertainment and other considerations made to constitute the bank's miscellaneous or representation expenses. There was little possibility of detection because the banking law guarantees the secrecy of a personal bank account.

Detection and Prevention

The large idle fund in the savings account of the company was noticed in the internal audit review of the company's cash balances in its various depository banks. The huge daily cash balances in the savings account could not be justified inasmuch as there were no more out-of-town checks that required clearing. The excess funds should have been invested in the money market which gave higher interest yield. As a result of the audit review, minimum floats were established on all savings accounts of the company and any excess funds were to be placed in the money market.

The internal auditor was required to make a monthly review and evaluation of the status of all cash balances in the depository banks of the company. As a check and balances in the depository banks of the company. As a check and balance, the board of directors was delegated the duty of selecting the best depository bank through the bidding of bank's services, stability and interest rates. All executives and key employees were strictly required to take full yearly vacation .leaves to rotate their duties so that any improprieties would surface immediately. The treasurer was required to render a daily cash report for review of the finance committee. As a further corrective step, the savings account of the company was transferred to another branch of the bank to forestall any future anomaly.