Greater Providence Deposit & Trust

Control procedures over the disbursement of loan funds to minimize the risk of this type of fraud. During the investigation which led to James Guisti and the manager of a North Providence branch office and a 14-year employee who once worked as one of the bank’s internal auditors which lead to the $1.83 million embezzlement charge of James Guisti over a three year period (Romney and Steinbart, 2010 p244). Greater Providence Deposit & Trust might improve its control procedures over the disbursement of loan funds to minimize the risk by developing policies. This starts with a good of sound internal environment, commitment to integrity and organizational structure will be a good start. Commitment to integrity is important to an organizational culture which is a set of principles and standards to help leaders organization better prepare themselves for the ethical dimensions of company’s activities and to help ensure that their standards of professionalism are reflected at every stage of business planning and development (Romney and Steinbart, 2010 p209). It should includes polices for conflict of interest. An organizational structure defines line of authority, responsibility, and reporting. It provides the framework for an organizational when it comes to monitoring operations. A clear segregation of duties is clearing needed; segregation of duties is critical to effective internal control because it reduces the risk of mistakes and inappropriate actions. It helps fight fraud by discouraging collusion. An example of this is the person who originates the loan should not be the person who approves the loan, no matter the amount of the loan. This was the mistake that Greater Providence Deposit & Trust made by allowing James to approve his owe loans because they were a small amount.
Improve its loan review procedures at bank headquarters to minimize its fraud risk There were 67 loans taken out by Guisti in different names and some of these people were family members and one was from someone who did not exist (Romney and Steinbart, 2010 p244). These processes clearly have some flaws, in the reviewing process of loan applications. Greater Providence might improve its loan review procedures at bank headquarters to minimize its fraud risk, this starts with polices for the review process of loans. According to the text, fraud is any and all means a person uses to gain an unfair advantage over another person or deliberately deceives for financial gain; in this case it was over a million dollars (Romney and Steinbart, 2010 p145). Loan procedures should establish a road map to successfully fulfill the loan policy goals, by outlining specific steps, forms, and timing for individuals responsible for the loan product offering. These procedures are detailed guidelines that build discipline, consistency and quality through every step of the process. It should clearly define who has the authorization to the empowerment to approve the loan. Authorizations are often documented by signing; initializing on a document or in this case it was loan paperwork. Employees who process the transaction should verify the presence of the appropriate authorization. This should be accompanied with the applicant’s credit report and who approved the loan. Once these things are defined it will cut the risk of fraud.
Greater Providence’s auditors detecting fraud During the investigation of Greater Providence; the state regulators examined the books of the bank and found that the internal auditors failed to detect the frauduitant act (Romney and Steinbart, 2010 p 244). It also uncovered that bank auditors do not examine all loans and only focused on larger loans, this audit should have been conducted by outside auditors. The role of an auditor is to judge the accuracy of the financial statements and report back to the board. To so this, auditors usually examine some typical transactions