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Correspondent Bank Accounts

Recently BancInsure paid two large fidelity claims involving correspondent bank accounts.  One of the claims was in the amount of nearly $850,000 and the other was approximately $675,000.  Those familiar with bank operations should realize the potential for very large dishonesty losses with correspondent bank and Federal Reserve accounts, if proper internal controls are not in place.  Without proper internal controls, employee embezzlements can and will occur.  These two claims vividly point this out.

The two claims are very similar. Both banks have approximately $180 million in assets and approximately 70 employees.  In both cases the dishonest employees had been employed by the bank only a few years, as opposed to the “long term trusted employee.”  In both claims, the employee responsible for making entries into the accounts for correspondent banks was also responsible to reconciling the accounts.  In one claim there was no apparent internal independent review of the accounts or reconcilements.  In the other claim, there was a cursory review by the dishonest employee’s supervisor. 

Both embezzlements were carried out in the typical fashion of embezzlements involving correspondent bank accounts.  Fictitious entries were made in correspondent bank accounts and were offset by deposits to checking or savings accounts controlled by the embezzler, issuance of cashier checks or by the withdrawal of cash.  In one claim a portion of the funds may have been used to fund cancer treatments for the embezzler’s uninsured boy friend with another portion transferred out of the country.  In the other claim the funds were used to support the lavish life style of the embezzler and her extended family.

One may be tempted to think that the existence of a large embezzlement would be apparent on a correspondent bank reconcilement form.  This is not the case.  The embezzled amount is simply “hidden” in the amounts representing checks forwarded to the correspondent banks for collection. The embezzled amount is rolled forward to the next reconcilement.

In one claim, the independent outside auditor failed to detect the embezzlement, and on the other, the embezzlement was detected when the original auditor was replaced by a new auditor who utilized more thorough audit procedures.  The point to this is that bankers should not rely on their outside auditors to detect embezzlements.

The key to preventing this kind of embezzlement is the classic internal control principle of separation of duties.  That is, the employee responsible for making accounting entries  should not be the one responsible for reconciling the account.  Another useful tool is employee account reviews.  It is surprising the number of embezzlers using their checking accounts at the bank to transfer the proceeds of their embezzlements.

BancInsure has become a leading writer of Financial Institution Bonds in the United States by providing a sound, stable market, excellent service and fair claims service.  If you would like to learn more about BancInsure coverages, please contact your BancInsure marketing representative.

BancInsure Provides HSA Custodian Solution to Banking Industry

Oklahoma City, OK (2006) – BancInsure is pleased to announce the expansion of their financial offerings to include serving as an HSA custodian with the HSAToday^TM program, the nation’s most comprehensive Health Savings Account administration and delivery platform.  Delivered under the brand name HSA@BancInsure, these HSA services will meet the expanding opportunity that BancInsure client banks, as Associated Member Banks in the HSA@BancInsure™ program, have to serve their customers.

BancInsure’s entry into the HSA market is designed to assist and complement the efforts of its policyholders, community banks, in developing a full-service HSA product that can be offered to their customers.  HSA@BancInsure™ is a unique program that allows Associated Member Banks to answer the HSA need for their clients, protecting critical commercial account relationships, with a low cost of entry and opportunity to increase deposits.  As a trusted bank partner, BancInsure will provide the HSA answer while explicitly supporting and protecting the Associated Member Bank’s account relationships.

The market for Health Savings Account continues to rapidly expand as employers seek creative solutions to continuing inflation in health benefit costs.  HSAs, used in conjunction with the requisite high-deductible health plan (HDHP), provide employees and employers lower health plan costs and tax-favored saving opportunities. Using a BancInsure Health Savings Account through one of BancInsure’s Associated Member Banks, account holders are able to pay for their out-of-pocket medical expenses with tax-free income, or allow the funds to grow through interest income tax-free.

For more information, contact HSA@BancInsure™ at 1-866-624-0044.

About BancInsure

BancInsure has also built strong relationships with 16 state bankers’ associations that continue in the form of exclusive endorsements of BancInsure and its products. BancInsure is fully committed to maximize this unique relationship through product development and joint marketing programs. Because of these State Bankers’ Association relationships, BancInsure is able to offer Health Savings Accounts through its partnership with Associate Member Banks who have strong ties and commitments to local communities.