Central Bank of Jordan Circular No. 15860/3/10: Guidelines for Banks on Internal Fraud Red Flags

In the Name of Allah, the Most Gracious, the Most Merciful

[Logo of the Central Bank of Jordan]

Number: 15860 / 3 / 10
Date: 9 / 3 / 1444 AH
Corresponding to: 5 / 10 / 2022 AD

Circular to Banks Operating in the Kingdom

Greetings,

With the aim of raising awareness among banks regarding cases of internal fraud within their institutions, the types of such fraud, and the indicators that may suggest its existence, this circular continues the Central Bank's approach of reviewing and establishing regulations governing banking operations in accordance with international best practices.

Attached hereto are "Guidelines for Banks on Internal Fraud Red Flags," based on documents issued by relevant authorities in this field, including the American Institute of Internal Auditors, the Association of Certified Fraud Examiners report, and the Fraud Advisory Panel, taking into account the opinions and comments of banks that were consulted to enhance the principle of participatory and consultative approach in issuing regulations governing banking operations.

For your action

Please accept our highest respect,

The Governor
Dr. Adel Al-Sharkas

• Enclosed

Form (1/1/17-09)
P.O. Box 27 • Amman 11118 Jordan • Phone 4630301 • Fax 4638889 • Website: www.cbj.gov.jo • Email: info@cbj.gov.jo

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CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Guidelines for Banks on Internal Fraud Red Flags

First: Key Indicators and Characteristics of Fraudulent Behavior by Individuals within Institutions

1. Sudden change in the employee's lifestyle and/or social circle, and/or living at a standard of living inconsistent with their income, and/or the existence of unjustified sources of wealth for the employee.
2. An employee facing financial pressures/difficulties in addition to previous legal problems, instability in life circumstances, and/or having negative behavioral practices such as addiction, alcohol or drug abuse, or gambling.
3. Frequent complaints about insufficient authority and competence granted to complete tasks.
4. The employee offering or providing services to clients outside the services specified in their job duties, and/or outside the scope of services and products offered by the bank to its clients, such as advising clients to invest their funds.
5. Failure to transfer knowledge and the employee's reluctance to share tasks with colleagues, excessive secrecy regarding their work, and a desire for social isolation.
6. An employee characterized by aggression, irrationality, and normal suspicion, and controlling some colleagues.
7. Refusal and/or hesitation to take leave, especially annual leave; arriving early to work and leaving late after official working hours; frequent attendance during holidays without a clear justification that warrants such presence; and attempting to postpone the execution of assigned tasks outside official working hours.
8. An employee who receives a large number of complaints from employees or clients, and/or tends to violate rules.
9. An employee who does not cooperate, delays, or fails to provide regulatory authorities with necessary information, overwhelms them with unhelpful and irrelevant information, and requests postponement of audits and inspections to hide or withhold information.
10. An employee who frequently inquires about details outside the scope of their normal duties, especially those related to the details of work and tasks of regulatory bodies and departments, such as precise inquiries regarding the scope of internal audit or inspection processes.
11. An employee who accesses a client's account excessively and monitors it frequently, and/or frequently accesses and inquires about dormant accounts.
12. An employee who has serious and unusual relationships with individuals or other departments within the bank.

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Form (1/1/17-09)

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CENTRAL BANK OF JORDAN
البنك المركزي الأردني

13. An employee who does not provide correct data upon hiring, does not update their data when necessary, does not disclose the existence of any conflict of interest, and evades signing any declarations related thereto, if any.
14. An employee who has strong relationships with external parties such as clients or suppliers, receives frequent gifts from them, attempts to deal with them secretly from colleagues, in addition to these parties insisting on dealing specifically with them, and/or whose relationship with them suddenly ceases.
15. Lack of awareness and banking sense in the employee, in addition to limited knowledge of applicable laws and instructions related to their work, weak knowledge of fraud and its risks, reporting procedures, and non-compliance with work procedures, policies, ethics, and the professional code of conduct.
16. Blind trust in the responsible person and/or a mistaken belief among some employees that the responsible person always authorizes them to conduct any transactions, even if they violate work procedures and applicable instructions, or that the manager has favor with senior management.
17. Non-compliance by employees with job duties and applicable instructions related to reviewing requests to activate dormant accounts, issuing immediate deposit cards, verifying them, and checking the validity of signatures.
18. Excessive trust of the manager in employees through not verifying their work and not applying dual control for operations requiring it, or excessive work pressure on the manager that prevents them from reviewing all operations.
19. Discovery of movements executed by authorized or departed employees.
20. Refusal by the employee to be promoted or transferred to another position without sufficient justification.
21. Frequent loss of assets, files, and documents.

Second: Key Indicators of Fraudulent Behavioral Characteristics at the Institutional Level

1. A large volume of amounts refunded/reversed to clients, such as returning excess amounts in branch cash boxes to clients.
2. Unusual or exceptional movements on intermediary accounts in the bank (even if the amounts are small).
3. Frequent reconciliation entries during the financial statement preparation period without sufficient justification and documentation.
4. Management resisting change and placing obstacles before any development or improvement of work procedures and the control environment.
5. Lack of transparency, manipulation, and forgery of data and reports submitted to the Board of Directors.

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Form (1/1/17-09)

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CENTRAL BANK OF JORDAN
البنك المركزي الأردني

6. The direct manager exerting pressure on the employee to complete transactions in an unreasonably short time.
7. Illogical and uncorrelated financial analysis results and ratios without clear and sufficient justification.

Third: Key Indicators of Fraudulent Behavioral Characteristics Related to Work within the Institution

1. Concentration of authorities and powers in the hands of a few individuals, and the absence of an approved succession plan.
2. Frequent delegation of authorities by executive departments without appropriate review procedures governing cases where authorities are delegated.
3. Low job rotation in sensitive positions.
4. Unclear lines of responsibility and accountability.
5. Tasks and responsibilities assigned to the employee are not commensurate with their title and job grade.
6. Weakness in internal control and audit systems or ineffective implementation thereof.
7. Improper segregation of incompatible duties.
8. Absence of clear, documented, and approved work policies and procedures for some activities in the bank.
9. Inefficiency in reviewing employee authorities on bank systems, especially critical ones.
10. Some aspects related to human resources management that may indirectly cause fraud among individuals, including (weak performance evaluations, salary reductions, fear of job loss, refusal to grant employees raises or promotions, lack of fairness in benefits granted to employees), which create financial pressures and dissatisfaction among some employees towards the institution, playing a major role in the occurrence of fraud.

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Form (1/1/17-09)