Sir
As far as I understand your question is about the control system
implemented and flaws in between. since I am an accounting and
control expert I give my best to explain on internal controls in
the easiest way. I am skipping the technical portion on technology
working inside.
How an accounting system work in such
companies
- The whole system normally works at 3 level TPS ( Transaction
Processing System ), MIS ( Management Information system ), EIS (
Executive information system ) there are several other
classifications but broadly we consider these three.
- TPS is used by the lower management typically by the sales
persons who actually find the customers for the bank.
- Whenever a new customer finds out his/her all basic information
enter via the system.
- In case of banking KYC ( know your customer ) process need to
be fulfilled like Identity proof, address proof etc.
- When all necessary information collected and entered into TPS
the bank account activated for the required customer.
What happened in the case of Wells Fargo
- It was time just after the great economic rescission of
2009.
- There was a fear of job loss all around Weel Fargo was not an
exception.
- The salesperson was under pressure to open new bank
accounts.
- But due to recession demand was very low.
- So what the salesman actually doing he takes some few more
signatures of customers either existing or new ones.
- Since KYC documents photocopy was already with them and TPS
accepted it as it is.
- KPMG was the auditors which were responsible for cheeks and
balances were bypassing the whole process of KYC verification.
- Online Kits like Credit cards and banking login credentials did
not send by registered post directly to the address proof.
- Since customers were complaining a lot of time and they were
assured to everything is ok middle-level management was also
involved somehow.
Assumptions, Disclaimers & Fine Points
- Since it was a fraud by lower level management hence the
management fired employees were of lower management none of the
executive level person fired in this case.
- In 2009 that auditors ignorance was at the same level when
companies like AIG were issuing insurance without even reading the
reports.
- At the time of recession, the banks failed in the USA, Japan,
Canada, Germany nearly every part of the world except India because
India is the only country in the world where they have prudential
norms even for KYC same need to be implemented by regulators avoid
such situation in future.
- I cover a very narrow aspect of the case the case have many
more aspects to elaborate.
Strategy and steps
- Proper KYC System needs to be implemented to avoid such a
situation.
- Basic Job security needed to be given to its lower level
employees.
- Auditors Responsibility need to be fixed.
- Customer complains grievance system needs to improve.
- The confidential information needs to send to mailing address
by registered post directly in a packed envelope.