RSM helps community bank uncover fraud and improve standing with regulators
CASE STUDY |
Our client is a locally owned community bank in the southern United States, with 10 branches and more than 75 years of service to local customers.
The bank was under scrutiny under the Office of the Comptroller of the Currency (OCC), and operating under a prompt corrective action directive beginning in September 2012. The OCC evaluated the bank very closely, and through a series of examinations, several suspect transactions came to light. After a thorough review, the OCC determined that the bank’s president and CEO made fraudulent transactions and misappropriations from the institution.
The OCC mandated the removal of the president and CEO from his position and prohibited any further dealings with the bank. An independent forensic investigation was ordered of the leadership team, senior officers and several other areas within the bank.
RSM was chosen to provide the independent investigation, based on a thorough cross-functional proposal highlighting financial advisory and risk advisory capabilities, as well as depth of experience with similar investigations and positive relationships with regulators. The team developed a step-by-step work plan, which was approved by the OCC. The plan included fact-finding and informational interviews with board members, directors, senior executives and employees, as well as public records background investigations on employees of interest to the OCC.
The OCC designated areas for evaluation, and the RSM team expanded the scope and planned testing in other areas, in order to ensure a comprehensive examination.
A significant amount of work concentrated on the bank’s accounts payable and fixed assets due to accusations of capitalizing personal expenses into the institution’s fixed asset ledgers. RSM traced the bank’s accounts and affiliated accounts of targeted individuals, looking at loans senior officers took out in detail. In addition, the
team evaluated bank transactions and monies obtained through the Troubled Asset Relief Program (TARP), closely evaluating how those funds were used.
The team extracted emails from the bank’s senior executive officers and CEO, and imaged and searched computer hard drives. Other real estate owned (OREO) and their dispositions were scrutinized, including how they were sold, to what entities and what loans were made by the bank. Personnel records were investigated after accusations were made that the former bank CEO had family members on the payroll. This was found to be the case; therefore, their expense reimbursements were evaluated.
RSM investigated a significant sum borrowed by the bank against a bank-owned life insurance policy, where the money was misappropriated by the president and CEO and deposited into an entity he controlled. The bank was owned by the president and CEO, but while under an OCC directive and accepting TARP funds, excess compensation is prohibited. RSM found significant evidence of attempts to circumvent regulations, and fraudulent representations as a part of TARP compliance and required reporting due to directives.
The joint RSM team of fraud investigators, regulatory compliance and computer forensic professionals kept in constant contact with the OCC, and issued a final report that was ultimately subpoenaed by federal authorities as evidence in a criminal investigation to recover bank funds.
The comprehensive investigation’s findings helped the new administration’s stability and developed stronger goodwill with regulators. After a period of significant pressure against the bank, the OCC is comfortable with the project’s results and new management. In addition, the agency is pleased that with RSM’s help, the institution has corrected the issues that led to self-dealing and financial malfeasance by senior executives, and recognized the losses on its financial statements and call reports moving forward.
In a precarious position and under heavy scrutiny from the OCC, the bank needed an experienced partner that understood its issues and could satisfy regulatory demands. RSM helped put an unfortunate situation behind bank employees and leadership, and positioned the institution better for future success.
The success of this investigation has led to a strong relationship between the bank and RSM, with continued audit and risk advisory engagements, including Bank Secrecy Act compliance projects.