Responding to Heightened Scrutiny Around Sales Practices and Account Origination Fraud
Oct. 7, 2016
With the recent news of federal and state regulatory enforcement actions and unprecedented fines for alleged fraud – fraud that apparently originated with sales incentive compensation plans – bank executive management teams are wondering if the same thing could be happening at their institutions.
Sales incentive plans are likely to be an area of focus for management and regulatory agencies as the impact of the recent regulatory actions ripples through the banking industry. Last week, regulatory presentations at the Institute of Internal Auditors (IIA) Financial Services Exchange conference in Washington, D.C., indicated that sales practices and incentives will likely be areas of focused regulatory reviews in 2017.
What’s My Exposure?
Bank executives and directors who are trying to determine their entity’s exposure related to sales incentive programs need their bank to undergo a risk assessment focused on common activities that are aligned to their bank’s sales incentive practices. If the assessment reveals problems with improper behavior, the bank must then determine its level of exposure.
By adapting proprietary, targeted advanced data analytics focused on account origination, maintenance, and termination, Crowe Horwath specialists can help banks determine whether improper behaviors are occurring. The results of this analysis not only identifies potential fraud but can help to quickly assess the company’s level of exposure and provide actionable next steps.
With exposure assessment information in hand, executives are better able to make informed decisions and take appropriate actions necessary to help protect the bank and its customers.
Depending on the assessment results, the bank then might need to take the following steps to mitigate the risk:
- Further investigate the areas for which the exposure assessment identifies improper behavior or potential fraud.
- Test the design and operating effectiveness of existing controls to prevent and detect account origination, servicing, and termination fraud as well as unfair, deceptive, or abusive acts and practices (UDAAP) within the sales process.
- Develop and implement new controls within the sales, account origination, servicing, and termination processes.
- Review incentive compensation plans and their governance processes.
- If necessary, reshape overall compensation plans to eliminate incentives that could lead to a higher likelihood of fraud and undue risk-taking.
Crowe specialists are available to help banks and other financial services companies undergo an exposure assessment, which usually takes less than a week, depending on the bank’s size and the number and types of accounts it supports.
Crowe also has resources available to assist with actions required to remediate exposure and mitigate account origination, sales practice, and incentive compensation plan risk.