The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Auditor-General this week warned of “an underlying tone of fraud” at the Post Office Savings Bank, with customers able to deposit and withdraw sums more than 100 times’ greater than legal limits.

Terrance Bastian, detailing the findings from a more than three-year investigation by his staff, found that the Post Office Savings Bank suffered from “significant internal control weaknesses” relating to the acceptance of deposits and account withdrawals.

In particular, he zeroed in on how one account holder was able to withdraw more than $923,000 from the Post Office Savings Bank over the 15-months to April 8, 2015, even though the law and ‘Savings Bank Rules’ stipulate that account balances cannot exceed $6,000 in any one year.

Then there was the “inexplicable” case of another Post Office Savings Bank client who withdrew some $668,553 more than he had deposited over the three years between May 2012 and April 2015, even though the law, again, prohibited credit in excess of $6,000.

Mr Bastian, in a report tabled in Parliament this week, said this particular client had deposited $613,915 with the Post Office Savings Bank over that three-year period, yet had withdrawn a collective $1.282 million from their five separate accounts.

“The amount of approximately $669,000 withdrawn from the Post Office Savings Bank by this beneficial owner in excess of deposits held is inexplicable,” the Auditor-General found.

“This shows a breakdown in management’s oversight in carrying out the mandate of the Post Office Savings Bank and safeguarding customer assets. Based on this discovery, it appears that there is an underlying tone of fraud.”

Mr Bastian’s report quoted extensively the law and Savings Bank Rules as it applies to the bank to expose the statutory breaches.

Apart from the $6,000 client credit limit “at any time”, and $6,000 annual limit on account balances, the maximum limit on one-time deposits is a mere $3,500. And, while this beneficial owner had five accounts, Bahamians were limited by law to just one Post Office Savings Bank account.

Until either the law or Rules were changed to alter these limits, Mr Bastian urged the Post Office Savings Bank to carry out due diligence on “all transactions exceeding the stipulated maximum amounts” and ensure all account balances are in compliance.

“Without this due diligence, the Post Office Savings Bank could potentially be exposed to reputational, operational and legal risks, which could result in significant financial loss,” Mr Bastian said.

“We further recommend that these accounts should be identified, monitored and all questionable transactions should be properly investigated and reported to the appropriate authorities.”

He called for customers with account balances exceeding the legal limits to be contacted, and their relationship either “regularised” or the law changed to reflect the increased sums of money handled in Bahamian society since the Savings Bank Act was passed in 1936.

Elsewhere, Mr Bastian’s attention was drawn to the 18 cheques drawn on the Post Office Savings Bank’s account with Bank of the Bahamas for the benefit of just one client.

Between December 19, 2013, and April 8, 2015, these cheques were used to withdraw $575,928 in Nassau and $347,800 in Freeport. The Nassau withdrawals were approved via an authorisation letter numbered PO/135/2, while the Freeport withdrawals came through cheques issued to the Post Office Savings Bank customer.

The Auditor General, noting that the same number was used repeatedly on authorisation letters, said the transactions again breached the limits in the Savings Bank Act.

“Adherence to these rules should be followed at all times so as to avoid the Post Office Savings Bank being susceptible to a heightened level of risk around deposit holder funds in excess of that which is allowable under the law,” Mr Bastian found.

“Acceptance of funds in excess of $923,000 deposited by one beneficial owner contravenes all rules relating to the establishment of the Act. Only through acceptance of funds by the cashiers, other Post Office Savings Bank personnel and/or management were these withdrawals allowed to occur.”

Mr Bastian said the Post Office Savings Bank was “running the risk” of being perceived as a commercial bank, an institution subject too much stricter Know Your Customer (KYC) and source of funds due diligence.

“The Post Office Savings Bank should not be acting in the capacity of a financial institution by accepting excessive funds and then further contravening the Act by allowing the withdrawals to occur without any due diligence being performed,’ he added.

The Auditor-General added that strict compliance with the Act was essential to ensure the “Post Office limits its exposure to possible instances of fraud, acceptance of funds from fraudulent activities, participation in acts that may be deemed to be of a suspicious nature, and reputational risks around the contravention of its own rules and laws”.

“The excessive amounts being allowed to be deposited and withdrawn from the Post Office Savings Bank is, in our opinion, negligent on the part of the Post Office as the Savings Bank Rules clearly state that accounts should not exceed $6,000 in any one year,” the Auditor-General said.

“Due to these instances of contravention, it is clear that the staff of the Post Office did not follow the Rules of the Post Office Savings Bank as outlined in the Act.

“To allow a customer to make numerous withdrawals in a given day from several passbooks, from several Post Office Savings Bank locations, with amounts in excess of that allowable in the Savings Bank Act, and where no computerised system is present, gives rise to probable fraudulent activity.”

Mr Bastian’s report also slammed management’s “override of controls” that saw the Post Office Savings Bank instantly credit cheques to customer accounts before knowing whether they had cleared.

This was done “seemingly without approval from the Postmaster-General or appropriate levels of authority”, but the report added: “During interview with the Post Office Savings Bank staff, we were informed that personal and other cheques were presented for processing which the staff members were reluctant to process.

“However, it was noted that due to an override of controls by management, the transactions were processed.”

The Auditor-General warned that the Post Office Savings Bank was exposed “to a high possibility of honouring dishonoured cheques” if it allowed no clearing period, and to paying the fees associated with them ‘bouncing’. Customers could also be credited for funds that were not deposited.