The Bangko Sentral ng Pilipinas recently issued Circular No. 1112 requiring banks to observe due diligence in the recruitment of their personnel under the Know Your Employees (KYE) rule.This is a reinforcement of the existing Know Your Customer (KYC) rule which obligates banks to perform thorough checks on their customers to fend off fraud and money laundering offenses. The due diligence rule is now being brought straight to the home base. According to the BSP, one of the major sources of operational risk is “people risk” and, consequently, banks should adopt measures to identify and control such risk. Part of the measures would be verification of references, criminal records, psychological evaluation, past employment and professional qualifications, which should enable a bank to assess the applicant’s behavior and character, and his susceptibility to collusion and fraud.
The approach prescribed by the BSP would definitely be helpful but is not really new to the banks. Certainly, a bank would not want to be infiltrated by rogue employees as they constitute threats to the bank’s reputation and stability. By and large, the suggested measures are already believed to be in place in the banks. An applicant will not be admitted if he cannot pass the qualification standards of the bank. On the other hand, the admission of the applicant means that he was found to be mentally, morally, psychologically and professionally sound. However, it is also possible that, subsequently, there may be a transformation in his character. And it may actually happen as, in fact, we hear about acts of dishonesty committed by some employees who were erstwhile in good standing.
What accounts for this change in character? There are several influencing factors such as financial distress, expensive lifestyle, outright greed, resentment against management, feeling of immunity and even extra-marital relations. Banks are aware of these transformational risks and they are also constantly on the look out. There are mechanisms to counteract these risks such as periodic psychological and fitness assessments, lifestyle checks, job rotation, cross-posting, mandatory leaves and the like. These are in addition to the standard audits, internal controls and risk management. The message is that managing “people risk” is a continuing one.
To the above list, I can add two more. The first is team building. Team building sessions are conducted for the members of a group to have a firm and solid stance on corporate plans. But it also has a significant dimension – that of fostering camaraderie and fellowship among the team members. I prefer these sessions to be held out of town to engender more familiarity with each other. The resulting benefits are worth the budget – more harmony and efficiency in the workplace and spotting those who deviate from the norms, like the big spenders, the loners and those with unusual behavior. This would now lead us to the next approach.
The second in my list would be the whistle-blower policy. Companies are now encouraged to adopt such policy which, to be successful, should also provide recognition and protection to the whistle blower. And rightly so because, as stated in the KPMG report on the profile of corporate fraudsters, whistle blowing and tipoffs have the highest incidence of uncovering fraud at 24%. Other mechanisms which are usually relied upon, like internal audit is only at 14%, and external audit only at 6%.
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The above comments are the personal views of the writer.
His email address is [email protected]