If you've been away on holiday this summer, are you feeling refreshed and ready for autumn? Most people generally agree that taking a break now and then is beneficial for both the mind and body.
A colleague I used to work with didn’t have that view.
We worked at the same bank, and in the six years he was there, he took no days off and regularly worked weekends. When he eventually left, he had accumulated over a year of untaken leave, which the bank paid out in full.
Less widely discussed, but valuable for employers, leave of absence is an effective way to uncover wrongdoing within the organisation.
Many frauds require constant attention from the perpetrator to maintain the deception, meaning they can rarely afford to take time off. When you examine many rogue trading cases, certain patterns often emerge.
Take the John Rusnak case, for example. The trader was involved in the valuation of trades and manipulated the figures to hide losses. He created false trades that appeared profitable to mask these losses. He also coerced colleagues into actions detrimental to the bank, such as suppressing confirmations or bypassing proper workflow on valuations.
It is challenging to maintain a fraudulent scheme like this without interfering with aspects that could expose it. This often involves not only executing transactions but also managing risk, settling transactions, and convincing management that everything is above board.
This is why leave plays a significant role in uncovering financial fraud, especially in trading environments. It disrupts ongoing schemes because fraudsters are forced to step away from their roles, making it harder to maintain false records and hide losses.
When traders go on leave, their positions and records are typically reviewed by colleagues and supervisors. This independent oversight increases the likelihood that irregularities will be spotted and questioned.
Leave also separates the trader from other staff managing transactions, which can help uncover unauthorised practices or systems the fraudster may have coerced colleagues into adopting. There is also a deterrent effect; traders know that mandatory leave increases the risk of any fraud being discovered during their absence.
But what do we mean by "leave," and what type of leave can help uncover fraud?
It’s important to have a well-thought-out policy. There needs to be mandatory time off; this isn’t about occasionally choosing to take a holiday; it’s a requirement that the employee is absent from the office for a period mandated by company policy or industry regulations.
The leave typically needs to be continuous, with two weeks generally considered sufficient to disrupt ongoing fraud.
Furthermore, the employee should not have access to trading systems, work-related networks, or communication with colleagues about work matters, ensuring complete disconnection.
Some organisations go so far as to implement policies where the timing of mandatory leave is announced or given at short notice, preventing perpetrators from preparing for their absence. During which audits or reviews of the employee’s work, trades, and records may also be appropriate. Handover of trading responsibilities should include sign-off of the actual positions, allowing for closer scrutiny of the trades and their valuations.
Of all these points, the most challenging today is the issue of hybrid working. As work increasingly takes place outside the office—although less so in trading—it’s crucial to ensure that leave of absence means a genuine break from the systems. Various approaches can be taken, which are beyond the scope of this discussion, but it’s essential to have a strategy to prevent remote access during leave periods, especially in this situation.
Looking at the Rusnak case, it’s tempting to think that such frauds are a thing of the past and that current systems and controls are robust. However, this is a timely reminder that as past events fade from memory, we should not forget what happened.
It is a small thing but if you cannot provide an auditable account of your employees’ annual leave—ensuring they are absent and disconnected from systems for at least two consecutive weeks—then it’s time to do it.
A vacation is not only good for employees; it’s great for the business too!
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