Internal Controls

U.S. Federal Reserve Wraps Up 2008 Enforcement Actions

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The U.S. Federal Reserve Bank in Washington D.C.

The Federal Reserve Board is wrapping up enforcement actions for 2008 against individuals that are alleged to have violated the law, participated in unsafe and unsound banking practices and breached fiduciary duties.  The cases surrounding these enforcement actions underscore the importance of internal controls in both banking and non-banking organizations.

In keeping with its regulatory mission as prescribed by the Federal Deposit Insurance Act, the Federal Reserve Board earlier this month announced the issuance of final decisions against Kelly M. Dulaney, former Customer Service Manager for the Port Orange, Florida branch of Fifth Third Bank and Julianne L. Gingrich, former Assistant Vice President, foreign currency manager for SunTrust Robinson Humphrey in Atlanta, Georgia. 

On December 15th, the Federal Reserve issued a final decision and order of prohibition against Ms. Dulaney from further participation in the affairs of any financial institution and requiring her to pay $203,923 in restitution based on her actions while employed at the bank, according to information released by the Federal Reserve.

From April 2004 through August 2006 when she resigned, Ms. Dulaney allegedly falsified "bank debit and credit tickets and customer checks to make unauthorized withdrawals from the certificate of deposit accounts of three of the banks customers, using the proceeds for her own purposes," according to the Federal Reserve.   

Breach of Internal Controls 

Dulaney concealed her activity by making unauthorized transfers between the customer's CD accounts and the general ledger.  When one of the customers sought to roll over a CD, Dulaney would execute the GL transactions, give the customer the receipt and then request that the CD account be purged from the bank's records in order to conceal her activity, according to the filing. 

She was caught when the account holder for one of the accounts she was falsifying asked someone else at the bank about the status of their account and learned that one account had no funds and the other had been purged.  The bank restored all effected customer accounts with interest and as a result incurred losses of approximately $203,923, as stated in the final decision filing.  The difficulty or inability to tie the missing funds directly to Ms. Dulaney may explain why embezzlement charges were not filed.

On December 4th, in the other case, the Federal Reserve Board issued a Consent Order of Prohibition against  Julianne L. Gingrich of Stickney, Illinois for her alleged role in falsifying the bank records and embezzling $54,571.64 from SunTrust Robinson Humphrey in Atlanta, Georgia. 

Ms. Gingrich, a former Wachovia Account Manager, was employed at SunTrust Bank for approximately six years when she was terminated by the bank in December 2007.  She was alleged to have transferred funds from the general ledger accounts the bank maintains in support of its foreign currency trading operations to her own bank account, according to the Federal Reserve.   

Unlike Ms. Dulaney, however, Ms. Gingrich has consented to the issuance of the order against her, agreed to each and every provision in the order and made restitution to the bank, according to the filing.  Like Dulaney, Ms. Gingrich is prohibited from participating in the operations of a bank or bank holding company, voting as a shareholder of a bank holding company and being employed by a bank or bank holding company. 

Ms. Gingrich is one of the highest ranking executives to receive disciplinary action from the Federal Reserve in 2008.  Interestingly, around 2006, Ms. Gingrich donated between $10,000 and $14,999 to the Woodruff Arts Center in Atlanta, according to its website.  Currently, Ms. Gingrich is employed as a staffing manager for the Chicago office of Robert Half International, according to an unidentified internet source. 

Other individual enforcements in 2008:

November 18, 2008 - Order of Prohibition against David Lee, former managing director of the Commodities Trading Group and institution-affiliated party of the Chicago branch of the Bank of Montreal (BMO), for compromising the independent price verification process BMO relied on to ascertain the true value of his trading book, which led to after-tax losses to the bank of $327,000. 

October 2, 2008 - Order of Prohibition against John H. Lohmeier, former Senior Vice President, trust officer for Hinsbrook Bank & Trust in Oakbrook, Illinois, for allegedly using at least $175,000 of the banks money to pay start-up costs for a non-depository trust company owned by Lohmeier and allegedly removing a computer server from the bank and using the server data, including non-public information, for the start-up trust company. 

September 29, 2008 - Order of Prohibition against Donald W. Linville, former Senior Vice President of the Commercial Real Estate Group for Compass Bank in Jacksonville, Florida, for allegedly altering the appraisal, loan application and loan guaranty records in the bank's files without the consent of the bank, borrowers or appraisers.

September 4, 2008 - Order of Prohibition against Rosyln Y. Terry, former teller for SunTrust Bank in Atlanta, Georgia, for embezzling $21,200 from the bank and falsifying the banks books and records.

March 5, 2008 - Order of Prohibition against Russell K. Henry, former employee of FNB Southeast in Reidsville, North Carolina, for making at least $786,694.89 in unsecured loans to his elderly mother and then using a substantial portion for his own personal benefit.

January 24, 2008 - Order of Prohibition against Aldo N. Morales, former Vice President of Coconut Grove Bank in Miami, Florida, for violating his duties as a lending officer in the bank's dealer-referred sub-prime automobile lending program.  Morales repeatedly extended loans to uncreditworthy borrowers based on questionable documentation, concealed delinquencies by manipulating the bank's accounting and computer systems to extend and enlarge payment due dates and received gifts from dealer representatives in connection with sub-prime auto loans.