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Financial Services Industry

Giving'em "the right stuff' to fight fraud: an interview with Michael Collins

RMA Journal, The, July-August, 2003 by Charles Taylor, Beverly Foster

Like many cities, Philadelphia is a blend of the historic and the modern--in architecture, in values and principles, and in thought. Just a few blocks from Independence Hall and the Liberty Bell sits the streamlined headquarters of the Third District of the Federal Reserve Bank. The Fed remains true to its 1913 mandate to provide the nation with a safer, more flexible, and more stable monetary and financial system. But in 2003 the Fed is investing heavily in technology and training to further strengthen its people and to broaden its understanding of products in a rapidly changing industry. Charles Taylor and Beverly Foster spoke with Michael Collins, SVP and lending officer at the Bank, about examiner training and the Fed's role in helping banks to outsmart the bad guys.

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RMA Associate Michael Collins is SVP and lending officer at the Federal Reserve Bank of Philadelphia. He provides administration and oversight of the discount window and oversees the supervision of financial holding companies, bank holding companies, and state member banks in the third district. He also chairs the Staff Development, Utilization, and System Performance Subcommittee for the Federal Reserve System's supervision function. He ensures that the Fed's training remains current and relevant and that examiners have the technical and behavioral skills to do their jobs. It takes three to five years of a core curriculum plus on-the-job training to be commissioned by the Board of Governors as an examiner.

Getting the Right Stuff

The core curriculum's 10 courses include training in internal controls and fraud, both by type of activity and by exposure. "Our trainees gain an understanding of these activities early on, and then we expect them to continue to progress in their comprehension and application of analysis, synthesis, and evaluation," says Collins. "That's where critical thinking and judgment skills come into play, and we expect our people to be able to apply them at that level."

Training does not end there. After commissioning, continuing professional development supports examiners as they take a more self-directed approach to their learning. "Of course, supply and demand play a part, and career consultations do point out opportunities--those areas where skill gaps exist in the Fed System," says Collins. Still, examiners can chose a wide variety of specializations and, for example, can pursue deeper knowledge of credit or market risk management, work toward becoming capital market experts, or seek to become certified fraud examiners.

Tools of the Trade

Alongside more traditional teaching methods, online learning has taken hold in the Fed System through a tool developed by the Federal Reserve Bank of St. Louis. "It's a modular approach in which examiners learn initially to identify red flags for poor governance and internal controls," says Collins. "It helps them identify possible weaknesses and to test whether the weaknesses are more apparent than real in the context of a particular organization. If there is a real problem, later training modules help them understand their options--how to expand the scope of their examinations to include additional testing and, if need be, how to build a case for a criminal investigation."

Beyond training, examiners are supported by system-wide Video conferencing, first used at the Philadelphia Federal Reserve Bank, spreads news and the expertise of specialists to others throughout the U.S. in real time. 'We don't have to wait for a trend that began, say, in San Francisco to reach Philadelphia before we prepare our local examiners to deal with it," says Michael Collins. knowledge sharing. Video conferencing, first used at the Philadelphia Federal Reserve Bank, spreads news of any new developments and brings the expertise of specialists to others throughout the U.S. in real time. "In this way, we don't have to wait for a trend that began, say, in San Francisco to reach Philadelphia before we prepare our local examiners to deal with it," says Collins.

Then there is the Fraud Information Network--coordinated out of Washington--of subject matter experts, investigators, attorneys, and policy analysts across the System. The Network has its own Web site through which they share information about trends and practices with field examiners nationwide. And this staff can be mobilized at a moment's notice to supplement specific examination teams when complex, novel, or large-scale fraud is suspected.

Finally, the Fed's examiners benefit from expertise elsewhere in the Federal government, including:

* The other banking agencies, such as the FDIC, OTS, and 0CC.

* Law enforcement agencies as members of the the Bank Fraud Working Group.

* On occasion, the Justice Department and other law enforcement agencies.

Dangerous Times

"Our infrastructure for developing and supporting examiners is especially important at this stage in the economic cycle," says Collins. "In many banks, the recent decade of economic growth masked control weaknesses exacerbated by cost-cutting and now frauds are surfacing and spreading rapidly."

Financial Services Industry

Giving'em "the right stuff' to fight fraud: an interview with Michael Collins

RMA Journal, The, July-August, 2003 by Charles Taylor, Beverly Foster

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