Where the Nested IF Beats the Written Policy: Top-Up Auto-Sanction Rules

Application 1. R1 is satisfied (780 ≥ 750, FOIR 44% ≤ 50%) but R3 is also triggered (LTV 84% > 80%). Two rules point in opposite directions; the precedence clause resolves it - refer overrides approve. Outcome: Refer.

Application 2. R1 is satisfied (790, 41%) but R4 is triggered by the 45-day arrears. Reject overrides approve. Outcome: Reject.

Outcome 3. Score 640 < 650, so R2 fires and nothing overrides it. Outcome: Reject.

Why this is not a recall question. The written policy is a decision table with an explicit precedence order (reject → refer → approve). Application 1 is the trap: on score and FOIR alone it looks auto-approvable, but a single adverse ratio must override two favourable ones. The correct method is to test every rule independently, then apply the precedence order - never to stop at the first favourable match, which is exactly what the code does.

Why it fails. A nested IF returns the first TRUE branch and stops. The approve test (R1) sits in the outermost position, so once score and FOIR pass, no later test runs: Application 1 returns Approve although LTV is 84%, and the R3 test is never reached. Separately, column E does not appear anywhere in the formula, so R4 is simply absent - Application 2 returns Approve despite 45 days of arrears.

Corrected formula, with reject tests first, then refer, then approve:

=IF(OR(B2<650,E2>30),"Reject",IF(D2>0.8,"Refer",IF(AND(B2>=750,C2<=0.5),"Approve","Manual Review")))

This returns Refer for Application 1, Reject for Application 2 and Reject for Application 3.

Control lesson. The nesting order is a credit decision, not an IT preference: credit and compliance own the decision table and sign off the order; IT only encodes it. Add a combination test covering the 16 score/FoIR/LTV/arrears permutations with expected outcomes, and rerun it at every rule change. Also handle blanks explicitly - an empty E2 evaluates as zero and silently passes the arrears test, which is how an ineligible file gets approved without anyone noticing.

Immediate containment. Switch off auto-approval for any file with LTV > 80% or arrears > 30 days, and decide the three pending applications manually under the written policy. Fix and re-test the formula before the engine is released again.

Look-back. The error has been live for a full quarter. Extract every auto-approved file since go-live, apply the corrected decision table, and list the exceptions - files the engine approved but the policy would have referred or rejected. Re-decide each pending case before disbursement; for cases already disbursed, put them on a watchlist, reassess LTV and arrears, and consider additional margin.

Escalation. Report to the audit committee and the risk committee in numbers: cases affected, exposure, whether any disbursement was made on a file that should have been rejected, and the remedial timeline. Staff accountability applies only where a person overrode a warning; the primary failure here is change control, not a credit officer's judgement.

Root cause and fix. A business rule was changed without decision-table sign-off, version control or regression testing. Remedy: joint credit–compliance–IT ownership of the rule set, dated rule versions, a formal change-approval note, and a monthly reconciliation of a sample of auto-approvals against the written policy. This is the kind of finding that regulators treat as a governance failure rather than a spreadsheet accident.