Half-Year Close at a Sialkot Branch: Shortage, Vault Breach and a Verbal Overdraft
On 30 June, the last working day of the half-year, the branch manager of a 14-staff branch in Sialkot leaves for a meeting at 3:40 p.m. and does not return before close. At 6:10 p.m. the cash officer reports that Teller A is short by PKR 38,600 - the second shortage in six weeks. During the day the ATM was replenished twice from the till without a joint custody entry, a corporate customer deposited PKR 25 million in cash after the 4:00 p.m. cutoff, and the vault now holds PKR 92 million against an approved limit of PKR 75 million because the cash could not be moved to the currency chest. The previous day a PKR 1.8 million cheque from the same corporate customer was returned unpaid, but the manager had already allowed a PKR 1.5 million withdrawal against it and recorded the overdraft as 'temporary, to be regularised'. Two tellers are on annual leave. The branch opens at 9:00 a.m. tomorrow and the regional audit team arrives on 3 July.
1. Identify the control failures this day exposes and set out the actions the cash officer and acting branch head must complete before the branch opens tomorrow. Show your prioritisation and the reasoning behind it.
Read the worked answer
Separate containment from investigation - the shortage may be an error or misappropriation, and the evidence must survive either finding.
Before 9:00 a.m. tomorrow
- Recount under dual control. The cash officer plus one other officer conduct an independent blind count of all tills, ATM cassettes and the vault. Teller A does not handle cash meanwhile.
- Freeze and document. Post PKR 38,600 to 'cash short/over - suspense'. Obtain Teller A's written statement, preserve CCTV, teller session logs and the ATM replenishment slips. Never write off a shortage before investigation.
- Vault limit. PKR 92m against PKR 75m is a live breach. Arrange a currency chest remittance at opening; if cash cannot move, obtain written temporary enhancement from the area office today, not retrospectively.
- The overdraft. PKR 1.5m paid against a returned PKR 1.8m cheque is an unauthorised exposure. Stop further debit, issue a written demand, mark the account irregular in the system and refer to Credit Administration.
- Notify the area manager and compliance in writing before the audit team arrives. A self-reported irregularity is treated very differently from one the auditors discover.
- Staffing. Recall the two tellers on leave only to give statements, not to resume duty.
Reasoning: the vault breach and the overdraft are authority breaches with a paper trail - act on them immediately. The shortage is an unresolved fact - act on it carefully, because premature confrontation destroys the evidence.
2. Diagnose the root causes, distinguishing individual conduct from structural control design. Then recommend three control changes, each with the specific design and the metric that would show it is working.
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Individual versus structural
- Individual: the teller's PKR 38,600 shortage (a repeat) and the manager's verbal overdraft approval. Both require statements and a disciplinary process.
- Structural: the shortage recurred because cash moved without joint custody; the vault breach happened because nothing in the core system blocks a deposit above the ceiling; the overdraft happened because delegated authority sits with a person rather than a system limit. Two tellers on leave in a 14-staff branch at half-year end is a rota failure, not bad luck.
Three control changes
- Dual custody enforced by system, not habit. Teller and vault movements require two authorised IDs; the end-of-day count is blind and signed by two officers. Metric: days with a non-zero teller difference; any teller with more than one difference a month escalates.
- Hard limits in the core system. Vault ceiling and lending authority encoded as system limits; any override needs a second approver and a mandatory reason code. Metric: overrides per month and days above the vault ceiling.
- Cut-off discipline. After-cutoff deposits post automatically to a next-day/suspense bucket; no withdrawal against uncleared funds without a system hold. Metric: number of holds overridden and returned-cheque losses.
Audit should test the metric, not the circular. A control with no measurable output is a description, not a control.
3. How should the returned cheque and the unauthorised overdraft be reported and accounted for, and what are the consequences for the manager if the PKR 1.5 million is not recovered?
Read the worked answer
The cheque and the overdraft
- A returned cheque for PKR 1.8m against which PKR 1.5m was paid is an irregular exposure from the date of return. Markup on an irregular/non-performing account must not be accrued or taken to income, and the balance must be classified (OAEM, substandard, doubtful) on the days-past-due basis in the bank's policy, with the required specific provision.
- Report through Credit Administration to the head of credit and to internal audit as an authority breach, not merely a credit event. It must not be regularised by rolling it into a fresh limit.
- Demand repayment in writing, suspend all facilities to the corporate customer until cleared, and record the reason on the file. If the customer disputes the return, obtain the returning bank's advice in writing.
The manager
- Exceeding delegated authority is a disciplinary matter. The outcome depends on the finding: negligence, concealment and collusion are different offences and should not be treated with one sanction.
- Recovery from salary or terminal benefits is possible only where the HR policy and a properly constituted enquiry establish it; it is not automatic.
- Because the audit team arrives on 3 July, the file should already contain the manager's written explanation and the branch's remediation plan.
Posture: disclosure plus remediation. A quiet write-back to suspense would convert a reportable incident into a concealment.