Central Problem: How will MetroBank ensure the improvement of its internal control

system to prevent future oversight lapses?

Specific problems:

1. Which area/s of MetroBank’s internal control system was breached?

2. Which area/s of MetroBank’s internal control system needs improvement?

3. What changes should take place, particularly in MetroBank’s system of initiating

and approving its credit lines?

4. How will MetroBank recover from such loss, financially and with regard to its

integrity and reputation in the community?

5. How will MetroBank answer for its obligations to the public and to the banking

sector’s governing body?

6. What effect will this scandal have on the country’s banking industry?

Causes:

The incident could be linked to both governance lapses and a misguided ethical

compass. Should there be gaps in the internal control system established in the workplace,

an employee with proper ethical values would not take advantage of the situation and

would in fact recommend to those who are duly responsible for instituting such controls

that some things are amiss. Organizations, on the other hand, should not just rely on their

workers’ supposed “honesty” and then suffer from all the losses when their employees do

defraud the business. Opportunities to commit fraud should not be presented to the

employees because no matter how strong the employees’ will is or how brilliant and
conniving their plans to mismanage the company’s assets are, their plans will not be able

to breach the internal controls if only these controls were appropriately set to withstand

such attempts.

Governance

Lopez was the head of MetroBank’s Corporate Service Management Unit and being

the head of the said unit, she is more or less independent, with her being trusted by the

clients and the bank. Upon her mere say so, the bank can issue large loans— draw downs,

on the credit line of P25 billion. The suspect could have banked on the fact that no one else

thoroughly checked the documents for authorization of the loans, and that no one would

discover the irregularities of the loans she was illegitimately processing.

Surprise visits in different branches and stringent cash counts with tellers and

cashiers are just some of the more common audit procedures employed by internal auditors

to detect possible instances of fraud. What most companies fail to realize is that the culprit

cannot be found only among the rank-and-file and lower management employees. Yes,

financially speaking, they have more reasons to be tempted to mismanage the company’s

assets than those from the top management who receive much higher pay, but once the top

management’s potential to defraud the company is overlooked, the business is bound to

suffer more losses. This is what happened to Metrobank. It has placed far too much trust

on a single person for direct oversight of a very crucial and fraud-inducing business

segment, which in this case is their credit line. Authority to approve such loans should not

be left to a single person only. There should have been multiple cross checks and counter

checks instituted, because even the highest person’s authorization could be questioned by

a subordinate one or two ranks lower.

Ethics

Fraud is something most business unfortunately have to face up to— the stealing,

falsification of documents, the inside job. According to Terry Shulman, author of Biting

the Hand That Feeds: The Employee Theft Epidemic, “most employees who steal from

work are honest in other areas but for most, there is a sense of entitlement and also, they

don’t feel like they are hurting anyone”. One factor to look into is that many feel angry and

entitled to steal from work because of perceived feelings of being victimized or not being

appreciated. It is the nature of the working relationship that can provoke some employees

to take advantage, particularly through deception. Workers who feel disengaged may be

tempted to find their own compensation. Living up to a different and wholly higher level

of lifestyle could also be a factor. Most people tend to live beyond their means, and spend

more than they actually earn. Bad habits and extravagant luxuries in life can push a person

to spend money that is not rightfully theirs. Despite employers creating codes of conduct,

conveying that fraud will not be tolerated and presenting the possible ramifications upon

violation, it still boils down to the person’s own set of ethical principles and to the extent

that he/she puts value in abiding by those principles. Unfortunately, for Metrobank, the

person they have delegated such a high position in had a completely different set of goals

in mind.