Question

Fact Pattern: Bank management suspects that a bank loan officer frequently made loans to fictitious entities, disbursed loan proceeds to personally established accounts, and then let the loans go into default. Some pertinent facts about the loan officer include

-A high standard of living, explained as the result of sound investments and not taking vacations;

-An expensive personal car obtained through business contacts;

-Gasoline and repair bills submitted for a car assigned by the bank that are higher than the organization's average (mileage logs were submitted on a quarterly basis); and

-Marked annoyance with questions from internal auditors.

The most appropriate trend analysis to indicate this potential fraud is
1) total monetary volume of loans by loan officer
2) accumulation of unpaid vacation days
3) automobile operating expenses by loan officer
4) loan default rates by loan officer

Answer 1

The analysis of loan default rates by the loan officer is the most relevant trend analysis to detect potential fraud, as it would reveal higher than normal default rates, which could suggest improper lending practices or non-genuine loans.

Step-by-step explanation:

The most appropriate trend analysis to indicate the potential fraud in this case is the loan default rates by loan officer.

By analyzing the loan default rates of a loan officer, the bank can identify any unusual patterns or trends that may indicate fraudulent activities. In this case, if the loan officer frequently made loans to fictitious entities and allowed them to go into default, this would be reflected in their loan default rates.

Other factors mentioned, such as the loan officer's high standard of living and expensive personal car, may raise suspicions but do not directly indicate potential fraud. The loan default rates, on the other hand, directly correspond to the suspected fraudulent activities.

The most appropriate trend analysis to indicate potential fraud by the bank loan officer, who is suspected of making loans to fictitious entities and disbursing loan proceeds to personal accounts, would be loan default rates by loan officer. This analysis would compare the officer's loan default rates with the expected level of riskiness and other officers' rates. A higher-than-normal default rate could indicate that loans are being made without proper due diligence or that loans may not be genuine. Since banks plan for a certain small percentage of defaults, an abnormally high rate would trigger concern and could suggest fraudulent activity.