Bank's outsourcing deal enabled 'rogue' employees to make 'improper' payments

Prudential Regulatory Authority fines cash-machine operator Raphael Bank over outsourcing failures

The Prudential Regulatory Authority (PRA) has fined a City bank over an outsourcing deal that enabled rogue employees to make fraudulent payments.

The PRA fined Raphael Bank just under £1.3m for its operational failings over a deal with another company in the group, entered into in September 2006 - for which the bank did not even have a written agreement.

"Raphaels failed to carry out suitable due diligence adequately or at all in respect ofits outsourcing," claimed the PRA in its verdict.

It continued: "Raphaels failed to enter into a written agreement with respect to the outsourced important operational functions untii 21 months after 'Company C' had begun to provide some of Raphaels' finance functions. When the written agreement was entered into (and later amended), it did not include any division of responsibilities and powers between Raphaels and Company C or specify appropriate arrangements for Raphaels' oversight of the outsourced function.

Furthermore - and, perhaps, most astonishing of all - employees within the outsourced company "had access to Raphaels' bank accounts and improperly transferred funds... without the knowledge or consent of Raphaels, taking steps to conceal their actions", according to the PRA report.

Although the cash-machine outsourcing deal was improperly managed, according to the PRA, Raphaels nevertheless extended the range of activities and functions outsourced to 'Company C'.

There is no suggestion that account-holders money, or the accounts of users of the cash machines, were compromised. Rather, the improper transfers, according to the PRA, "were carried out by the employees manipulating payments, without Raphaels' knowledge, due to 'Company C' from Raphaels for filling Raphaels' ATM machines pursuant to the joint venture. This was done to provide additional cash liquidity for 'Company C'".

Raphaels operates cash machines across the UK at such locations as bureaux de change, stations and airports, and also has a mobile operation that locates cash machines at major events.