The staff internal auditor for the bank frowned and said to the auditor-in-charge, “The Smith loan was $175,000, but the credit limit was $100,000. The file contained no explanation for granting a loan in excess of the credit limit. And the Jones loan for $150,000 was well within the borrower’s credit limit, but the documentation is missing!”

The auditor-in-charge replied, “Fortunately the Smith loan was paid off shortly after date of the loan listing, so there was no need for further follow-up. As for the Jones loan, we’ll follow up on that at the next audit. If we followed up on every little exception, we would never finish all our audits.”

Follow-up at the next audit revealed that the Jones loan had been paid off with funds from outside the bank. What the auditors did not realize was that both loans had been paid off with the proceeds of fictitious loans made in the names of other borrowers. Later it was determined that both loans were part of a fictitious loan scheme. Losses exceeded $5,000,000. Fraudulent loans totaled less than $2,000,000 at the time the auditors failed to follow through.