Guisti was authorized to make consumer loans up to a certain dollar limit without loan committee approvals , which is a standard industry practice . Guisti ’ s original lending limit was $ 10,000 , the amount of his first fraudulent loan . The dollar limit was later increased to $ 15,000 and then increased again to $ 25,000 . Some of the loans , including the one for $ 63,500 , far exceeded his lending limit . In addition , all loan applications should have been accompanied by the applicant ’ s credit history report , purchased from an independent credit rating firm . The loan taken out in the fictitious name would not have had a credit report and should have been flagged by a loan review clerk at the bank ’ s headquarters .
News reports raised questions about why the fraud was not detected earlier . State regulators and the bank ’ s internal auditors failed to detect the fraud . Several reasons were given for the failure to find the fraud earlier . First , in checking for bad loans , bank auditors do not examine all loans and generally focus on loans much larger than the ones in question . Second , Greater Providence had recently dropped its computer services arrangement with a local bank in favor of an out-of-state bank . This changeover may have reduced the effectiveness of the bank ’ s control procedures . Third , the bank ’ s loan review clerks were rotated frequently , making follow-up on questionable loans more difficult .
Guisti was a frequent gambler and used the embezzled money to pay gambling debts . The bank ’ s losses totaled $ 624,000 , which was less than the $ 1.83 million in bogus loans , because Guisti used a portion of the borrowed money to repay loans as they came due . The bank ’ s bonding company covered the loss .
The bank experienced other adverse publicity prior to the fraud ’ s discovery . First , the bank was fined $ 50,000 after pleading guilty to failure to report cash transactions exceeding $ 10,000 , which is a felony . Second , bank owners took the bank private after a lengthy public battle with the State Attorney General , who alleged that the bank inflated its assets and overestimated its capital surplus to make its balance sheet look stronger . The bank denied this charge .
1 . How did Guisti commit the fraud , conceal it , and convert the fraudulent actions to personal gain ?