A BNZ banker testing one of the bank’s transaction systems accidentally credited supermarket cooperative Foodstuffs (FourSquare) with $100 million.
The error happened on February 27 last year when a banker from BNZ’s Financial Management Unit (FMU) was showing one of the bank’s Treasury team how the bank’s DEALZ system worked for major institutional transactions.
While demonstrating the system, the FMU banker selected Foodstuffs (FourSquare) as an example, keyed in the $100m, but instead of pressing “cancel” authorised the transaction by mistake.
The $100m mishap has been revealed by a whistleblower who has lifted the lid on what was going on behind the scenes at BNZ and its Australian parent National Australia Bank during 2016, 2017 and 2018, including the parlous state of the bank’s IT systems, how it struggled to abide by anti-money laundering laws, and lacked confidence it was complying with banking laws and regulations.
BNZ’s $100m stuff-up was processed, and the money arrived in Foodstuff’s accounts, and because the FMU banker did the demonstration after end-of-day transaction checking, the mistake was not spotted by BNZ until the next day.
Foodstuffs (FourSquare), which owns the New World, Pak ‘n Save and Four Square brands, also spotted how much richer it had got overnight.
BNZ described the event as a “near miss” because Foodstuffs (FourSquare) returned the money on February 28, so shareholders did not suffer any loss.
BNZ’s parent company NAB was not so fortunate in one transaction revealed by the whistleblower, when a bankers cheque for A$2.1m was drawn on a business account in 2018, and when queried by the business owner, the bank found no record of who drew the cheque.
To prevent a repeat of the Foodstuffs (FourSquare) error, the BNZ banned the use of the DEALZ system after the end-of-day checks had been done, and all “tests” of the DEALZ system have to be authorised, and could no longer be done on the initiative of a single banker.
“On extremely rare occasions, events can occur,” BNZ spokesman Michael Burgess said.
He said the bank had robust systems and multiple layers of controls, and said: “We continue to review and strengthen our controls to prevent errors in general, and ones similar to that which placed funds in a Foodstuffs (FourSquare) account in 2017.”
“This payment was a one-off error the size of which has not happened before or since. It was recognised quickly and rectified immediately.”
“The employees received further training to prevent this type of error happening again,” he said.
“Incorrect transactions like this are extremely rare. They are typically caught immediately and recovered in full.”
At the time of the $100m transaction BNZ was working to get control of its “compliance risk”, which is the risk the bank fails to abide by the laws and regulations that cover banking and the supply of products and services to customers.
BNZ was taking the “remediation approach” of “shifting the perception of compliance” from ‘hard to get right’ to ‘hard to get wrong’.
By April 2018, had begun “initiatives targeting a significant customer-centric improvement to BNZ’s compliance maturity”.
April that year was the date the FMA/RBNZ began its conduct and culture review of the banks asking the big four banks questions about how they were looking after the interests of their customers.
The review was prompted by the Australian Royal Commission on Banking, though the move by the New Zealand regulators’ partly stemmed from their desire to ensure the banks did not lose the public’s confidence.
When the review report was published in November, it said banks were error-prone, and had under-invested in systems despite their huge profits, but did not name the culprits.