The Financial Supervisory Commission (hereinafter referred to as “FSC”) imposed a penalty on Land Bank of Taiwan (hereinafter referred to as “Land Bank”) for violation of regulations. A former employee of Land Bank at its Shalu Branch long took advantage of his position and was able to commingle the utility payments collected from the bank’s tenants with his personal funds and misappropriate the public funds. He also gave tenants notices of wrong allocated expenses which led to short payment for the bank. The deficiencies in this case demonstrate that the bank had failed to establish and rigorously implement a comprehensive internal control system, which violated regulations in Article 45-1, Paragraph 1 of the Banking Act, and regulations in Article 3 and Article 8, Paragraph 1 of the “Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries” established based on the authorization therein (referred to as “Internal Control and Internal Audit Rules” hereunder). In consideration that violations, in this case, took place over a protracted period of time and the bank had failed to establish a relevant management mechanism for the rental of its offices and buildings, the FSC, therefore, imposed a penalty of NT$4 million in accordance with Article 129, Subparagraph 7 of the Banking Act.
I. Penalized entity: Land Bank of Taiwan.
II. Legal basis for penalty: Article 129, Subparagraph 7 of the Banking Act.
III. Facts and reasons of violations:
(I)    During the period from 2017 to April 2024, the bank’s former employee at its Shalu Branch took advantage of his job and was able to misappropriate public funds and cause short payments. His illegal activities lasted seven years and four months, during which, the misappropriated amount and amount of short payment combined totaled NT$2,712,384. 
(II) The deficiencies, in this case, demonstrate that the bank had failed to establish and rigorously implement the internal control system for the management of its offices and buildings:
1. Failure to establish a comprehensive internal control system:
(1) The bank failed to state expressly in its relevant operational rules the principle of banning using maintenance workers/handymen to perform the work of office staff: The employee concerned took the position of a maintenance worker/janitor at the branch. According to the bank’s “Directions for the Management of Maintenance Workers/Janitors”, a maintenance worker/handyman can perform the work of official vehicle driver, employee meals and various general works. Although the bank issued annual notices prohibiting the practice of using maintenance workers/handymen to perform the work of office staff, it did not have relevant rules expressly stating that maintenance workers/handymen are not allowed to perform the job of receiving/making payments.  
(2) Failure to establish the accounting procedure for expense allocation: The bank’s branch recognized all utility bill payments as expenses. When the branch collected shared utility expenses from its tenants, it recorded the payments received as cash to offset the utility bills, instead of entering them under the “Other payables” according to the accounting principles. In addition, the branch did not effectively establish acontrol mechanism for credit entry of expense items.
(3) Failure to establish a control mechanism for the rental of self-owned offices and buildings: The bank had 29 rental units. However, the bank did not establish relevant management rules and audit mechanisms regarding the rental unit management, expense allocation and designated account drawdown. Consequently, the long-term practice of the employee concerned diverting public funds for his own use had not been discovered.
2.    Failure to rigorously implement the internal control system:
(1) Failure to implement audit operation for the transactions concerned: The bank and its tenants signed a lease to agree on matters to be observed by the parties, including when the tenant receives a rent invoice and a payment notice of allocated expenses calculated by the branch, the tenant shall transfer (deposit) the funds into a designated account opened by the branch. However, the branch concerned failed to produce an allocation schedule each period to indicate the amount of utility bill to be collected from each tenant, and the amount allocated to each tenant was not double-checked and signed off by relevant personnel. As a result, there had been discrepancies between the percentage of allocated expenses collected from each tenant and the percentage agreed in the lease signed with the tenant.
(2) Failure to draw on money in the designated account by way of transfer through a passbook according to the bank’s “Rules for the Management of Designated Accounts for Receipts of Real Estate Rental, Sale and Management” (referred to as “Designated Account Management Rules” hereunder): According to Point 5 of the Designated Account Management Rules, the account seals shall be signed off and kept by authorized signatories of Group A and Group B, and funds in the account shall be drawn on by transfer through a passbook. In this case, the employee concerned withdrew cash from the account as a “temporary deposit/debt” using the withdrawal slips pre-approved by the supervisor. Apparently, the bank’s operating process was not double-checked as required. Consequently, some withdrawals that did not have the signatures of all authorized personnel were not detected.  
IV. Penalty decision: The FSC imposed a fine of NT$4 million in accordance with Article 129, Subparagraph 7 of the Banking Act.
V. Other regulatory requirements:
(I) The bank is instructed to rigorously review the monitoring and management of employee conduct and make improvement, and study and propose a concrete and effective enhanced control mechanism, and implement it.  
(II) The bank is instructed to send the patterns of irregular activities in this case for disclosure on the dedicated section on the website of the Bankers Association. The bank shall also report the employee concerned who violated laws or was found negligent in this case in accordance with the "Guidelines for Reporting Information of Negligent Personnel of the Banking Industry" of the Bankers Association.
    The FSC indicates that aside from urging the bank to conduct a total review and enhancement of the employee code of conduct in its internal management, the FSC will, in routine supervision, guide financial institutions to step up their efforts in preventing misappropriation of funds and fraudulent activities by employees to uphold sound and stable operations.