The Register picked up on this story on Friday. Their headline describes it as a ‘scam’, but one of their commenters correctly points out that this is probably a failure of a business rule in one of the bank’s processes which resulted in Mr Victor Ollis running up an overdraft of AUS$11 million (approx US$9 million).

According to Australian news site News.com.au,

Mr Ollis had an automatic transfer facility with the bank, which topped up his business account using funds from his personal account.

The transfers should have been stopped after his personal account was overdrawn in February 2004, the court heard yesterday.

But due to an error at Westpac, his account continued to be replenished – only with money “from the bank’s own pocket”.

Between June and December 2005, Westpac honoured cheques totalling about $11 million written by Mr Ollis.

The Sydney Morning Herald reports that

Over the next seven months the NSW businessman siphoned close to $11 million in Westpac’s own funds into his own affairs, taking advantage of a recurring technical error that topped up his business account.

(emphasis added by the IQ Trainwrecks team).

The bank’s own legal representative is quoted by news.com.au as  saying

“A human error meant the facility kept working, except it was drawing money from the bank’s own pocket”.

The Australian Courts have found against Mr Ollis and his partner and he has been ordered to repay WestPac AU$14,692,968.03, the original AU$11m plus interest, but that may not be the end of it as there is still to be a hearing on court costs for the case.

Of course, as Mr Ollis has pointed out, he doesn’t have long to live and the Bank may not get anything.

So, what happened here?

Money was being transferred from Account A to Account B. Account A became overdrawn. The money transfer kept running. The expectation that Mr Ollis had that the transfers would not run if he had no money in the account was not met. Unfortunately Mr Ollis formed the expectation that he could keep spending the money that was being transferred into his account as it was the Bank’s error.

Who loses here?

Everyone. The bank has the bad publicity of a court case arising out of a series of internal errors. Mr Ollis and his partner face significant bills at the end of this to repay the money. Should some or all of the money go unpaid, the Bank’s customers and shareholders will bear the brunt of lower profits and/or higher bank charges as a result.

Given the amount of money involved, the likely simplicity of the root cause and the significant impacts on Mr Ollis, the bank, its shareholders and its customers, this is a definite candidate for an IQ Trainwreck.

Oh, and before we forget, this is a case of a customer who decided he didn’t want to pay the money back and tried to fight the situation. If the source of the error was a systems failure or even ‘human error’ there is a good chance that other customers might have been affected, albeit in a much smaller (and quieter) way.