“They would have been better off, as a financial incentive, keeping the coins themselves,” he said.

Mr Comyn told Fairfax that the money taken from the bank and used by staff to open the Youthsaver accounts was very small, often loose change. He said the financial incentives received by staff were also small – a maximum of $1.76 over a year. He said there was no customer detriment.

The school banking and customer referral scandals came to light inside the bank shortly after CBA's now chief executive, Matt Comyn, was appointed to run the retail operation in 2012.

A Fairfax Media investigation can also reveal that the scam is part of a broader culture of gaming financial incentives at the bank where staff were caught faking customer referrals to boost performance targets and earn rewards.

They would do so when parents had signed up their kids for school banking, often referred to as Dollarmites, but had not deposited money into the account within 30 days. If no deposit had been made, the sign-up would not count towards sales targets and financial rewards.

The scam involved CBA staff either using the bank’s money, sometimes loose change or their own money to illegitimately activate Youthsaver accounts for financial gain.

Thousands of children’s Commonwealth Bank accounts were fraudulently set up by retail branch staff as part of a widespread scam to earn bonuses and meet aggressive performance targets.

He said if senior staff knew it was happening on a mass scale and did nothing about it, they were complicit in that fraud.

“It's a pretty basic expectation that bank staff will handle money honestly. Whether it involves five cents or $5 million, any mishandling of funds goes to the heart of trust in the institution,” CHOICE chief executive Alan Kirkland said.

The country’s largest consumer group, CHOICE, seized on the scandal to renew its calls to ban school banking schemes.

“While this practice did not financially harm any of our customers, it was a breach of their trust. For that I’m deeply sorry. As CBA’s new chief executive, my number one priority is to expedite changes that will prevent any behaviour that undermines our customers' trust in us – and to remove any CBA employee who knowingly acts against our customers’ interests.”

'Sick, annoyed and frustrated' - Rosemary Donald with her children (left to right) Mitchell, Sammy and Hugo. Credit:Janie Barrett

“It goes to the heart of integrity,” he said.

But he said using today’s lens – in the wake of repeated scandals and with the backdrop of a royal commission – the action taken by the bank at the time wasn’t appropriate, irrespective of the dollars at stake.

“The issue is widespread, it would seem unfair to name a handful when more are involved,” the email said.

Despite this, no disciplinary action was taken. In one email, a senior manager said it would be unfair to take any punitive action or issue formal letters.

“You should be honest in all your professional activities,” the email said.

Another email described it as widespread and “serious misconduct” and another email said it was an unacceptable and unethical sales practice and was in breach of the Code of Banking Practice.

Emails obtained by Fairfax reveal that senior management was alerted to the school bank scandal in February 2013 and described it as “somewhat common practice”.

“This raises serious questions about the culture of the entire bank,” he said.

She said using illegitimate funds to set up the account was unacceptable and unethical. She said if it continued it could result in disciplinary action.

Lyn McGrath (who is now the executive manager for CBA’s scandal-ridden wealth management advice business) decided the best course of action was to write to all staff – including her boss, Mr Comyn – and tell them that utilising teller discrepancy funds or processing valueless deposits constituted “serious misconduct”.

“Once again, if we were to go down that angle we would need to fairly identify other offending branches,” the email said.

The email said there had been no discussion about reversing sales made at any branches.

In early 2013, soon after the bank was made aware of the problem, it reviewed the 150 bank branches that delivered the predominance of Youthsaver accounts with a deposit of less than $1 – a red flag chosen by the bank. An internal spreadsheet obtained by Fairfax reveals that as many as 5347 Youthsaver accounts had less than $1 in deposits. Managers were asked to look into them to see if they had been fraudulently set up using illegitimate sources of funds.

“If that same occurrence happened today, where there is no customer detriment but where a staff member had wilfully done something to manipulate a KPI or an incentive, regardless of how small it was, that would lead to consequences of termination,” he said.

He said he became aware of the scandal in March 2013 when McGrath sent her email to staff throughout the network.

Mr Comyn said that one-third of the bank’s Youthsaver accounts are associated with school banking with the remaining two-thirds set up by parents through bank branches.

CBA has more than 1.6 million Youthsaver accounts and each year an estimated 120,000 new accounts are opened.

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Mr Comyn said the bank never got to the bottom of the size of the problem. “It is hard to determine how many branches, how many customer accounts, how many people, even if the 5000 is right, I don’t know it is wrong, it is hard to get to the bottom of it,” he said.

But he said even if the 5000-plus figure was right, if the average deposit was 10c, “we are talking $50”.

“To put it into perspective, we would donate about $40,000 a year to UNICEF through our leftover foreign currency … so, in the overall scheme of things, it’s a very small amount of dollars.”

The bank decided not to contact the families whose children’s bank accounts may have been activated without their permission nor did it contact the schools involved.

A decision was made not to broaden the investigation to the other 874 branches in operation at the time. The regulator and the board weren’t notified until recently.

CBA head Matt Comyn. Credit:Peter Braig

“When customers open an account,” Comyn said, “they put their trust in us and that’s doubly true when the account holder is a child. After we identified this practice by some staff in 2013, we immediately made changes to end it, and we are not aware of any evidence that the practice has occurred again in the past five years. There is now a line in the sand and we have zero tolerance for behaviour such as this, irrespective of whether there is customer harm.”

Of the 150 branches investigated, Melbourne’s north-eastern suburb of Montmorency had the highest percentage of accounts with less than $1 deposits, representing 64 per cent of Youthsaver accounts. Diamond Creek in Victoria ranked the second highest, followed by Wellington in NSW where almost half the Youthsaver accounts had less than $1 sitting in them.

Leanne Sheean: "In reality it is fraudulent." Credit:Justin McManus

A lesson in misconduct

Leanne Sheean, the principal of Montmorency South Primary School, said she was horrified to learn about the scandal and that her school was likely to be one of the worst hit. “We are a leafy little quiet suburb where nothing really happens and the parents want the best for their children and encourage good values,” she said. “The bank has used them under the guise of fundraising for the school,” she said. “They bring in a cuddly bear, the kids get taken in and, in reality, it is fraudulent what they have done and they are using schools to do it.”

Ms Sheean, who has been the principal since 2008, said the bank never informed the school or parents. “I think it is underhanded and dishonest.” She said CBA and the misconduct would be raised at the next school council meeting.

Other problematic branches included Blacktown in Sydney’s western suburbs and Inverell, the home town of Senator John Williams who was at the forefront of a push for a royal commission into the banks.

Rosemary Donald, a mum at a primary school in Sydney’s inner west who oversees the Dollarmites program at her children’s school, said she was sickened by the actions of the bank. “We teach our kids ethics and this isn’t ethical,” she said. “It makes me feel sick, annoyed and frustrated by what they have done,” she said.

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Another mum who ran school banking through the period involved was also appalled. “It sounds quite deceptive … For someone else to activate it just so they can get a bonus is really bad.”

The revelations that CBA’s retail banking arm has been infected with misconduct among staff follows a series of scandals involving financial planning, life insurance, rigging of the bank bill swap rate and money laundering.

It also raises questions about the culture of CBA, which was described in a recent explosive report released by the prudential regulator as deeply flawed with a “widespread sense of complacency, a reactive stance in dealing with risks, being insular and not learning from experience and mistakes.”

One of the worst offenders: CBA in Diamond Creek. Credit:Joe Armao

Finance Sector Union president Louise Arnfield said that for over a decade union members have been calling out the risks of systemic practices and bonus structures that put profit before all else – “a culture where speaking up was often a dangerous thing to do”.

“It wasn’t front-line workers who benefited from these systems, it was the people who created and enforced them that got the huge bonuses and pay,” she said.

“Those people at the top have genuine opportunity right now to change the finance industry for good and restore the trust and respect of our customers and communities. I urge them to listen and engage with their workers to guarantee it actually happens.”

Graphic: Jamie Brown

The referrals racket

A number of former employees at CBA, including CBA whistleblower Jeff Morris, told Fairfax that staff gamed the system in other ways such as by making bogus referrals to meet performance targets linked to financial incentives.

Mr Morris said when he worked in the Chatswood branch between 2007 and 2013 customer referral rorting was prevalent. “The motivation was to hit targets, look good and earn a bonus,” he said.

The prevalence of this kind of gaming is laid bare in internal documents obtained by Fairfax.

One email from late 2012 describes how a sample of referrals found that 30-40 per cent were not correct and involved suspected fake referrals to earn the bonus.

Staff would enter referrals into the then One Team Referral (OTR) system, a core front-line reward and remuneration tracking system that was introduced in 2007 across the bank to encourage referrals and introductions.

An internal review of the system in late-2012 suggested that “manipulation was prevalent” and could be done wilfully.

The system could be back-dated, opened and closed by the same individual; multiple OTRs could be created for the same sale; and OTRs could be entered or closed with incorrect values.

Staff could allocate referrals to each other in an uncontrolled environment and earn bonus points which fed into remuneration as well as being a focus for performance management.

The review's conclusion was that OTR was not fit for purpose.

Mr Comyn said he had seen examples where people had misused the OTR system for personal gain but he didn’t believe it was widespread.

“I don’t think it is widespread but it is difficult to prove or disprove,” he said. He said he had seen handfuls of examples, not hundreds.

Problematic: Blacktown's CBA branch. Credit:Wolter Peeters

When rorts are rampant

In early 2015 the bank introduced a new system, Opportunity Management, which he said had more controls and tighter monitoring.

Comyn said the primary reason for replacing the system wasn’t to prevent abuse.

A former CBA staffer who worked in the retail banking division until mid-2015 said referral rorting was rampant. It took the bank until late in 2014 and early in 2015 to replace the system. He said it had been going on for years but management turned a blind eye partly because it was so widespread. “It was a culture of ruthlessness. You either perform or go home and anyone who speaks up about bad news gets moved on,” he said.

Another former CBA employee who worked as a referral manager in the bank’s retail banking said the pressure was so great that staff would make up referrals to avoid being shamed. “There was a whiteboard and if you didn’t perform your name was up in lights,” he said.

He said that, a couple of months ago, a friend who works at CBA asked him to pretend to be a prospective customer as part of a random financial health check program, which involves ringing people with potential opportunities while the team leader monitors the call. “My friend wanted to call me at a certain time and I would pretend to be with another bank. I couldn’t do it but my friend was under undue stress and was desperate.”

“That’s what happens when you have a toxic culture,” he said.

Mr Comyn said the bank had changed its KPIs for staff and changed the systems to make it easier to monitor.

“Too often we relied on good intent and we have learned that relying on good intent is not enough.”

Know more? Contact the author, Adele Ferguson, at adele.ferguson@fairfaxmedia.com.au