The New York Times recently reported that a large financial institution had mistakenly wired $1.5 million to a client — who then vanished with the money. This is yet another example of human error that somehow managed to escape the detection of those who are supposed to be overseeing this type of problem. Such mistakes are typically rooted in three primary causes: manual processes and spreadsheets, poorly compensated support staff and inadequate oversight.

Manual processes are still around in banking and likely always will be. Companies are not always able or willing to invest in upgrading their infrastructure. This often leaves employees in the position of having to extemporize to get jobs done. But relying on employees to not make mistakes is simply unrealistic and inadequate as a control.

In a highly manual environment, client bank details may be kept in one spreadsheet and redemption requests may be kept in another. When a redemption request is made, a reference is made to the spreadsheet with the bank details.

What can go wrong at that point is an incorrect or out-of-date bank account or an incorrect redemption amount calculation. The calculation error could be due to a formula error or an incorrect translation of the number of shares into a dollar amount. Of course, hundreds of wire payments will be made each month correctly. But every so often an accountant makes an error. Generally the supervisor will catch such errors, but on occasion, one will slip by. When a big mistake happens, both employees may lose their jobs.

This takes us right to the second major cause of human errors: undervalued and poorly compensated support staff. It is well known that front-office folks — whether in banks or hedge funds — are generally well compensated for their work. So people may think that supporting these folks will bring rich rewards as well. That is not always the case.

The team running operations frequently fail to receive the right incentives, access and compensation to be successful in their roles. Meanwhile, those who run the front office don't necessarily understand how the day-to-day operations are run and the detailed work that is required. This lack of understanding can lead to bank management to fail to prioritize the required level of resources or support that is needed.

The third issue that often leads to human error is inadequate oversight. In order to keep the number and amount of operational errors to a minimum, organizations need people with an eye for detail who understand the ins and outs of the fund or banking operations. But the ranks of experienced middle management have been hollowed out these past few years across all types of financial institutions. Too often, banks and other types of firms execute layoffs by applying a cost algorithm to business units without taking a more nuanced view of who is critical to operations and who isn't. This can have negative impacts on business down the road, not to mention a negative impact on employee morale.

While there is no way to completely eliminate the potential for human error, companies can invest in infrastructure and people to help keep the chances of a major slip-up to a minimum. They can also invest in smart technologies and analytical tools that cross-check payments against instructions and other data. Mistakes will be made, but sensible investment in technology can help reduce their impact.

Andrew Waxman writes on risk and compliance issues in capital markets. He is a consultant in IBM's Global Business Services' financial markets risk and compliance practice and can be reached at or on Twitter @abwaxman. The views expressed here are his own.