When some people hear of bank robbers, they often think of Bonnie and Clyde, Jesse James, or Danny Ocean’s hand-picked team of thieves depicted in the Oceans 11 movie series. Today’s bank robbers do not necessarily ride off on horses into the sunset or garner the attention of a Hollywood movie. The fictionalized bank robber has often been re-cast as a sophisticated perpetrator of fraud. So let’s discuss how to spot community bank fraud – and hopefully prevent it.
Community Bank Fraud Opportunity
Banks have large amounts of cash on-hand and access to sensitive customer information presenting fraudsters with ample opportunities to steal. Additionally, cybercrime is becoming more prevalent as customers are frequently using mobile banking applications to transfer funds electronically.
Internal Occupational Fraudsters
Not unlike other industries, banks can also incur misappropriation of assets in the form of employee theft of cash, billing schemes, and non-cash schemes (such as misuse of customer information). According to the Association of Certified Fraud Examiners’ (ACFE) 2012 Report to the Nations, internal occupational frauds and corruption are the most common internal schemes committed against banks.
The ACFE’s report also indicates that bank frauds comprise 17% of all frauds reported in the study and incur a median loss of $232,000. Unfortunately, nearly half of the victimized organizations are unable to recover fraudulent losses.
Community Bank Fraud Risk Assessments
A fraud risk assessments is one tool banks can use to protect against fraud. This assessment allows the organization to identify both external and internal threats. According to the ACFE, only 36% of organizations reporting fraud cases had a formal fraud risk assessment.
A fraud risk assessment identifies all lines of business within the banking organization. At a minimum, banks should consider the following areas of assessment:
- Branch operations,
- Deposit operations,
- Loan operations,
- Electronic Funds Transfers (EFTs)/wire transfers/ACH,
- Online banking,
- Accounting, and
- Information Technology (IT).
Then, the bank should critically assess the possibility of fraud occurring within the identified areas based on the nature of transactions, operations, and internal controls currently in place. A fraud risk assessment should also include a cost benefit analysis when implementing possible controls – allowing banks to monetarily quantify the risk of loss.
Based on the results of its assessment, banks can implement new controls or change existing controls mitigating the identified fraud risks. The assessment also allows organizations to put into place controls which can quickly detect fraud occurrences. As banks identify ways to prevent or quickly detect fraud, the dollar amount of fraudulent losses will normally be reduced.