Internal fraud isn't new but it's news

High-profile fraud cases are drawing attention to a perennial problem many financial services organizations would rather not talk about internal fraud. Here are just a few headline-grabbing fraud cases:

• Former Iowa Bank Employee Pleads Guilty to Selling Fraudulent CDs. Loss: $4 Million
• 45 Year Bank Veteran Admits Stealing Over 30 Year Period.
  Loss: $775,000
• Bank Teller Admits to Selling Customer Account Information: Loss: $270,000
• Ex-CEO of West Virginia Credit Union Charged with Embezzling: Loss: $9 million

These stories all point to a painful fact insiders are causing costly, damaging losses. And the threat from internal fraud is larger than ever.

More than anyone else, your employees and other insiders know how to take advantage of your bank or credit union. They have account and system access, plus knowledge of your processes and procedures. Worse still insiders know how to cover their tracks and keep their schemes secret. As a result, insider fraud generates higher losses and goes undetected longer than other fraud. In fact, 25% of all insider cases involve losses more than $1 million, with many lasting more than 18 months.

Why is internal fraud a more serious threat now? A confluence of forces has created a fertile environment for internal fraud and inspired industry experts, consultancies and loss-prevention veterans to call for a renewed focus on stopping insider threats. Here's why:

• Financial pressure is forcing many institutions to reduce expenses, lowering employee morale, headcount, and bonuses.
• Mergers and acquisitions in the financial services industry contribute to job uncertainty and are diverting employee focus.
• The down U.S. economy is forcing individuals to take desperate action.

The result is that employees are more likely than ever to commit internal fraud. And today's uncertain environment provides insiders just the right cover to carry out their fraud schemes.

Internal fraud is about more than just money. In today's environment, trust is critical. Customers want reassurance that your bank is stable and impervious to the many negative forces highlighted in the headlines. A large, public loss can tarnish your brand and erode the trust of current and prospective clients.

How has your institution responded to the insidious threat of internal fraud?

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