Consumers Can Stop Employee Fraud, Too

We published Insidious to encourage an open dialogue about employee fraud, a misunderstood and little discussed problem that plagues the banking industry. As much as we'd like to believe that rogue employees are caught by proactive systems and controls, it's a little known fact that nearly a third of all employee fraud cases are caught by accident. In this case, "accidents" include inbound calls from customers vigilant about protecting their money and sensitive information. By knowing what to look for and the right questions to ask, bank customers can spot internal fraud "accidentally", dramatically reducing their odds of becoming a victim.

In Insidious, we used the Fraud Triangle to highlight the conditions that lead to employee fraud, and it's worth exploring here, too.

As an account holder at a financial institution, you likely can only control the opportunity for fraud. But how? Consider first that employee fraud frequently happens when one individual either has or creates a single point of control over your account. And because fraud schemes require a lot of care and feeding, it's likely that once the fraud starts, the perpetrator will be very motivated to keep and exploit the control they have.

Armed with this knowledge, here are a few questions bank customers should consider to help protect them from internal threats:

• How many people do you interact with at your financial institution? Is it always the same person?
• Have you been isolated to one person for a seemingly innocuous reason? For example, "I'm the only account rep that speaks Spanish, so I'll be your point of contact."
• Have you ever felt like you were being steered away from other employees by your main contact? "Mrs. Smith, let me handle your CD deposits. And I've been meaning to ask you about the church social"
• Do you have a regularly scheduled account review with someone other than your main contact? The likelihood of fraud decreases considerably when more than one bank employee is involved with managing your account.
• Do you have open but dormant accounts? Employees look for unwatched accounts, knowing they are good targets for theft.

Finally, many banks have begun to publicly address customer concerns about fraud and identify theft, and are sharing information about their policies and procedures for protecting sensitive information and accounts from external threats. Yet little is said about the insider threat. Consumers should ask banks what they are doing to protect their information and money from theft by employees.

Employee fraud is difficult to catch precisely because it's committed by trusted insiders. Consider the case of Bernie Madoff, whose victims included some of the smartest people around. Despite their financial sophistication, they ended up as victims because they put complete trust in one individual. If they had taken the time to consider the questions above, the scam might have been discovered much earlier.

Be vigilant in protecting yourself from the insidious problem of employee fraud. Sometimes an "accident" isn't a bad thing.

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