Employee Incentives, and Fraud, Too
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Bob Jones is a consultant, expert witness and educator with nearly forty years experience leading fraud risk management programs. We welcome him as a guest contributor to Bank Fraud Forum.
In turbulent times, it's natural to seek refuge in the comfortable, the tried-and-true, and the back-to-the-basics of a by-gone era. That's pretty much the way it seems in banking these days. Bankers are thinking about building core deposits and increasing cross-sell opportunities, the hallmarks of relationship banking. Marketers are creating campaigns to increase consumer interest in the bank's products and services, while retail bankers are developing programs to pay employees for producing results.
But what if the programs designed to compensate employees for producing positive results actually incent risky – perhaps even fraudulent – behavior? What I'm thinking about here, of course, are programs that encourage account-opening production. Throughout my career, in both retail and banking, I've seen just how pervasive gaming the system (and outright fraud) is in these programs.
Improperly designed programs are bad on several levels. First, they rarely achieve their goals. Accounts opened by employees' friends and relatives (and certainly bogus accounts opened by the employees themselves) don't produce a sustainable increase in deposits, and are usually closed within a cycle or two. Second, and in my view more corrosive, is the cynicism these programs generate among employees – in both those who game the system and those who witness it. That cynicism can produce the attitude that represents one of the most frequent rationalizations used by fraudsters: "everybody does it".
So, what do I suggest? First, the bank must carefully select the metrics it uses. For example, looking at core balances over a quarter probably makes more sense than on a monthly basis. Or, if new accounts are important, then realistic balance and longevity thresholds should be established. And pay-out schedules should be congruent with those thresholds. Team-based incentives also reduce the likelihood of gaming. Last, scrutiny should be given to employees whose results appear far better than their peers.
If you have thoughts on or experiences with incentive fraud, please share them.