Internal Fraud - Top 10 Threats
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It goes without saying that there are many, many ways in which employees of a retail bank or credit union can commit fraud, often betraying both their employer's as well as their customers' trust. In recent months, there has been a huge uptick in news articles related to large employee thefts. While it would be impossible to write about all the ways employees can stray to the dark side, I wanted to share my top 10 most common internal frauds. These are not in any special order and exclude areas of financial services such as brokerage and insurance. You may very well have additional ones to add to this list based on your own experience.Here are the threats 10-6, I'll publish the top 5 next week.
10. Stealing Property, Physical or Intellectual – This goes a little beyond fraud to more of direct theft, but is definitely of detriment to the employer, so I will include it last on the list. In many financial institutions, laptops and other equipment is reported stolen so often, nobody blinks an eye. Surely some of that equipment is reported "stolen†but retained for the benefit of the employee. Not to mention office supplies, customer lists when planning to change jobs, etc. And, again beware of contractors – unless you shred your trash, there is a market for trash that often contains sensitive customer data or bank reports!
9. Consignment Item Fraud – In today's world, consignment items have expanded far beyond the official bank checks, travelers cheques, and money orders of yesteryear. Today, in addition to those items, employees may have working supplies of stamps, gift cards, etc., for sale to their customers. Any of these items can be stolen, and the thefts hidden by a bad employee.
8. Self Dealing – This type of fraud violates the common bank policy that employees are not allowed to conduct business on their own accounts. Employees might raise their ATM withdrawal limit, raise their overdraft limit, force pay a check, waive fees, etc., all of which violates bank policy and allows them benefits they are not entitled to.
7. Incentive Pay Abuse – This type of fraud can take several forms as well. One method is ordering products for customers which the customers did not authorize or want. For example, ordering debit cards on elder accounts to meet incentive levels. A new scheme being reported recently is an employee running advertisements in ethnic papers near their branches "guaranteeing†specific products to consumers who come in to the branch. Then, the employee falsifies data to ensure all who respond to their advertisement qualify for the particular product so they can earn incentives.
6. Expense Report Abuse – This one is simple – employees submit inflated or fraudulent expenses which the bank reimburses them for, believing them to be legitimate business expenses. Employees may steal to cover their vacation flights, hotels, rental cars, etc or to cover personal lunches. Some thefts are especially bold where the employee submits expenses for all their dry cleaning bills, gifts for family or friends, personal club memberships, education expenses, etc. Many of these fraudulent expenses may be very difficult to detect, especially if nobody synchronizes employees' time away from work with the expense reporting system.
Next week I'll publish the top 5 internal threats to banks and credit unions. Do you have any to add from your own personal experience?