Nigerian Authorities Arrest North Carolina Woman For Check Fraud
A US resident of Raleigh, North Carolina, was arrested in Lagos Nigeria under suspicion of taking part in a counterfeit check ring.
Let The Chips Fall Where They May
I recently returned from the BAI Combating Payments Fraud Conference, held earlier this week in Florida. As usual, the highlight for me was the opportunity to talk to many industry professionals - bankers, vendors and consultants – about the latest trends in bank fraud and fraud prevention.
At the Bank Fraud Forum and Memento booths, we invited visitors to take part in an informal survey that we called “Which Fraud Threat Costs You the Most?”. The purpose of the survey was to gauge where banks are investing their fraud prevention resources. Each visitor was given 10 poker chips, and told to place them in any of 6 glass jars labeled by the following fraud areas – ACH, check, debit/credit, employee, online and wire. Their task was to allocate the chips according to the fraud area that costs their institution the most in terms of resources (people, technology, time, etc.).
More than 75 bankers and fraud professionals participated in the survey, and the results are shown in the photo below.
To be honest, these results were striking, but not all that surprising. Check fraud is characterized by never-ending attempts and significant losses. High false positive rates mean check fraud alerts require armies of analysts at the big banks, or take up way too much of the fraud team’s day at smaller institutions. And so check fraud continues to dominate the bank fraud landscape from a resource investment, operational expense and opportunity cost perspective.
While the outcome is admittedly unscientific, the survey results do seem to validate what we’ve been hearing from banks and credit unions for a long time now… the industry needs better approaches for solving this longstanding problem.
How would you allocate your chips? Do the results from BAI surprise you? Please share your thoughts.
If you are interested in On-Us Fraud, sign up today for Memento’s webinar on March 11th!
ACH - Rolling The Dice Or Investing In Prevention?
Most banks and fraud experts agree that Automated Clearing House fraud (ACH fraud) results in large part due to the customer’s failure to protect their data and then appropriately monitor and reconcile their account activity. Certainly, the customer can, and should do more to protect themselves against ACH fraud. Many of the steps needed to reduce a company’s exposure to ACH fraud are not all that complex. For example, ensuring that employee passwords are changed frequently, as well as reconciling accounts (ideally on a daily basis) can go a long way to reducing ACH fraud risk.
Given the state of the economy, most companies are focused on survival, not building in layers of security for a fraud that may, or may not happen. Just like many types of fraud, until the probability of fraud losses resulting is sufficiently high enough, companies will continue to “avoid the bullet” that may be coming their way.
If customers are not feeling a sense of urgency, or are unable or unwilling to increase their defenses around ACH fraud, are banks filling the void? Well, the answer is “it depends”. I recently visited ten job boards (monster, hotjobs, etc) and entered “check fraud” in the search terms. The list of results was often 3 to 4 pages long. I did the same for “ach fraud” as well as “wire fraud”. The results were far less impressive and typically did not exceed 1 page, and included less than 5 jobs. Does this mean that ACH fraud is not a priority for banks? I am not sure, but the lack of jobs with ACH fraud as a component is certainly interesting. It could be that banks roll ACH fraud under check fraud and choose not to detail in a job description. Maybe, but that also infers that ACH is not “top of mind”…
From my experience, “big banks” are well aware of the threat and have staff dedicated to ACH fraud detection. Mid sized banks are hit or miss. Some recognize the threat and have dedicated resources to combating ACH fraud. Others don’t really know how to approach the problem and seem caught in a “no man’s land” – the losses are large enough to justify concern, but not large enough relative to other loss types to justify action.
In either case, ACH fraud is a hot topic these days and one that Bank Fraud Forum has devoted significant coverage to. Below are some additional articles that I encourage you to read for more information if you are interested.
Does your bank have investigators dedicated to investigating ACH fraud? Are they tasked with both ACH and wire fraud? If the volume of ACH fraud continues to climb, can you easily re-task those investigators from check fraud? What tools do you use to detect ACH fraud? Is ACH fraud even on your bank’s radar?
My Thoughts After Reading Insidious
Bank Fraud Forum would like to welcome guest blogger Tom Chmielewski, VP Product Management at Lexis Nexis. Tom shares Bank Fraud Forum’s belief that open discussion and collaboration ultimately lead to improved fraud detection. He recently finished reading Insidious and had these comments.
Insidious is a great summary of what we all know, but don’t want to talk about. The examples and interviews helped drive the messages home - they were great. Almost all of the references were current (2009), which is not something I always see, and that helped reinforce that this is a ‘today/current’ problem.
The references in Chapter 6 to the growing cultural acceptance of fraud ( “hey, everyone is doing it…”) is unfortunately true. We continue to see the fraud being committed everywhere, not just in the financial market. And we hear of more executives being indicted. I fear the rank and file will succumb to the thinking that ‘if the executives think it’s OK to do, why shouldn’t I as well.’
Though not 100% of the time, I do often hear bank executives tell me of their policy of going after only significant fraud, or fraud over a certain threshold (due to budget, resources, whatever). I always shake my head at this. The chapter on the real value of addressing internal fraud was spot on here. As the book points out, for the most part, fraud starts small, and if left unchecked, it grows. Imagine Wal-Mart having a sign that read “Shoplifting under $50 will not be prosecuted.” Or banks saying robberies under $5,000 will not be prosecuted - due to lack of resources. It has been published and I have personally heard the FBI say that they don’t have enough resources to go after mortgage fraud schemes that have less than $1M in losses. An agent told me that the FBI will not even go after straw-buyers (individuals that allow or sell their credit to perpetrators of fraud) unless the straw buyer shows up in at least five or more cases. That mentality allows small fraud to occur everywhere. And eventually grow larger.
For me, the chapter in Insidious that talked about people, process & technology (PPT) was a little down on it. “First, consider the shortcomings of the traditional prescription, the kind that you’ll hear from a lot of very well-paid and generally well-intentioned consultants. Though consultants may state their case differently, it generally boils down to taking a careful look at your people, processes, and technology.” At the end of the day, that is all you can look at - really, there isn’t anything else. PPT needs to be tailored to each company to be useful, and enforced, but in my opinion, the chapter started off by making you think there was something else than PPT.
A lot of what is in the book is what we have been talking about at LexisNexis (ChoicePoint), including the references to Don Cressey. Kevin Ashworth and I co-authored a white paper back in July of 2008 and the content mirrors a lot of that in Insidious. Here is a link to a public version of the whitepaper.
BC and Shirley, I really enjoyed the book. Your efforts to advance the discussion of this ‘insidious’ fraud are commendable.
Opinions expressed here and in any corresponding comments are the personal opinions of the original author, not of LexisNexis
Using Kiting Systems To Improve Customer Relationships
I previously wrote an article on check kiting and promised a follow-up entitled, “How banks can use their kiting system to improve customer relationships”. Well, here goes.
Under Attack: Threats to Deposit Accounts
All fraud fighters attending the upcoming BAI conference have the opportunity to attend a great preconference session which will cover major threats to deposit accounts daily. A number of industry experts have committed to cover a wealth of information, and all BAI attendees are eligible to attend!
Check Kiting
The ABA in part defines check kiting as “the process of floating worthless checks between accounts established in two or more banks.” I personally like the FBI’s definition:
Mining Fraud News
I’d like to share a resource that I find valuable in my day to day work, and I hope you will, too. The resource is the Fraud News section of Bank Fraud Forum. I suspect that some of you are familiar with this section of the site, but not everyone. And even if you are familiar with it, there might be additional uses of the information that can give you more value. Here are some of the ways that I and others in the industry use fraud news.
Managing Data For Better Fraud Detection
In previous posts, we have discussed data in terms of its value and its characteristics. In those posts we have touched on data management, but I’d like to focus on it more. Mike Braatz characterized data as the bedrock of “enterprise software in general, and fraud prevention in particular”. If data is the bedrock, then data management is the foundation.
Connecting The Dots
We’ve now had a few weeks to catch our breath and collect our thoughts on the attempted terrorist attack on Christmas Day. As I’m sure you all know by now, a young man – Umar Farouk Abdulmutallab – hid explosives in his underwear and tried to take down a plane over Detroit. Flames shot from his clothes, passengers tackled him, and a weapon of mass destruction was defused.
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