Occupational Fraud in Financial Institutions
This blog was authored by my colleague Kyle Shafer, a manager in our forensic services group.
The bank failures have put the spotlight on financial institutions as a result of significant industry regulations. Financial institutions continue to be a target for fraud, but in the modern age of technology and digital advancements prevention and detection has become more difficult.
In 2020, the Association of Certified Fraud Examiners released a supplemental study of its Global Study on Occupational Fraud and Abuse specifically for banking and financial services. This edition revealed four key facts:
- Fraud in banking and financial services accounted for 19% of all reported cases;
- The median loss was $100,000;
- The average loss was $1,546,000; and
- The median duration of a fraud scheme was 8 months.
Strong internal controls, regularly evaluating those controls, and applying those controls consistently are critical to potentially deterring fraud. But what happens when that is too late, and a fraud is suspected?
Several monitoring and detection methods that may be used to uncover potential fraud include:
- Reviewing Key IT reports. Uncovering patterns of unauthorized behavior in accounts by reviewing the non-financial transaction reports for irregularities should be done regularly. Changes to account holder information, authorized signers, email address, and loan agreements warrant further investigation.
- Review dormant accounts. Reviewing dormant account activity and identifying unusual or unauthorized attempts to reactivate and deplete dormant account balances should be researched immediately and may be evidence of Dormant Account Control Weaknesses.
- Review employee and employee-related accounts for unusual activity. Like dormant accounts, reviewing unusual activity in employee and employee-related accounts is a key detection method. Reviewing for fictious loans, round-dollar deposits or transfers, deposits or transfers just below a control threshold amount, increased use of starter checks, and higher or lower than average loan payments may present red flags.
- Perform background checks. Performing background checks on employees to identify potential relationships between employees, customers/members, and other associates could assist in identifying potential accomplices in a suspected fraud scheme.
- Governance involvement and awareness. Providing periodic communications to the appropriate governance committee at the financial institution, pursuant to the monitoring and detection methods in place, allows for a transparent dialogue within the organization.
Fraud schemes at financial institutions have not changed much, but the technology environment has changed significantly. We are committed to helping financial institutions become more aware of the internal threats of occupational fraud and providing new resources to combat workplace fraud.
How can we help? CLA has a team of forensic accounting professionals available to educate your teams, assist with investigations and fraud risk assessments. We can identify red flags that have been overlooked as well as identifying reporting metrics that are vital to preventing and detecting occupational fraud from occurring. Contact Us today to learn more about how we can help.
Dean has more than 25 years of experience providing audit, internal audit, and consulting services to financial services companies. He has provided consulting services in the areas of business lending, product costing and profitability, and asset/liability management. Dean has worked with a number of financial services companies on strategic issues such as board governance and enterprise risk management, as well as the role of internal audit and risk management, regulatory issues, and many accounting related topics.
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