“It can’t happen here.”
“My employees would never steal from me.”
“I would know if something was going on.”
These are just some of the mindsets that organizations have had before falling victim to fraud. The truth is that fraud is widespread and occurs in all industries and all sizes of organizations. The following chart from the Association of Certified Fraud Examiners’ (ACFE) most recent Report to the Nations reflects the frequency of fraud cases by industry. As you can see, the banking and financial services industry reported more cases of fraud than all other industries and was nearly double the next closest industry.
According to the ACFE, as high as 60 percent of employees would steal from their employer if faced with enough pressure and the opportunity was available to them. With these alarming statistics, how is an organization supposed to protect itself? It starts with being aware that no organization is immune, knowing what fraud schemes are currently occurring in your industry and then ensuring your organization has the proper internal controls in place.
The two most common fraud schemes in the banking and financial services industry are corruption and cash schemes. Understanding how these schemes are conducted will give you the inside knowledge on how to detect when one may be occurring or prevent them entirely.
Corruption schemes are carried out when an employee misuses his/her influence in a business transaction in order to gain a personal benefit, in an action that is in violation of the duty they owe their employer. An example would be a loan officer receiving a kickback payment from the customer in exchange for a favorable outcome on the loan. These can be difficult to detect as the “benefit” often will not run through the bank’s financials and is often paid in cash “under the table.” However, paying attention to close relationships between loan officers and specific borrowers, as well as understanding the employee’s lifestyle to see if they are living beyond the reach of their paycheck, will help detect these schemes.
Cash schemes are relatively simple and involve an employee’s theft of the bank’s cash. These can occur by an employee stealing money from the bank’s vault, ATM machines or in the account opening process for depository accounts. They are often concealed by lack of internal controls and with false documentation to balance out accounts. Surprise audits, job rotation and proper segregation of duties will help detect and prevent these schemes.
Internal Controls Necessary
The ACFE’s Report to the Nations outlines that the number one reason fraud occurs in an organization is due to lack of effective internal controls. To reduce the risk of fraud within your organization, take time to understand your vulnerabilities and implement the proper anti-fraud internal controls. As Ben Franklin once said, “An ounce of prevention is worth a pound of cure.”