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6 Indicators of Employee Fraud for Financial Institutions

Warning signs to uncover potential internal threats from within banks and credit unions

August 2, 2019 by Verafin

The threat of Employee Fraud is on the rise, as financial institutions are increasingly being targeted by internal fraudsters that take advantage of their positions for personal gain. With access to customers’ personal identification information, consumer and corporate bank accounts, and financial transactional data, internal bad actors can defraud institutions and their customers, while their crimes can go undetected.

In 2018, PwC predicted that internal fraud would become a focus area for both financial institutions and regulators. To prevent losses and strengthen compliance, institutions should increase “efforts around insider threat management, conduct risk, employee sales practices, and data protection” and “continue with advancements in surveillance technology and AI driven behavioral analytics that will help financial institutions better identify and mitigate the risk of internal fraud before it occurs.”

6 Potential Indicators of Employee Fraud

Together with our industry experts, Verafin has worked with institutions of varying asset sizes to develop a list of potential Employee Fraud indicators. Incorporating potential red flags into your transaction and account monitoring can help uncover risks to your institution from internal bad actors:

  1. Unusual account access and surveillance includes account access without a legitimate business purpose, account access outside of normal business hours, and account access from outside of the geographic location of the bank. Unusual access is an act of misconduct that could indicate the account is being assessed as a target for fraudulent activity.
  2. Excessive account access and surveillance occurs when an internal fraudster frequently accesses and monitors a targeted account. Excessive access of a customer account could indicate the account is being assessed as a target for fraudulent activity, or that an internal fraudster has committed a theft, and has returned to monitor if the theft was noticed.
  3. Unusual account activity may include posting transactions outside of working hours or posting transactions hours after a customer branch visit. Such transactions may indicate the account has been identified and targeted by an internal fraudster.
  4. General ledger transfers to an employee’s personal account should be investigated as unusual. Likewise, unusual transfers to the general ledger from inactive payers, elderly or vulnerable customer accounts, or wealthy customer accounts, may indicate fraudulent schemes.
  5. Transfers from a customer account to an employee’s personal account should also be investigated as unusual. Particularly risky transfers include those from inactive payers, elderly or vulnerable customer accounts, wealthy customer accounts, or accounts belonging to non-English speaking customers.
  6. Excessive transfers or cash deposits, such as excessive non-sufficient funds (NSF) credits deposited to an employee’s personal account may indicate a fraudulent scheme.

Protect Your Institution with Automated Monitoring

Financial institutions should consider how automated transaction monitoring solutions can help identify indicators of employee fraud. Robust financial crime management solutions can also provide investigators with the tools they need to triage sensitive internal fraud cases, manage case permissions, and report potentially suspicious activities to law enforcement.

Verafin is the industry leader in enterprise Financial Crime Management solutions, providing a cloud-based, secure software platform for Fraud Detection and Management, BSA/AML Compliance and Management, High-Risk Customer Management and Information Sharing. Nearly 3000 banks and credit unions use Verafin to effectively fight financial crime and comply with regulations. Leveraging its unique big data intelligence, visual storytelling and collaborative investigation capabilities, Verafin significantly reduces false positive alerts, delivers context-rich insights and streamlines the daunting BSA/AML compliance processes that financial institutions face today.

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