Employee Fraud: Who’s your bank’s strategy owner?

Actimize Fraud Product Team, Fraud Detection & Prevention

It has become increasingly common, while enjoying my morning coffee, to read still another headline where a financial institution is caught in the cross-hairs of yet another employee fraud scandal. More than ever, these issues are impacting both institutions’ bottom lines and reputations.

Many bank operational risk officers are now faced with the need to develop a roadmap to support a governance model and coordinate the evolution of employee fraud capabilities. A recently published report from CIFAS in the UK entitled “Employee Fraudscape” called out some key observations in the changing environment.

CIFAS noted that employee fraud “rose by 18% in 2013 compared to 2012”. According to the report, the major contributors to this significant jump were a “71% increase in unsuccessful fraudulent attempts to obtain employment”, “frauds by well-established employees”, “theft of data”, and “dishonest actions”. Given the variety and sheer breadth of these infractions, the task of setting up a comprehensive Employee Fraud program with a good framework from moving to a good prevention and detection strategy can seem like a daunting endeavor. I am often asked, “Where is the best place to focus?”

Here is my list of critical focus areas that may be overlooked in developing a comprehensive employee fraud strategy:

  • Procurement: Often this is an area of accounting checks and balances, but often it can be lax procedures, lack of audit over time, and too much control given to one single individual. This type of fraud is a rarer occurrence, but brand and reputational fallout can be overwhelming.
  • Wealth Management (Private Bankers): During a recent meeting with a bank who was refining their Employee Fraud strategy, a key stakeholder pointed out that “Private Bankers are no longer hands off”. Historically, this group was perceived as low risk due to strict employment screening processes; a few notable cases have changed the perspective here. As noted in the CIFAS report, long-standing good employees can be a greater risk population than in the past.
  • Large Call Centers: This area is classic for employee fraud: first you remove all phones, and then all the pens and paper, and then you realize that monitoring for policy violation is critical since after all these actions fraud is still an issue. The temptation and sometimes intimidation of call center staff is real; a comprehensive approach is needed. Prevention, education, and detection monitoring are essential and should  be coordinated with HR and other key bank stakeholders to . As noted from the CIFAS report, theft of data or cash “accounted for 40% of all internal frauds”. Certainly a focus on call centers will partly address the rise in fraud in this area.
  • Trading Floor (Traders): Well, many of us saw the movie “The Wolf of Wall Street” – and even if we didn’t, we are aware of the hype and perceived glamour surrounding the trading environment. But it takes only one rogue trader to make the front headlines, not a place we want to be. Ensuring that your trading monitoring program includes monitoring for abnormal activity of your traders is critical. High-speed trading requires real-time evaluation of employee risk. I always like to cite the quote, “Fraud follows speed and popularity”.

In my opinion, it is important to define ownership of the Employee Fraud Detection & Monitoring strategy as we have done with Consumer Fraud. It brings a number of benefits to your honest employees by improving morale, and most importantly it brings benefits to your customers by providing confidence in both your internal and external fraud prevention and detection strategy. The employee fraud journey begins with good hiring practices, but it most certainly does not end there.

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