This document discusses first-party fraud (FPF), which occurs when individuals commit fraud using their own identity. It outlines that FPF is difficult to detect and address, resulting in it often being misclassified as bad debt rather than fraud. The document estimates that FPF accounts for 5-20% of charge-offs each year, equating to $4-17 billion in losses annually in the US. It advocates for an enterprise-wide approach to identifying and preventing FPF earlier in the customer lifecycle in order to generate substantial cost savings for financial institutions.
This document summarizes a white paper about recognizing and addressing first-party fraud (FPF). Some key points:
- FPF occurs when individuals commit fraud using their own identities, intending not to pay their debts, and costs financial institutions billions annually. However, it is often misclassified as regular bad debt rather than fraud.
- Rates of FPF are estimated to be between 5-20% of losses classified as bad debt. Total annual uncollectible revolving consumer credit in the US is about $85 billion, so FPF costs between $4-17 billion per year.
- The white paper outlines different types of FPF behaviors and profiles, such as "bust-out fraud
Regulators and financial intelligence units are tasked with challenging jobs to fight money laundering and terrorism financing, but some have room for improvement. Financial institutions observe that some regulators and units give unfavorable audit reports not necessarily due to legal breaches, but because of subjective methods rather than proper risk assessment. Excessive compliance costs are incurred without clear evidence that they reduce financial crimes. Regulators and units should ensure regulatory actions have benefits exceeding costs to avoid counterproductive policies. Proper risk understanding and mitigation is important over prescriptive rules and one-size-fits-all approaches.
The document discusses the trend of "de-risking" by financial institutions where they exit relationships with clients deemed high risk. It provides background on how de-risking has impacted money service businesses, non-profits, and correspondent banks. While de-risking can help manage risk, it can also isolate entities from the financial system. International standards recommend a risk-based approach over prescriptive rules. The UK financial regulator studied de-risking and found it had limited impact but caused problems for some customers. Regulators are exploring guidance and technology solutions to address de-risking concerns.
This is who investigates fraud and violations concerning real estate and mortgage in Utah. This course describes the rules and what happens to people who violate the rules set forth by the CFPB. It also includes good information for realtors in Utah so they can better protect their clients.
This document summarizes a presentation on current trends in fraud prevention. It discusses common types of payment fraud like check, credit card, and wire transfer fraud. It also discusses challenges posed by holder in due course claims for check fraud. The presentation recommends implementing a fraud prevention matrix that combines procedural controls, check protection, transaction screening, and fraud protection services. It provides examples of specific fraud prevention tools and services offered by banks and third parties.
This document summarizes a presentation on bank fraud and data forensics. It discusses common types of internal and external bank fraud such as wire fraud, check fraud, and asset misappropriation. It outlines the fraud triangle of opportunity, pressure, and rationalization. It emphasizes the importance of strong internal controls and segregation of duties to prevent fraud. The presentation also discusses how digital forensics can be used to investigate inappropriate network activity, email, internet usage, and recover deleted files during fraud investigations. Contact information is provided for the three presenters.
Fundamental controlling tool of fraud prevention and detection designed for company owners and top management. Protect at work and in business those honest against those unfair.
www.forensicline.eu
2016 - Fraud Detection & Prevention with Internal Controls (Updated for 2016 ...Ron Steinkamp
The document discusses occupational fraud, including definitions, categories, schemes, and findings from a 2016 ACFE fraud study. Some key points:
- Occupational fraud involves misusing an organization's resources for personal gain through asset misappropriation, corruption, or financial statement fraud.
- The ACFE study found the typical fraud lasted 18 months and cost organizations $150,000, with over 23% of cases over $1 million.
- Asset misappropriation, like expense reimbursement scams, were most common but lowest cost, while financial statement fraud was less common but highest cost.
- Most frauds are committed by accounting, operations, sales, or executive staff and involve schemes like billing for
This document summarizes a white paper about recognizing and addressing first-party fraud (FPF). Some key points:
- FPF occurs when individuals commit fraud using their own identities, intending not to pay their debts, and costs financial institutions billions annually. However, it is often misclassified as regular bad debt rather than fraud.
- Rates of FPF are estimated to be between 5-20% of losses classified as bad debt. Total annual uncollectible revolving consumer credit in the US is about $85 billion, so FPF costs between $4-17 billion per year.
- The white paper outlines different types of FPF behaviors and profiles, such as "bust-out fraud
Regulators and financial intelligence units are tasked with challenging jobs to fight money laundering and terrorism financing, but some have room for improvement. Financial institutions observe that some regulators and units give unfavorable audit reports not necessarily due to legal breaches, but because of subjective methods rather than proper risk assessment. Excessive compliance costs are incurred without clear evidence that they reduce financial crimes. Regulators and units should ensure regulatory actions have benefits exceeding costs to avoid counterproductive policies. Proper risk understanding and mitigation is important over prescriptive rules and one-size-fits-all approaches.
The document discusses the trend of "de-risking" by financial institutions where they exit relationships with clients deemed high risk. It provides background on how de-risking has impacted money service businesses, non-profits, and correspondent banks. While de-risking can help manage risk, it can also isolate entities from the financial system. International standards recommend a risk-based approach over prescriptive rules. The UK financial regulator studied de-risking and found it had limited impact but caused problems for some customers. Regulators are exploring guidance and technology solutions to address de-risking concerns.
This is who investigates fraud and violations concerning real estate and mortgage in Utah. This course describes the rules and what happens to people who violate the rules set forth by the CFPB. It also includes good information for realtors in Utah so they can better protect their clients.
This document summarizes a presentation on current trends in fraud prevention. It discusses common types of payment fraud like check, credit card, and wire transfer fraud. It also discusses challenges posed by holder in due course claims for check fraud. The presentation recommends implementing a fraud prevention matrix that combines procedural controls, check protection, transaction screening, and fraud protection services. It provides examples of specific fraud prevention tools and services offered by banks and third parties.
This document summarizes a presentation on bank fraud and data forensics. It discusses common types of internal and external bank fraud such as wire fraud, check fraud, and asset misappropriation. It outlines the fraud triangle of opportunity, pressure, and rationalization. It emphasizes the importance of strong internal controls and segregation of duties to prevent fraud. The presentation also discusses how digital forensics can be used to investigate inappropriate network activity, email, internet usage, and recover deleted files during fraud investigations. Contact information is provided for the three presenters.
Fundamental controlling tool of fraud prevention and detection designed for company owners and top management. Protect at work and in business those honest against those unfair.
www.forensicline.eu
2016 - Fraud Detection & Prevention with Internal Controls (Updated for 2016 ...Ron Steinkamp
The document discusses occupational fraud, including definitions, categories, schemes, and findings from a 2016 ACFE fraud study. Some key points:
- Occupational fraud involves misusing an organization's resources for personal gain through asset misappropriation, corruption, or financial statement fraud.
- The ACFE study found the typical fraud lasted 18 months and cost organizations $150,000, with over 23% of cases over $1 million.
- Asset misappropriation, like expense reimbursement scams, were most common but lowest cost, while financial statement fraud was less common but highest cost.
- Most frauds are committed by accounting, operations, sales, or executive staff and involve schemes like billing for
Fraud: Understanding Fraud and Our ResponsibilitiesJason Lundell
This document discusses various types of fraud, famous fraudsters, how fraud is detected, and ways to prevent fraud. It provides details on common fraud schemes like asset misappropriation, corruption, and financial statement fraud. The largest fraudsters discussed are Bernie Madoff, whose Ponzi scheme resulted in $65 billion in losses, and Ken Lay of Enron, which led to a $100 billion loss for investors. Fraud is most often detected through tips, internal controls, and audits. Strong internal controls like surprise audits and job rotation were found to significantly reduce median fraud losses.
Learn the basics of credit in this easy-to-follow, introductory course that includes:
- What credit is and the different types of credit available
- How credit reports and credit scores work and the factors that go into building them
- Common options for building credit
And more!
Click through the slideshare to start your credit-education now.
The document discusses various principles of fraud including:
1) Definitions of fraud, corporate fraud, management fraud, and financial statement fraud.
2) The fraud triangle consisting of pressure/motivation, opportunity, and rationalization as the three elements common to every fraud.
3) Characteristics of typical fraudsters including that they are usually someone trusted and not initially suspected, and profiles of high-level and low-level thieves.
4) Taxonomies used to classify fraud including against customers/investors, criminal/civil, for/against the company, and internal/external fraud.
5) The "fraud tree" categorizing fraud into fraudulent statements, asset
Financial Crime Compliance at Standard CharteredTEDxMongKok
The document provides information about Standard Chartered Bank's efforts to combat financial crime through its Financial Crime Compliance (FCC) division. Some key points:
- Financial crime is a highly profitable global industry that funds terrorism, drug trafficking, and human rights abuses. Standard Chartered has more than doubled the size of its FCC team to help fight financial crime.
- The FCC division works to monitor transactions, screen clients, conduct investigations, and ensure the bank does not enable financial criminals. It aims to set new industry standards and lead the way in combating financial crime globally.
- FCC employees discuss the importance and challenges of their work, and how Standard Chartered provides opportunities to grow careers and have impact
This presentation includes essential credit information needed when approaching a lender, including how to get lenders on your side, when to apply for loans and what common mistakes to avoid.
CPAs responsibilities to detect fraud in audits, required approaches, types of financial statement frauds and specific case examples of different types of financial statement fraud
This document discusses fraud risk and prevention. It begins with defining fraud and identifying common fraud schemes such as asset misappropriation, corruption, and financial statement fraud. Examples of each scheme are provided. The document also discusses elements that contribute to fraud occurrence, like opportunity and incentives. Effective fraud prevention controls are then outlined, including segregating duties, competitive bidding processes, and fraud hotlines. The importance of fraud risk assessments and creating an organizational culture of integrity are also emphasized.
This presentation is an overview of Fraud Risk Management in Indian companies and the role of the Board of Directors in the context of the newly enacted Companies Act, 2013.
The document defines fraud and discusses its different types. It describes fraud as theft by deception or trickery to obtain an unjust advantage. The main types are occupational fraud committed by employees against an organization, and fraud committed for an organization like financial statement fraud. Employee embezzlement, vendor fraud, and customer fraud are provided as examples of fraud against an organization. Management fraud committed through misleading financial statements can harm shareholders and investors. Criminal prosecution through law and civil lawsuits aim to punish fraudsters and compensate victims.
Wells Fargo was fined $185 million in 2016 for opening 2 million unauthorized customer accounts without consent. The scandal led to the firing of 5,300 employees. An investigation found Wells Fargo had an aggressive sales culture with unrealistic quotas that incentivized employees to open fake accounts to meet targets. The fraudulent activity damaged customers' credit scores and caused overdraft fees on unauthorized accounts totaling over $500 million in losses. The scandal highlighted the need for stronger internal controls at banks to prevent such conduct.
This presentation explains how you can prevent and deter fraud in your nonprofit organization, why some employees commit fraud and how to spot behavioral "red flags," what to do if you discover fraud in your organization, and common fraud schemes to watch for.
The document discusses fraud awareness for managers. It defines fraud and provides examples of regulatory definitions. It outlines factors that can contribute to fraud such as lack of controls and management oversight. The document emphasizes the importance of prevention through controls and establishes tone at the top. It lists behavioral and other red flags that could indicate fraud.
The document discusses fraud prevention, detection, and control. It defines fraud and the fraud triangle, which identifies pressure, opportunity, and rationalization as factors that influence fraud. It also outlines four common types of fraud: corruption, asset misappropriation, financial statement fraud, and cash transaction fraud. Additionally, the document examines who typically commits fraud, behavioral warning signs, and provides recommendations for breaking the fraud triangle and establishing an effective anti-fraud culture to prevent fraud.
Fraud can take many forms but generally involves deception for financial or personal gain. There are three main types of fraud: corruption, asset misappropriation, and financial statement fraud. Fraud is most often committed due to pressure, opportunity, and the ability to rationalize one's actions. Companies can help prevent fraud by breaking this fraud triangle through strong internal controls, monitoring, and creating a culture of integrity and accountability.
Fraud and Internal Controls: A Forensic Accountant's Perspective - Bill AcuffDecosimoCPAs
The document discusses fraud risks and provides examples of fraud cases. It discusses key steps to manage fraud risks including governance, risk assessment, prevention, detection, deterrence and response. It then summarizes several high-profile fraud cases including Rita Crundwell who embezzled $53 million from her small town as controller over 20 years through lack of segregation of duties and extravagant lifestyle. The document outlines common fraud schemes and techniques based on research from COSO and the ACFE. It discusses Donald Cressy's fraud triangle of perceived opportunity, incentive/pressure, and rationalization driving fraud. Finally, it provides charts on common financial statement fraud techniques and the distribution of fraud by category and median losses.
The document discusses Mohammad Fheili, who has over 30 years of banking experience and currently works as an executive at JTB Bank in Lebanon. He has delivered over 1,500 hours of training to bankers and has published over 25 articles. The main document appears to be about an upcoming forum on de-risking that Fheili will be speaking at, as it covers topics like the challenges in compliance that are driving banks to de-risk, the implications of de-risking, and strategies for managing risk while continuing to serve clients.
On December 5, 2013, Ron Steinkamp, principal, government advisory services at Brown Smith Wallace, presented at the 2013 MIS Training Institute Governance, Risk & Compliance Conference. Ron focused on the following keys to fraud prevention, detection and reporting:
1. Anti-fraud culture
2. Fraud policy
3. Fraud awareness/training
4. Hotline
5. Assess fraud risks
6. Review/investigation
7. Improved controls
Most companies have ethics and compliance policies in place and those policies usually include training for employees. That training typically includes material about policies prohibiting discrimination and harassment, bribery and excessive gift-giving. But it usually does not teach employees how to recognize signs of fraud and how to report them.
Employee fraud awareness training is one of the most important ways your company can protect itself from fraud which, according to the Association of Certified Fraud Examiners, costs the average company five per cent of its revenues every year.
Since 1978, Brazil has lost around 211,180 square miles of rainforest, but deforestation decreased by 37% between 2004 and 2005 according to the Brazilian government. The document discusses statistics on deforestation, recycling, waste production, and the impacts of global warming such as increased hurricanes and threats to plant and animal species. It suggests the need to transition to renewable energy sources as oil reserves are estimated to run out within ten years.
The document summarizes key points from a Web 2.0 Expo in San Francisco. It discusses using Google Webmaster Tools and targeting long-tail keywords for SEO. It also mentions using goals in Google Analytics, identifying influencers on social networks, using tools like TweetDeck and FriendFeed, social coding platforms like Bespin and Github, scaling systems using Memcached and cloud computing, online fraud through botnets, and resources for staying on top of technology trends.
Fraud: Understanding Fraud and Our ResponsibilitiesJason Lundell
This document discusses various types of fraud, famous fraudsters, how fraud is detected, and ways to prevent fraud. It provides details on common fraud schemes like asset misappropriation, corruption, and financial statement fraud. The largest fraudsters discussed are Bernie Madoff, whose Ponzi scheme resulted in $65 billion in losses, and Ken Lay of Enron, which led to a $100 billion loss for investors. Fraud is most often detected through tips, internal controls, and audits. Strong internal controls like surprise audits and job rotation were found to significantly reduce median fraud losses.
Learn the basics of credit in this easy-to-follow, introductory course that includes:
- What credit is and the different types of credit available
- How credit reports and credit scores work and the factors that go into building them
- Common options for building credit
And more!
Click through the slideshare to start your credit-education now.
The document discusses various principles of fraud including:
1) Definitions of fraud, corporate fraud, management fraud, and financial statement fraud.
2) The fraud triangle consisting of pressure/motivation, opportunity, and rationalization as the three elements common to every fraud.
3) Characteristics of typical fraudsters including that they are usually someone trusted and not initially suspected, and profiles of high-level and low-level thieves.
4) Taxonomies used to classify fraud including against customers/investors, criminal/civil, for/against the company, and internal/external fraud.
5) The "fraud tree" categorizing fraud into fraudulent statements, asset
Financial Crime Compliance at Standard CharteredTEDxMongKok
The document provides information about Standard Chartered Bank's efforts to combat financial crime through its Financial Crime Compliance (FCC) division. Some key points:
- Financial crime is a highly profitable global industry that funds terrorism, drug trafficking, and human rights abuses. Standard Chartered has more than doubled the size of its FCC team to help fight financial crime.
- The FCC division works to monitor transactions, screen clients, conduct investigations, and ensure the bank does not enable financial criminals. It aims to set new industry standards and lead the way in combating financial crime globally.
- FCC employees discuss the importance and challenges of their work, and how Standard Chartered provides opportunities to grow careers and have impact
This presentation includes essential credit information needed when approaching a lender, including how to get lenders on your side, when to apply for loans and what common mistakes to avoid.
CPAs responsibilities to detect fraud in audits, required approaches, types of financial statement frauds and specific case examples of different types of financial statement fraud
This document discusses fraud risk and prevention. It begins with defining fraud and identifying common fraud schemes such as asset misappropriation, corruption, and financial statement fraud. Examples of each scheme are provided. The document also discusses elements that contribute to fraud occurrence, like opportunity and incentives. Effective fraud prevention controls are then outlined, including segregating duties, competitive bidding processes, and fraud hotlines. The importance of fraud risk assessments and creating an organizational culture of integrity are also emphasized.
This presentation is an overview of Fraud Risk Management in Indian companies and the role of the Board of Directors in the context of the newly enacted Companies Act, 2013.
The document defines fraud and discusses its different types. It describes fraud as theft by deception or trickery to obtain an unjust advantage. The main types are occupational fraud committed by employees against an organization, and fraud committed for an organization like financial statement fraud. Employee embezzlement, vendor fraud, and customer fraud are provided as examples of fraud against an organization. Management fraud committed through misleading financial statements can harm shareholders and investors. Criminal prosecution through law and civil lawsuits aim to punish fraudsters and compensate victims.
Wells Fargo was fined $185 million in 2016 for opening 2 million unauthorized customer accounts without consent. The scandal led to the firing of 5,300 employees. An investigation found Wells Fargo had an aggressive sales culture with unrealistic quotas that incentivized employees to open fake accounts to meet targets. The fraudulent activity damaged customers' credit scores and caused overdraft fees on unauthorized accounts totaling over $500 million in losses. The scandal highlighted the need for stronger internal controls at banks to prevent such conduct.
This presentation explains how you can prevent and deter fraud in your nonprofit organization, why some employees commit fraud and how to spot behavioral "red flags," what to do if you discover fraud in your organization, and common fraud schemes to watch for.
The document discusses fraud awareness for managers. It defines fraud and provides examples of regulatory definitions. It outlines factors that can contribute to fraud such as lack of controls and management oversight. The document emphasizes the importance of prevention through controls and establishes tone at the top. It lists behavioral and other red flags that could indicate fraud.
The document discusses fraud prevention, detection, and control. It defines fraud and the fraud triangle, which identifies pressure, opportunity, and rationalization as factors that influence fraud. It also outlines four common types of fraud: corruption, asset misappropriation, financial statement fraud, and cash transaction fraud. Additionally, the document examines who typically commits fraud, behavioral warning signs, and provides recommendations for breaking the fraud triangle and establishing an effective anti-fraud culture to prevent fraud.
Fraud can take many forms but generally involves deception for financial or personal gain. There are three main types of fraud: corruption, asset misappropriation, and financial statement fraud. Fraud is most often committed due to pressure, opportunity, and the ability to rationalize one's actions. Companies can help prevent fraud by breaking this fraud triangle through strong internal controls, monitoring, and creating a culture of integrity and accountability.
Fraud and Internal Controls: A Forensic Accountant's Perspective - Bill AcuffDecosimoCPAs
The document discusses fraud risks and provides examples of fraud cases. It discusses key steps to manage fraud risks including governance, risk assessment, prevention, detection, deterrence and response. It then summarizes several high-profile fraud cases including Rita Crundwell who embezzled $53 million from her small town as controller over 20 years through lack of segregation of duties and extravagant lifestyle. The document outlines common fraud schemes and techniques based on research from COSO and the ACFE. It discusses Donald Cressy's fraud triangle of perceived opportunity, incentive/pressure, and rationalization driving fraud. Finally, it provides charts on common financial statement fraud techniques and the distribution of fraud by category and median losses.
The document discusses Mohammad Fheili, who has over 30 years of banking experience and currently works as an executive at JTB Bank in Lebanon. He has delivered over 1,500 hours of training to bankers and has published over 25 articles. The main document appears to be about an upcoming forum on de-risking that Fheili will be speaking at, as it covers topics like the challenges in compliance that are driving banks to de-risk, the implications of de-risking, and strategies for managing risk while continuing to serve clients.
On December 5, 2013, Ron Steinkamp, principal, government advisory services at Brown Smith Wallace, presented at the 2013 MIS Training Institute Governance, Risk & Compliance Conference. Ron focused on the following keys to fraud prevention, detection and reporting:
1. Anti-fraud culture
2. Fraud policy
3. Fraud awareness/training
4. Hotline
5. Assess fraud risks
6. Review/investigation
7. Improved controls
Most companies have ethics and compliance policies in place and those policies usually include training for employees. That training typically includes material about policies prohibiting discrimination and harassment, bribery and excessive gift-giving. But it usually does not teach employees how to recognize signs of fraud and how to report them.
Employee fraud awareness training is one of the most important ways your company can protect itself from fraud which, according to the Association of Certified Fraud Examiners, costs the average company five per cent of its revenues every year.
Since 1978, Brazil has lost around 211,180 square miles of rainforest, but deforestation decreased by 37% between 2004 and 2005 according to the Brazilian government. The document discusses statistics on deforestation, recycling, waste production, and the impacts of global warming such as increased hurricanes and threats to plant and animal species. It suggests the need to transition to renewable energy sources as oil reserves are estimated to run out within ten years.
The document summarizes key points from a Web 2.0 Expo in San Francisco. It discusses using Google Webmaster Tools and targeting long-tail keywords for SEO. It also mentions using goals in Google Analytics, identifying influencers on social networks, using tools like TweetDeck and FriendFeed, social coding platforms like Bespin and Github, scaling systems using Memcached and cloud computing, online fraud through botnets, and resources for staying on top of technology trends.
The document discusses using various websites but encountering limitations and barriers that prevent full use or access. However, if additional websites are used together with creating new tools and information pathways through Web 2.0, people can become more resourceful and empowered rather than fully dependent on what others have created for them.
Issue Paper Year Of The Breach Final 021706Carolyn Kopf
This document discusses consumer perceptions and behaviors related to data breaches in 2005. It notes that 2005 saw a staggering number of data breaches exposing over 57 million Americans' data. These large breaches have damaged consumer trust in companies' ability to protect personal information and influenced consumer behaviors, such as a willingness to switch financial institutions. The document examines the impacts of data breaches through consumer surveys and provides best practices for companies to mitigate negative consequences and strengthen customer relationships following a breach.
This white paper discusses the benefits of implementing on-demand and personalized payment card strategies for financial institutions. It highlights how the current economic climate and changing consumer behaviors have made innovation imperative. Personalized cards that allow cardholders to customize designs increase acquisition, activation, retention and spending. The traditional card fulfillment model has high costs and long lead times that limit personalization. A new on-demand card manufacturing model provides advantages like lower costs and faster fulfillment times, enabling cost-effective personalized cards. This strategy helps financial institutions drive growth during challenging economic times.
The document discusses advocacy in the airline industry. It finds that as costs increase and standard services become ancillary charges, customer experience is declining. Traditional large airlines have fewer brand advocates than alternative carriers, with many customers feeling trapped. JetBlue is resetting expectations by creating a unique flying experience. Virgin Airlines is making a good first impression with its luxury international and new domestic flights. Southwest continues its no-frills approach but may face challenges maintaining momentum. American and Delta are removing amenities and charging for basic services, creating an undesirable experience for captive customers. Airlines need to better deliver unique service, add value to flying, and upgrade the overall travel experience to encourage advocacy.
Leveraging Collections As A Customer Retention Tool Jan 27th 10Carolyn Kopf
The document discusses how financial institutions are facing high charge-off rates due to rising delinquency and unemployment rates. It argues that collections can be used as a customer retention tool by adopting a more customer-oriented strategy. Such a strategy would shift from aggressive tactics to treating first-time debtors, who make up many current delinquent customers, with empathy and personalized solutions. A multi-channel collections approach across web, phone, and text could help optimize costs while improving customer satisfaction and loyalty for the long term.
This document discusses changing consumer attitudes toward luxury brands in Japan. It finds that while luxury brands remain popular, Japanese consumers are becoming more individualistic and less concerned with social codes. Younger working women and new classes of wealthy female professionals are influential consumers who seek self-expression over conformity. The document also identifies five trends in consumer mindsets: prioritizing uniqueness over following others; seeking enriched experiences from brands; accepting quality from diverse brands regardless of price; valuing authenticity over labels; and interest in environmentally-friendly luxury goods.
Creditor and Debt Collector Conduct - July 2016Henry Hall
1) The document discusses how debt causes harm to people's health, relationships, and work lives, costing an estimated £8.3 billion to society. It examines clients' experiences with creditors, debt collectors, bailiffs, and utility companies.
2) The research found that 50% of clients who interacted with bailiffs felt unfairly treated, the highest of any organization. Many clients also had negative experiences with local authorities.
3) The findings suggest credit limit increases without consent, pressure to take on more debt, unaffordable repayment demands, and continuing fees and charges can make debt problems worse. The report calls for reforms to protect vulnerable people and ensure fair treatment.
The following article is related to deterring employee fraud within .docxssuser454af01
The document summarizes key findings from a report on occupational fraud. It finds that while asset misappropriation is most common, fraudulent financial statements cause the highest losses. Small businesses are most vulnerable due to lack of audits and controls. Establishing anonymous hotlines is the most effective way to reduce fraud losses, more so than audits. Fraud by executives results in highest losses and is best detected through tips rather than controls.
Post Crisis Banking Legislation CEVick.docxCarolyn Vick
Post-crisis banking legislation aimed to enhance consumer protection and ensure bank stability, but it has negatively impacted access to financial services for many ordinary Americans. Stricter regulations have led banks to exit relationships with alternative financial service providers or increase oversight of them. As a result, over 34 million US households now have less access to basic banking services like loans and money transfers. This has increased risks of theft and crime for the underbanked while pushing more financial activity underground towards informal providers outside of regulatory oversight. The new rules ultimately seem to have reduced, rather than expanded, financial access for those most in need.
This document discusses the regulatory challenges faced by financial institutions in complying with know-your-customer (KYC) and anti-money laundering (AML) regulations, especially regarding third-party payment processors and senders. It notes that regulations have become more complex and ambiguous, creating pressure on banks. Many banks have responded by cutting off relationships with entire categories of businesses rather than assessing individual risk. Regulators have provided guidance encouraging a risk-based approach to maintain legitimate business relationships. The document proposes that business customer intelligence solutions can help banks comply with regulations while avoiding reputational risks and maintaining revenue sources.
PAGE 280APPLYING THE CONCEPTTRUTH OR CONSEQUENCES PONZI SCHEM.docxsmile790243
PAGE 280
APPLYING THE CONCEPT
TRUTH OR CONSEQUENCES: PONZI SCHEMES AND OTHER FRAUDS
In the financial world, you always have to be on the lookout for crooks. Fraud is the most extreme version of moral hazard, and it is remarkably common.
The term Ponzi scheme has its origins in a 1920 scam run by serial con artist Charles Ponzi. Promising a 50 percent profit within 45 days, he swindled unsuspecting investors out of something like $250 million in 2014 dollars. Ponzi never invested their money. Instead, he paid off early investors handsomely with the money he obtained from subsequent investors.
Financial laws are now far more elaborate than in Ponzi’s day, and governments spend much more to enforce them, but frauds persist.
Bernie Madoff is the leading recent example. For decades, Madoff was a respected member of the investment community and able to escape detection. In the same manner as Ponzi, Madoff was redeeming requests for funds with the money he collected from more recent investors. Madoff’s con, which may have begun as early as the 1970s, failed only when the financial crisis of 2007–2009 depleted his funds, making it impossible for him to pay off the final cohort of wealthy, sophisticated—yet apparently quite gullible—investors and financial firms. The Madoff scandal dwarfed Ponzi’s racket: at the time the scheme blew up, the losses were estimated at $17.5 billion, and extensive efforts at recovery have put final losses in the neighborhood of $7 billion.
Unfortunately, in a complex financial system, the possibilities for fraud are widespread. Most cases are smaller and more mundane than those of Madoff or Ponzi, but their cumulative size is significant. One source devoted to tracking just Ponzi-type frauds in the United States listed 70 schemes worth an estimated $2.2 billion in 2014 alone.*
We aren’t going to get rid of Ponzi schemes and other frauds (see In the Blog: Conflicts of Interest in Finance). But the mission of ferreting them out and prosecuting those responsible is essential. A well-functioning financial system is based on trust. That is, when we make a bank deposit or purchase a share of stock or a bond, we need to believe that the terms of the agreement are being accurately represented and will be carried out. Economies where property rights are weak and enforcement is unreliable also usually supply less credit to worthy endeavors. That means lower production, lower income, and lower welfare.
imagesIN THE BLOG
Conflicts of Interest in Finance
Financial corruption exposed in the years since the financial crisis is breathtaking in its scale, scope, and resistance to remedy. Traders colluded to rig the foreign exchange (FX) market, where daily transactions exceed $5 trillion, and to manipulate LIBOR, the world’s leading interest rate benchmark (see Chapter 13, Applying the Concept: Reforming LIBOR). Firms have facilitated tax evasion and money laundering. And Bernie Madoff engineered what was arguably the largest Ponzi.
The financial economy has been known to be uncertain and the introduction of payday loans has made this the economy more uncertain which was clearly not the intent of the people behind their inception.
http://www.trueblueloans.co.uk
Blockchain for Trade Finance: Payment Instrument Tokenization (Part 4)Cognizant
Digitizing payment instruments in post-shipment financing on blockchain prevents invoicing fraud, reduces business risk for financial institutions and lowers overhead when issuing and managing trade receivables.
Peer-to-peer (P2P) lending allows individuals and small businesses to obtain loans funded by other individuals through online lending platforms. Borrowers request loans which are then funded by multiple lenders who purchase promissory notes. P2P lending has grown as a source of funding for borrowers who may have difficulty obtaining loans from traditional banks. However, P2P loans also carry higher risks for lenders since the loans are unsecured, borrower financials may not be thoroughly verified, and default rates can be high. P2P lending platforms and loans may be regulated by the SEC, state securities regulators, and banking regulators depending on the structure of the platform and loans.
Study: Identifying Fraud and Credit Risk in the Smallest of Small Businessesclaytonroot
XOR conducted a study analyzing nearly 6 million small business applications from 2011-2014 to identify patterns in small business fraud and credit risk. They developed models to predict fraud and credit risk by matching applications across industries and incorporating alternative data sources. The study found that cross-industry data sharing improves risk predictions and that small business fraud patterns are becoming more sophisticated over time. XOR's new risk models can help reduce $1 billion in annual losses for small business accounts.
Financial fraud cost $1.9 billion in 2019 according to the FTC, with common types including inflating earnings by extending depreciation periods, hiding debt, recognizing revenue early while delaying expenses, and incorrect capitalization of expenses. Notable fraud cases include Enron, Volkswagen, Lehman Brothers, Wells Fargo, and Bernie Madoff's Ponzi scheme. Cryptocurrencies are also at risk of fraud due to lack of sovereign backing, volatility, and lack of clarity. Companies can prevent fraud by studying governance, auditing thoroughly, monitoring stakeholder relationships, and ensuring performance is consistent with industry peers.
A42 banks race to defend from further reputational damageFreddie McMahon
The next wave of billion dollar fines is underway
as authorities are coming to the banks, already
armed with evidence of KYC, AML and CFT
systemic failings due to the way international
money transfers flow through correspondent
banks. This growing evidence shows how
money launderers’ businesses are successfully
laundering over a trillion dollars a year by
circumventing the controls of banks across the
world.
Creditinfo Jamaica Seminar - Establishing a credit bureau in jamaica (gene leon)Creditinfo
Dr. Gene Leon discusses the important role that credit bureaus play in providing information to financial institutions to assess credit risk and make lending decisions. Credit bureaus decrease information asymmetries, help evaluate creditworthiness more accurately, and increase access to affordable credit, thereby facilitating economic growth. While credit bureaus provide significant benefits, it is important they maintain public trust by operating with transparency, security, reliability and understanding to gain widespread acceptance. Successful implementation may take several years and require a cultural shift toward greater openness about personal financial information.
Learn what can you do to stay a step ahead of fraudsters without limiting revenue growth. Prevent Financial Fraud in your organization with the help of HLB HAMT
Given that most companies are struggling to achieve healthy growth in the current climate, fraudulent activity cannot be tolerated, however minor some of the individual ‘crimes’ being committed appear to be.
While the typical employee misdemeanour may not be on the same scale as those that transpired from the recent MPs’ expenses scandal, the amounts involved soon add up and can present a risk to company profits.
Alarmingly, KPMG uncovered a dramatic increase in the number of cases involving the exploitation of weak internal controls – up to 74% in 2011 from 49% in 2007. This suggests that many organisations are not adequately protecting themselves from losses incurred through employee crime.
It is also likely that the problems are more widespread and costly than these surveys suggest, since many cases of fraud go unreported either because companies are failing to monitor and measure instances of internal crimes, particularly below a certain threshold, or because they prefer to handle any cases that do emerge internally to minimise any negative PR.
If you would like more information on improving internal controls and what a robust, secure finance system should look like please contact us on 01582 714 810.
Protecting Your Organization Against Check and ACH FraudFraudBusters
Webinar series from FraudResourceNet LLC on Preventing and Detecting Fraud in a High Crime Climate. Recordings of these Webinars are available for purchase from our Website
This Webinar focused on the subject in the title
FraudResourceNet (FRN) is the only searchable portal of practical, expert fraud prevention, detection and audit information on the Web.
FRN combines the high quality, authoritative anti-fraud and audit content from the leading providers, AuditNet ® LLC and White-Collar Crime 101 LLC/FraudAware.
The two entities designed FRN as the “go-to”, easy-to-use source of “how-to” fraud prevention, detection, audit and investigation templates, guidelines, policies, training programs (recorded no CPE and live with CPE) and articles from leading subject matter experts.
FRN is a continuously expanding and improving resource, offering auditors, fraud examiners, controllers, investigators and accountants a content-rich source of cutting-edge anti-fraud tools and techniques they will want to refer to again and again.
This document provides an overview of payday lending regulations and practices. It discusses how regulations vary significantly between states and countries. It also examines the different ways interest rates on payday loans are calculated, loan processes, borrower demographics, arguments around the sustainability of high interest payday loans, and recent regulatory actions.
This document provides information about building a better credit report. It discusses rights under the Fair Credit Reporting Act and Fair and Accurate Credit Transactions Act. It explains how to legally improve an inaccurate credit report by disputing errors with credit reporting companies and furnishing businesses. It also provides tips on dealing with debt and avoiding credit scams.
The Case This case was developed by the MIT Sloan School o.docxmehek4
The Case
This case was developed by the MIT Sloan School of Management. It is part of their
“Learning Edge,” a free learning resource. This case was prepared by John Minahan
and Cate Reavis. This case is based on actual events. Actual names are changed; some
of the narrative is fictional.
In early 2012, as he prepared to enter a meeting with the board of trustees of a
state pension fund, Harry Markham, CFA, couldn't help but feel professionally
conflicted.
Since earning his Master of Finance in 2004 at one of the top business schools in
the United States, Markham had worked for Investment Consulting Associates
(ICA), a firm that gave investment advice to pension funds.
Since joining the firm, Markham had grown increasingly concerned over how
public sector pension fund liabilities were being valued. If he valued the liabilities
using the valuation and financial analysis principles he learned in his Master of
Finance and CFA programs, he would get numbers almost twice as high as those
reported by the funds.
This would not be such a problem if he were allowed to make adjustments to the
official numbers, but neither his clients nor his firm was interested in questioning
them. The board did not want to hear that the fund's liabilities were much larger
than the number being captured by the Government Accounting Standards Board
(GASB) rules and his firm wanted to keep the board of trustees happy.
How, Markham wondered, was he supposed to give sound investment advice to
state treasurers and boards of trustees working from financials that he knew were
grossly misleading?
Markham's dilemma came down to conflicting loyalties: loyalty to his firm,
loyalty to the boards of trustees and others who made investment decisions for
public pensions and who, in turn, hired his firm to provide investment expertise,
and loyalty to the pensioners themselves, as Markham believed was called for by
the CFA Code of Ethics and Standards of Professional Conduct.
In his role as investment advisor, the differing views on how to value pension
liabilities challenged Markham on both a practical and an ethical level. "My role
is not to decide the value of liabilities," he explained.
That is the actuary's job. My role is to give investment advice. However, as an
investment advisor, the first thing you want to understand is the client's
circumstances. That is a basic ethical precept. The CFA professional standards
say you should never give advice without knowing what your client's
circumstances are. And so what happens is that we have these funds that are
grossly short of money, but the accounting does not show them as being grossly
short of money. I make the case within my firm that we need to know where we
are starting before we give advice. And perhaps our advice would be different if
the client knew they were starting from a multi-billion-dollar hole that they're
seemingly not aware of.
In addition to the fact ...
The document discusses financial well-being and how it is defined by the Consumer Financial Protection Bureau. Financial well-being has four key components: having control over day-to-day finances, having the capacity to absorb financial shocks, being on track to meet financial goals, and having financial freedom to enjoy life. The document focuses on the first two components - having control over finances and absorbing financial shocks. It emphasizes the importance of an emergency fund and having a back-up plan for income to be prepared for unexpected expenses and job loss.
1. Case Study
EXECUTIVE SUMMARY
First-party fraud (FPF) — fraud committed by individuals, typically a financial institution’s own customers
who have no intent to pay — is not a new issue, but it is extremely costly and more expensive than you may
think.The reason: It is so difficult to detect and address that it is most often misclassified as bad credit debt
by the affected organizations, and therefore placed into collections. Industry analysts suggest that higher
than average unemployment rates and lack of access to credit are key factors contributing to an upward
trend of FPF. According to the Federal Reserve,1
charge-off rates have spiked to 9.95 percent, nearly
double the average rate of five percent over the past 18 years.This translates to approximately $85 billion
of the $850 billion outstanding in revolving consumer credit being written off each year. Of this amount
deemed uncollectible, roughly five to 20 percent, or $4 to $17 billion, is misclassified as bad debt when it
should be categorized as FPF.2
any payment, from anywhere, at any time, through any medium
Fraud doesn’t discriminate — identification, reduction and
on-going prevention should be priorities for FIs, whether they
are small community banks or well-recognized multi-nationals.
As FIs seek efficiency and greater overall financial health, FPF
siphons from an institution’s bottom line growth. Understanding
the characteristics of FPF, identifying it sooner, and writing it off
differently (as an operational loss rather than a credit loss), can
positively impact a bank’s operations.
The objective of this paper is to shed light on the hidden
costs of FPF and help executives recognize the importance
of distinguishing FPF from credit losses. Additionally, it will
explore the operational advantages of an enterprise-wide
approach to identifying FPF earlier in the customer lifecycle,
thereby generating substantial savings for an organization.
Further, such an approach can also help to protect an
organization’s reputation and appealing brand.
MARKET OVERVIEW:
What Exactly Is First-Party Fraud?
First-party fraud is different from third-party fraud in which
an existing identity is stolen and then fraudulently used to
make purchases. With FPF, the primary victim is the financial
institution whereas with third-party fraud, often orchestrated
by an organized crime ring, typically victims are innocent
individuals who are left to spend countless hours to resolve the
fraudulent charges and restore their identities. Analytics experts
at Experian claim that FPF can occur at three times the rate of
traditional third-party fraud.3
Although recognition of first-party fraud is growing, no single
industry definition exists, nor are there standard working
policies or processes for addressing it. For the purposes of
this report, FPF is defined as: “when a consumer applies for
and uses credit under his or her own name, or uses a synthetic
identity — not to be mistaken with a stolen identity — to make
transactions.”3
This definition refers to just one of the four FPF
variants known as bust-out or sleeper fraud. The other types of
FPF based on “intent not to pay” include organized crime, true
and synthetic identification (ID), and change in motivation.
White Paper
First-Party Fraud2
> Top three behaviors
– Opening accounts with no intention of paying on them
with real or synthetic identification. The information
— social security number, name and date of birth —
associated with a synthetic ID is either completely or
partially fabricated.
– Boosting credit limits — artificially and through
manipulation of behavior score
– Making false claims of fraud
> How it manifests
– Defaulting on the first payments or very early defaults
– Excessively over an account limit
– Poor recovery rate
– Unable to collect on the debt
By Dale Daley and Rod Powers
Recognizing First-Party Fraud
Why It’s More Expensive Than You May Think.
2. 2
The Problems Fraud Presents
The Tower Group does an excellent job of outlining the handful
of key challenges an institution faces with FPF.5
First, since FPF
is so difficult to recognize, it is often not reported as fraud, but
rather classified and handled as a collections case. Second,
institutions are not taking strong enough measures to prevent
or detect fraud, therefore increasing their risk exposure at
an enterprise-wide level. Third, even though FPF is a larger
problem than third-party fraud, few to no organizational
resources are allocated to it. Fourth, since FPF is often
misclassified as collections, the expense, write-off amounts,
and reserve requirements are artificially high, tying up valuable
resources that could be allocated to other strategic initiatives,
such as fraud prevention or detection, earlier in the customer
credit lifecycle.
First-Party Fraud (FPF):
What Is The Size Of The Problem?
Keir Breitenfeld, representing Experian’s Decision Analytics
team, notes that, “The lack of a uniform industry definition [for
FPF] and subsequent operational treatment combined with
the high probability that a large segment of FPF is currently
classified as credit loss instead of fraud loss makes accurately
quantifying the overall size of [the problem] challenging.”6
The
U.S. Federal Reserve1
reports charge-off rates are 9.95 percent,
nearly double the average rate of five percent experienced
over the past 18 years. Applying today’s rate to the $850
billion in outstanding revolving consumer credit debt yields
approximately $85 billion destined for charge-off. Of this
amount, roughly five to 20 percent, or $4 to $17 billion, is
misclassified as bad debt instead of FPF. As a result, collections
departments treat fraudulent transactions as potentially
recoverable debts when there is actually low or no probability
of recovery. According to a report from Mercator Advisory
Group, “…Credit card collections groups have had to deal with
charge-offs that went from ‘only’ about $40 billion in 2007 to a
number that will in all likelihood exceed $75 billion in 2009.7
As many companies are stretched by the spike in delinquency
rates, placing FPF cases into the collections queue places an
unnecessary strain on resources.
There are many factors affecting the amount of losses, such
as the size of an institution or the type of product. Separate
interviews with analysts from both FICO and Experian revealed
that estimates of FPF rates for prime bank cards and demand
deposit accounts (DDA) portfolios fall within the 0.75 to 5
percent range while fraud rates for credit lines trend toward the
other end of the spectrum at 20 percent. FPF isn’t limited to the
United States — Canada’s rates, between five and 20 percent,
are most similar to those of the U.S.8
According to Actimize,
The British Bankers Association estimates that 10 to 20 percent
more >>
White Paper | Recognizing First-Party Fraud
Stereotypical Fraud Profiles
> Bust-out Fraud: Credit Card
A male, typically aged 20 to 40 years old, opens an account without a co-applicant. Many of his banking patterns are similar
to a trusted customer. The fraudster makes on-time payments and maintains good account standing for months or years —
with the intent of bouncing the final payment and abandoning the account.”3
He appears to be a solid customer with on-time
payments, all the while securing and utilizing higher credit limits until abandoning the account. Experian explains that, “Per-
petrators typically apply for credit four to 24 months before busting out.”3
> Change In Motivation: Loan
A female, over the age of 30, is an active and good standing customer. She consistently deposits into her checking account,
including her directly deposited paycheck. With her husband losing his job, which isn’t, nor would be, communicated to the
bank; she applies for and receives a loan for $15,000 to help cover household expenses. She pays her loan on time for a pe-
riod of 2 years. She then misses a payment, yet the bank assumes there is a reasonable explanation. Eventually, after a series
of professional and personal hurdles, she decides she isn’t responsible for repaying the loan and stops paying it.
> Organized Fraud: Credit and Retail Banking
A group of individuals hold credit cards and linked bank accounts. They exchange funds and payments with one another,
which, from the bank’s perspective, appear to be regular account transactions. Similar to the other fraudsters, the credit cards
are paid on time and the credit isn’t maxed out — yet — creating the appearance of respectable customers. Over time, they
each obtain additional lines of credit, including loans. Simultaneously, they withdraw available funds, plus some from over-
draft; write checks knowing they will bounce, and max out their credit cards through “high velocity spending.”4
Credit Losses Impact on Reserve Requirements
The Federal Reserve defines reserve requirements as the
amount of funds that a depository institution must hold
in reserve against specified deposit liabilities.11
This amount
is three percent for liabilities in the range of $10.7 million
to $55.2 million and 10 percent for liabilities of $55.2 million
or more. During John C. Dugan’s testimony before the
Committee on Banking, Housing, and Urban Affairs, he
explained that substantial levels of capital and reserves are
essential for the health of the national banking system.12
Indicative of the stressful scenarios banks faced from 2006
to 2008, the amount of capital in national banks rose by
$186 billion. As fraud losses are anticipated to trend
upward, reserve requirements are expected to follow suit
in order to provision against the actual losses. Clearly, the
greater reserves a bank has on hand, the larger the
negative impact on earnings as fewer funds are available
for allocation to products.
3. 3
of bad debt in the UK is mislabeled as collections.9
Countries
in the Asia-Pacific region are troubled by FPF as well, but for
a variety of reasons analysts haven’t been able to estimate its
extent. Institutions within emerging markets are hit harder,
specifically, with non-revolving credit, where the rate of FPF
is closer to 35 percent, but can reach as high as 50 percent of
bad debt.8
Classification Conundrum: FPF Or Credit Loss?
Understanding whether or not FPF is on the rise and
quantifying its impact are not easy exercises due to inconsistent
approaches in classifying losses. A survey of the top 150 retail
banks and credit unions conducted by Aite Group concluded
that, “Fraud is not going away. In fact, all institutions expect it
to grow substantially over the next three years.”10
Without a
doubt, FPF is frequently classified as bad debt and put into
the collections queue, but this reality is further exacerbated
by regulations prohibiting the classification of the majority of
FPF — including first payment default and bust-out fraud — as
anything other than credit losses. Even so, institutions could
gain operational efficiency by segmenting FPF from
collections, thereby eliminating allocation of collections
resources to fraud cases.
THE HIDDEN COST OF FRAUD:
What is it costing your organization?
As a result of industry regulations written to protect
cardholders from abusive credit card practices, such as the
Credit Card Accountability, Responsibility and Disclosure
(CARD) Act, overall decreases in profitable consumer
transactions and escalating credit losses have put executives
from leading FIs under pressure to generate and maintain
healthy balance sheets. Fraud is yet another challenge for
struggling FIs, but one that can be largely mitigated. Prioritizing
the reduction of losses by identifying and segmenting FPF
from the generic credit loss ‘bucket’ by reallocating collections
efforts away from uncollectible first-party fraud to actual
recoverable delinquencies will pay dividends.6
Like it or not, fraud is here to stay and, in fact, based on the
drivers discussed earlier, an indefinite upward trajectory
is projected. At the same time, insights garnered from the
Aite Group survey suggest that FI executives recognize the
importance of fraud tools, however, a substantial gap exists
between recognizing the need versus prioritizing the allocation
of capabilities and resources to address fraud.13
Even though
industry executives’ fraud awareness may be heightened, it
isn’t a near-term priority for most. This same survey revealed
that, “Preventing fraud losses will be the highest priority for
the fraud management team — three years from now.”13
For
a large FI, taking the variance between the losses prevented
and the dollar amount estimated to be attributed to FPF, see
Table A. Multiplying that number by a three-year waiting period
to address prevention equates to more than $37.5 million
in losses. Can your organization afford to wait three years
when analytics and current methodologies now enable FIs to
identify and reclassify FPF, as well as reduce and deter different
variants of FPF? What is fraud costing your organization? Table
A provides conservative estimates for the cost of FPF by an
institution’s receivables size.
Reactive vs. Proactive: Enterprise-wide
Strategies Will Limit Exposure
With the various bank channel transaction growth at almost
10 percent per year,14
the risk of first-party fraud isn’t limited
to credit cards. The estimated annual credit losses of more
than $1.5 billion among U.S. card issuers5
represents but a
mere fraction of the total size of the FPF issue. Once fraud
gains a foothold within an organization, like a virus it can creep
across channels and products targeting a FI’s entire portfolio
of products spanning the payment spectrum, including retail,
credit cards, loans, mortgages and insurance.
Graph A details the percent of banks reporting losses from
cross-channel fraud. Larger institutions, labeled on the graph as
“Regional” and “Super regional” have a higher percentage of
fraud. Alison Sullivan of FICO points out that larger financial
institutions have a higher percentage of fraudulent losses — 10
to 15 percent of bad debt — compared to small banks whose
losses are closer to 5 percent.8
Even though smaller institutions
may report less fraud, they are none the less still vulnerable,
as fraud doesn’t discriminate. It targets large and small-sized
institutions, pursuing the path of least resistance.
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White Paper | Recognizing First-Party Fraud
Table A: The Hidden Cost of Fraud
U.S. Large FI with Receivables
of more than $100 Billion
U.S. Mid-Sized FI with
Receivables of $10 Billion
to $99 Billion
U.S. Small FI with Receivables
of $1.5 Billion to $10 Billion
9.95%
Total charge-off % of
receivables
$ 10 Billion $1 Billion — $ 9.95 Billion $149 Million — $995 Million
5% — 20%
Collections/losses
estimated to be FPF
$500 Million — $ 2 Billion $50 Million — $2 Billion $7.4 Million — $200 Million
Conservative 2.5%
FPF losses averted
$ 12.5 Million — $ 50 Million $1.25 Million — $50 Million $190,000 — $ 5 Million
4. 100%
60%
80%
40%
20%
0%
Community Mid Size Super RegionalRegional
Graph A: Percentage of Banks Reporting Losses from Cross-Channel Fraud
Source: TowerGroup Consumer Banking Fraud Trends Presentation14
As larger institutions prioritize and activate defenses to detect
and mitigate losses, small institutions with presumably fewer
resources could find themselves more vulnerable. A fraud
management-focused report from Aite Group expresses
a similar sentiment: “With the balloon-squeezing effect of
fraud, smaller institutions are increasingly likely to become
targets of fraud attacks as larger institutions invest in the fraud
management firepower to mitigate their losses.”15
THE ENTERPRISE-WIDE APPROACH:
Identify, Reduce And Prevent
The traditional approach to fraud, commonly siloed to a
business line, is limited in comparison to an enterprise-wide
strategy. Fraud isn’t contained or limited to one particular line
of business, so neither should the approach taken to managing
it. An enterprise-wide approach is a proactive strategy for
FIs of any size. It is a stronger line of defense intended to
prevent fraud from creeping from one product line to another
as fraudsters seek out the institution’s points of weakness.
Surprisingly, Aite Group reports that “Enterprise fraud case
management solutions are still not widely deployed among
the largest U.S. financial institutions [included in the survey].”15
Organizations’ fraud detection methods should align with the
customer experience, which spans the enterprise.
The enterprise-wide approach, most efficiently undertaken with
a trusted partner, includes a three-step process. The first step
involves assessing and quantifying an organization’s current
losses. The second step entails reducing these losses. The third
step is focused on prevention and detection by leveraging a
FPF Score.
4 more >>
White Paper | Recognizing First-Party Fraud
Customer Credit Lifecycle Prevention & Solutions With a First-Party Fraud (FPF) Score
> Stage 1: Acquisition/ Application
The key challenges at this stage include:
– Identifying identity theft applicants and those applicants
with the intent to pay versus a customer’s ability to pay
– An application decision system supporting “must have”
access to the decision strategy data
Detection:
– Fraud decision model
– Intention score for propensity
Solution:
– Set credit limits or deny credit at application level
– Application model integrated into cardholder profile
> Stage 2: New Account /Transactional
The key challenges at this stage include:
– Understanding the rate of balance build; yet encouraging
product use while maintaining risk mitigation through
monitoring.
– Accessing life event information after an account opening in
relation to activity, availability and frequency.
– Recognizing that first payment default is not just a first
billing month event; organizations must have functions in
place to identify defaults beyond the first 60 days.
Detection:
– Identity authentication
Solution:
– Hold funds
– Monitor balance build up
> Stage 3: Credit Line Management
The key challenges at this stage include:
– The learning curve with regulatory constraints
– “Right size” lines and limit contingent liability
– Changing the perception that a customer’s line size is linked
to relationship and value to the issuer.
Detection:
– Transaction-based analytics
– Fraud rules
– Authorization of purchase
– Credit line increase request
– Change of contact info
Solution:
– Over limit strategy, block accounts and mange or decrease
limits
– Use adaptive control solutions and processes for line
management.
– Use of external relationship data
> Stage 4: Collection & Recovery
The key challenges at this stage include:
– Accessing historical data in order to identify FPF vs.
skip account
– The historical classification of this scenario
– The current reserve requirements for this fraud type
Detection:
– Delinquency and bad debt
– Collections, recovery or charge-off
Solution:
– Skip trace
– Historical analysis to identify
– On-going classification of FPF as a loss
5. 5
STEP 1: Assess, Identify And Quantify
One of the toughest challenges for organizations is
distinguishing between FPF and credit losses and even
something as seemingly simple as articulating the definition
of it. A trusted partner adhering to a proven methodology can
assess exposure across the lifecycle, quantify the losses, and
identify the best framework for reduction and prevention.
Of particular value may be the use of targeted scores designed
to identify unique types of FPF. Beyond use of aggregated
authentication scores, implementation of policies incorporating
specific bust out, third-party ID theft or first payment default
models in tandem with traditional credit policies proves
effective in early FPF identification and, as importantly,
segmentation.
STEP 2: Reduce
Identifying and addressing fraud earlier in the lifecycle results
in fewer complications due to compliance issues and expenses
associated with the collection phase, thereby reducing the
load on overburdened collections department resources. The
reduction process includes understanding the quality of the
data available and near-term immediate system enhancements,
including fraud markers and account segmentation, along with
overall process enhancements and training of staff.
STEP 3: Prevent
With FIs looking to attract new customers, tightening the
acquisition criteria may seem counter intuitive; however,
addressing FPF in the application process through the
utilization of fraud intention scores or transaction-based FPF
scores is a solid defense.
Prevention can limit FPF losses across the lifecycle with
decisioning tools such as scores or analytics that identify
suspicious patterns based on characteristics indicative of
intentional fraud. Putting systems in place earlier in the credit
lifecycle alerts an institution during the application process —
limiting the loss or, better yet, avoiding it altogether.
The enterprise-wide approach will ensure organizational
intelligence across the product lines and customer lifecycle.
Plus, this approach allows integration with controls, monitoring
and detection; analysis, investigation and prevention; along
with reporting and measurement of fraud.
CONCLUSION
Fraud Management will transition from silos to an enterprise
level, but it’s just a matter of how many millions in losses an
institution will be able to stomach before taking the steps to
identify, reduce and prevent those losses.14
While the costs of
investing in methods to mitigate first-party fraud may seem
high, in reality the early intervention will be repaid quickly
by gaining operational efficiency with collections resources,
and mitigating and averting actual losses due to FPF,
potentially lowering reserve requirements and averting
reputational damage.
As The TowerGroup so artfully states, “issuers must look deeply
into their processes and build counter measures to protect
their revenue, assets, and equity.”5
Acting now will lead to
improved fraud-prevention capabilities for FIs, ultimately
ensuring their institutions thrive by protecting them from
losses that grow to unmanageable levels.
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White Paper | Recognizing First-Party Fraud