Employee Fraud within Financial Services

Growing Financial Services Employee Fraud Problem
Fraud strategists, analysts and investigators have known for a long time that employee fraud is a significant and growing threat. Across a range of financial institutions and roles, those on the front line report that the serious problems such as data theft, account takeover and embezzlement are not yet under control. The problem is pervasive, and it is becoming more complex.
Sixty-five percent of financial institutions see the threat of employee fraud increasing and 77 percent think the nature of the threat is becoming more sophisticated.
Eighty-five percent have been somewhat to extremely impacted by employee fraud in the past three years and of those that knew, 50 percent said they have had a case of data theft in the last 12 months. Twenty percent of respondents didn't know if their organization had experienced data theft in that period.
The average "largest employee fraud" uncovered in the last five years was $874,961 USD, while the single largest reported was $6,000,000 USD.
When asked an open question about the future, the majority of those who answered predicted an increase of infiltration of organized crime groups and more customer identity theft.

How Ready is the Industry?
As with other fraud problems that the financial industry has tackled in the past, the problem is often allowed to grow significantly before a consistent set of solutions is deployed to control it. The industry today is still in an early phase of confronting the employee fraud problem; but the industry is emerging from an "early adopter" phase with 7.5 percent of respondents having adopted third generation, automated or analytics-based solutions to bring employee fraud under control.
Seventy-two percent rate the finance industry's readiness to tackle the employee fraud problem as "poor" to "somewhat acceptable", while respondents ranked their own organization's ability to tackle the problem only slightly higher, with 40 percent rated as "acceptable", "good" or "excellent".
Half of the respondents said that their organizations detect or catch 50 percent or less of all employee fraud committed. Respondents were least prepared to detect identity shielding, which happens when one employee spreads fraud across multiple users by signing in with other employees' information, with 27.5 percent not ready to address it at all.
Respondents cited data availability/access, resource priorities, understanding the problem and limited technology infrastructure as the top challenges to managing employee fraud.
Nearly 70 percent of respondents said that government regulation or standards regarding employee access to customer accounts and data would hinder their company's ability to detect or prevent employee fraud.

Why is Employee Fraud Such a Problem?
Respondents to the survey came from a broad range of roles throughout the organization; there was nonetheless a high level of agreement about the sources of the problem. The ubiquity of technology has made it easier to perpetrate all forms of fraud. Along with the common historical drivers of employee fraud, the industry seems to agree that employee fraud has now attracted one of the more problematic drivers of fraud losses: organized crime. Respondents point to the accessibility of technology, organized crime, poor hiring or screening practices and staff dissatisfaction as the top four contributors to employee fraud.
It is also notable that some respondents shared that an employee's personal financial hardship is a leading contributor to fraud.

How Financial Institutions Manage Employee Fraud
As the problem of employee fraud becomes better understood, a number of financial organizations are moving from a reactive mode of employee fraud prevention to take advantage of the investigative and detection tools available today. As an industry, however, there is still significant room for improvement as we move from reactive to proactive detection and prevention systems and centralize detection and investigation from both a systems and organizational point of view.
Less than half of all surveyed use automated technology defenses against employee fraud, and less than eight percent leverage the most up to date analytic profiling and cross channel solutions.
The top way organizations uncover employee fraud is by internal control systems, but the majority of fraud leads come from reactive sources, including tips from hotline or whistleblowers, victim complaint, notification by law enforcement, etc.