Back in 1997, an enterprising gang pulled off a heist of $17MM from a Loomis Fargo storage facility for bank cash near Charlotte, North Carolina. The FBI ultimately cracked the case, and the tale became the subject of a farcical movie called “Masterminds.” In real life, 21 people were nabbed, including a worker in the vault facility who helped steal the money and several area bank employees who were paid to look the other way so dirty cash could be deposited into new accounts and laundered.In the age of stealthy cybercrime, financial institutions (FIs) have been spending aggressively to defend against cyberattacks. Yet, FIs should remember that losses can also come from inside their own organizations. Employee thefts, misdeeds, and mistakes remain an ongoing issue for financial institutions. With all the focus on cybercrime, guarding against threats from within can sometimes get pushed to the back burner.Big Losses from Employee MisdeedsIt’s not just FIs that can suffer losses from wayward employees. Estimates of losses to business from employee theft range from $20B to $50B annually. Financial organizations are among the biggest victims, and that includes both large banks and small ones. According to one study, banking and finance are the top victims. FIs and their customers can not only suffer monetary losses, but FIs may also experience reputational harm as well as regulatory sanctions. Here are some of the ways that an FI’s employees could take advantage of their positions:
- Embezzlement. This is one of the most common forms of misconduct by employees. Two recent cases highlight the problem. A community bank vice president in Alabama was sentenced to five years in prison for embezzling $2.3MM from the bank’s Federal Reserve account. The scheme ran for a decade before it was cracked. In Tennessee, a teller embezzled $34K from a bank’s customer accounts before she was caught.
- Larceny. This is a more basic form of insider theft. For example, tellers have been convicted of stealing money from the till. There have also been cases of employees stealing depositor cash.
- Corruption. Employees with access to sensitive or important bank records and processes can sometimes try to cash in through corrupt schemes. In the Loomis Fargo case, employees at banks took bribes from the robbers for not reporting large cash deposits. One of the largest such cases was the 2016 Wells Fargo scandal, in which employees opened millions of unauthorized accounts to collect bonuses. In another recent case, a TD Bank employee was convicted of taking bribes to open fraudulent accounts, and some of those accounts were then used to commit other frauds.
- Disclosure of confidential information. FI employees may have access to important, confidential information, and they sometimes disclose that information for bribes or other considerations. For example, business loan and account information might be disclosed to an owner’s competitors or to someone trying to buy a business. Sensitive information about the FI itself might be disclosed, harming the FI’s reputation and standing.
- Unwitting errors. Sometimes, FIs or their customers can suffer losses from employee actions that are simply mistakes. For example, an employee might get suckered into a cyber scheme and grant access to accounts that can be looted.
Defending Your CFIThe first line of defense is thorough screening of new hires. Make sure background checks are thorough and complete, including credential verifications and criminal background checks. Those responsible for interviewing candidates should be familiar with behavioral analysis. As an additional safeguard, FIs can do periodic updates on employee background checks to make sure no questionable activities have taken place since the employee’s hiring.FIs need to have a process for monitoring employee activities. This can include being on the lookout for changes in an employee’s mood or interactions and monitoring transactions, account access, and other activities. For example, an employee who searches through accounts that may not be in their focus area might be a red flag. Your FI should have a strong code of conduct in place that is reviewed and updated regularly, along with an effective process for investigating reports about misconduct and acting on substantiated claims. Community financial institutions rely on their employees to carry out their missions. But sometimes, those employees can intentionally or accidentally facilitate theft, leading to monetary losses, reputational harm, and regulatory complications. Keeping a close eye on employee activities should be an important part of your FI’s security protocols.
