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6 Actionable Fraud Prevention Tips for Your Financial Institution

Image of Sean De Visser
Sean De Visser
Fraud prevention

Fraud is a serious problem for many individuals and businesses today, including financial institutions. It’s important that you understand the potential dangers of fraud, whether you’re operating a relatively small organization or a large, commercial financial institution. Naturally, you’ll also need to know more about the best methods for preventing and reducing fraud in your organization. So if you want your financial institution to be the most secure it can be, then you’ll love this list of tips, techniques, and strategies.

Let’s get started.


Common Types of Bank Fraud

Thieves and fraudsters today are more sophisticated than ever. While they may still engage in some older methods of fraud, they also use various types of technology. It’s critical for those running financial institutions to take steps to reduce the risk of becoming a victim of fraud. This helps keep their organization, as well as their customers and clients, as safe as possible.

Fraud can come in many forms, and you need to know how to recognize and combat them, whether they happen in person, over the phone, on the Internet, from outside hackers, or from people working in the building. Some of the most common types of financial fraud include forged and fraudulent documents, forged checks, fraudulent loan applications, empty ATM envelope deposits, and wire transfer fraud.


1. Assess the Risk of Fraud

Conducting an assessment is one of the first steps in reducing fraud risk. A thorough assessment, whether conducted internally or by a qualified third party, will help you find any areas of weakness that could be exploited by those who are looking to commit fraud.

You’ll need to look at your safety measures and protocols as well as at the training you have in place. Are you working with outdated computer systems? These are easy entry points for hackers who are looking to gain access to your data and the private information of your customers. It might take some time, money, and effort to update your system, but it’s well worth it. Consider the damage that could occur if there is a large hack or large instances of fraud that could have been eliminated with a better system.

Along with updating computers and software, you should be sure your employees have thorough training on fraud prevention.  


2. Educate Your Employee about Fraud Awareness

Knowledge of bank fraud is essential, regardless of the size of your financial institution. Everyone working at the organization must understand the dangers of fraud and the many ways it can occur. Training, current software, and a cybersecurity team that can provide layers of protection to your facility and your customers are essential in today’s world.

Employees should have ongoing training every six to twelve months. This will keep the thought of fraud detection and prevention fresh in their minds. It will also ensure that any new threats that develop can be added to the training for your employees.


3. Improved Cybersecurity

Today, many people are using the cloud to access their banking data. This brings with it some new challenges for financial institutions. The systems need to make sure that not only is the data safe from outside attackers, but that the people who are accessing the data are honest about their identity. Many institutions are using a combination of better cybersecurity along with the traditional methods of contacting a customer in the event of strange activity on their account.

Transaction monitoring becomes important, as well. Whether the transactions are coming into or leaving the financial institution, there should be alerts for anything that seems out of place or that’s over a certain dollar amount. Keep in mind that many fraudsters know that financial institutions will be looking for large movements of money, and they’ll try to keep their transaction to lower amounts. Installing software that can find any strange movements of money and training employees to watch for these actions can help reduce fraud.


4. OFAC Checks

When new customers, whether they are individuals or businesses, are opening accounts, they should always be run through an OFAC check to verify their validity. You also need to run OFAC checks regularly against your entire name and address database. With the right digital system in place you can remove old customer information from the system. This will ensure that there are no orphaned names left on the data files. It should make setting up new customers and retrieving customer information faster and easier.


5. Consider Providing Customer Education

Financial institutions can use improved software, run audits and assessments, and use cutting-edge cybersecurity tools to help reduce instances of fraud and keep their customers and business safe. However, this doesn’t mean that you can do it all. Your customers and clients need to be wary with their information as well, or they could become victims of fraud. The things they do could also inadvertently put your institution at risk.

Provide some tips for your customers to help them prevent becoming a victim of fraud. You could publish guidance on your website, through newsletters to your customers, in a pamphlet available at your institution, and more.

Here are some types of information you’ll want to give your customers:

  • Don’t give out any personal information over the phone unless you are the ones who initiated the call.
  • Don’t give sensitive information to any entity on the Internet or in the real world unless you were the one who initiated contact with the entity.
  • Report and replace stolen credit and debit cards, as well as driver’s licenses, immediately.
  • Review financial statements monthly.
  • Never share your PIN information or passwords.
  • Use strong passwords for their financial accounts and change them regularly. Don’t use the same password on more than one site or account.
  • Use virus and antispyware software on your devices.

Helping your customers understand the dangers of financial fraud keeps them safe. It also helps ensure they aren’t doing anything that will endanger other customers and clients at your financial institution.


6. Beware of Internal Fraud

Although much of the bank fraud that occurs today is due to outside forces, there’s still the possibility of fraud being committed by someone employed at the institution. The goal is to stop internal fraud before it starts. Using careful hiring practices, checking the backgrounds of potential employees, and having a workflow that includes checks and balances with dual or triple controls in place can help reduce the risks.


What if Fraud is Suspected?

If a case of fraud is suspected, you must not ignore the problem. Tackle the problem immediately and investigate the suspicions and allegations. Capture electronic data and any other evidence available for processing and review. Depending on the nature of the fraud, your institution may have to hire attorneys in the recovery process. Always be sure to let everyone involved know about the fraud, including anyone who might have had their information compromised.


Improving Your Financial Institution to Reduce Financial Fraud

Fraud is a problem that won’t vanish on its own, unfortunately. You need to remain vigilant regarding the various types of bank fraud that can occur at your financial institution. Audit your financial institution, provide improved education for your employees and customers, and invest in the right systems and software to reduce the possibility of fraud. Quality banking software can also help make many aspects of operating your financial institution easier.

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