This Month In USB: It’s a Jungle In There

US Banker | December, 2009

Driving into work, "Donna" would scan the bank's parking lot. "Every single morning... to see if there was anybody out of the ordinary there waiting for me," she remembers.

Donna (not her real name) had good reason to be nervous. Over the course of 10 years as an assistant vice president of a Southeast regional bank, she'd stolen funds from customers' certificate-of-deposit accounts. Because of personal financial problems with a bad mortgage and a freshman daughter's college costs, she started to get by through pinching funds from the CDs.

What she stole - a few hundred here, a thousand there - was nothing she felt anyone would miss right away. And she would pay it all back when she could.

But her small-potatoes thefts ended up totaling almost $200,000. As she told the writers of "Insidious", a newly published book exploring how and why bank employees (and executives) go rogue, her life became "very stressful" hiding her scheme from detection. "I worked every day of the week because I was afraid to take a day off," said the 42-year-old mother of three.

Donna was eventually nabbed on a day she happened to be out of the office, leading to a conviction and an 18-month federal prison term she is currently serving.

No one knows if many embezzlers share Donna's emotional anguish - fear, guilt, regret and even nausea - but as "Insidious" describes, many have found the same justifications and avenues to pilfer from their employer banks. "We're in a tough economy and insider fraud seems to be growing," says "Insidious" co-author Shirley Inscoe, an anti-fraud specialist who formerly headed Wachovia's fraud-prevention efforts before joining the fraud-monitoring technology firm Memento.

Anti-fraud experts believe that insider fraud problems have escalated as employees under personal financial duress become desperate for a way out, or become vulnerable to recruitment by external fraud rings looking to have an agent working internally to steal data and/or funds.

How bad is the problem? Hard data is difficult to come by (banks don't report insider fraud statistics to regulators), but transactional risk-monitoring provider Actimize found in a September survey than more than 80 percent of financial institutions believe insider fraud is rising, and 78 percent point to economic stresses on employees as a prime factor.

But Inscoe says banks aren't helping matters by tossing aside security investments as their capital budgets tighten. "Banks are cutting costs dramatically," said Inscoe. "That may actually lower the internal controls they have in place."

Since banks don't report fraud numbers, they may tend to keep insider fraud issues under the radar: dismissing but not prosecuting employees who are caught stealing funds or purposefully breaching private consumer data, according to Chris Swecker, an anti-fraud consultant and former head of fraud prevention for Bank of America. Only 7 percent of insider fraud is committed by repeat offenders, according to the Association of Certified Fraud Examiners. Is that a matter of banks cleaning house - or allowing crooks to move on to the next job?