Vice president

West Plains (Mo.) Bank

Community bankers tend to believe that the first line of defense against fraud is knowing their customers personally. Unfortunately, knowing your customer is also a disadvantage. It is easier to say no to a stranger.

In my opinion, most bank losses occur because an exception to policy was made for the benefit of a personal friend.

While there is always a valid exception to a basically good rule, banks frequently neglect to establish exception procedures. Authority to make an exception should always be closely controlled. An exception from established procedures should never be made without conscious thought, nor should it be made without accountability.


Chief executive officer

Mid-State Bank

Arroyo Grande, Calif.

Smaller banks have a problem with certain types of fraud detection because they don't have a lot of the more sophisticated technology that larger banks have.

So, they fall back on the personal relationship and knowledge of the customers they're doing business with. For a small bank to protect itself against fraud, it really comes down to the old adage "know your customer."

Small banks have a big advantage over large banks in this matter because it's not unusual for employees of a small bank to know every customer's name and background.



Southern Commercial Bank

St. Louis

Most banks have monitoring systems in place. Fraud detection has become very automated, even in smaller banks.

As for money laundering, we don't care if it's proceeds from the church picnic, if it's over the dollar limit it's reported.

Also, we have employees who watch the variances at each teller window. I suppose if the person had a partner within the bank, [fraud] could be done. But we don't have that problem. We're a neighborhood bank; we've been here about 100 years. We hire people we know or people who are recommended by our employees, so it's less of an issue for us.


Chief executive officer

Security National Bank

Maitland, Fla.

This may sound simplistic, but the best advice is to know your customer. If someone walks in that you don't know, use common sense. For example. if the customer lives all the way across town and wants to open an account with you, ask why. Recently, we had a man come in on a Saturday with $1,000 in cash that he wanted to use to open a new account. We turned him down, and we were one of the few banks in this area that wasn't subsequently hit by a big scam.

You have to educate your platform people and your tellers to pay attention to these kinds of things.

And operationally, you have to have a sound system of holds.



Southwest Bank

Fort Worth

I don't think the big banks do anything differently. Virtually every bank I know has fraud detection programs written into its processing software. These programs catch check kiters and money launderers.

The most prevalent type of fraud most banks are seeing is counterfeit securities being put down as collateral for a loan. The way you combat this is checking all the documents to make sure they're not stolen or counterfeit before you accept them.



Peoples Bank

Ripley, Miss.

We have a policy that our tellers, officers, managers, and directors sign a statement that they will not knowingly violate the FDIC regulations - and we set down the violations right there. The penalty for violating the FDIC regulations is automatic firing. If customers ask to break the rules, and they do, our people know to say no. These regulations have teeth in them.

As for check kiting, we don't do this here, but I know of a bank in Texas that puts its customers' fingerprints on the front of the checks they cash. That should deter people who try to forge government checks that they've stolen out of mailboxes. I'm thinking about doing that here because stolen government checks are a big problem.


Chief executive officer

Houghton (Mich.) National Bank.

One of the primary techniques is to make all your internal people aware of what check kiting and money laundering are.

We have training when we first hire employees, and we have ongoing training in detecting check kiting and money laundering.

We have four branches, so we track all transactions over a certain dollar amount in a seven-day period at each one. All of these transactions are recorded, and then we have one clerk read over all of them to see if one customer's name is repeated. We also train our tellers to pay attention to how many times a customer visits the branch and to record suspicious activity.

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