Banking & Finance and Government

Persistent fraud activity presents opportunities

Officials stress better account relationships and more education.

March 28, 2014
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Bank fraud is a prevalent problem for both personal and business accounts.

There are multiple strategies in place to deter and reduce bank fraud, but industry officials say the activity remains persistent.

The 2013 Identity Fraud Report published by Javelin Strategy and Research noted 12.6 million individuals were victims of fraud in 2012 and more than $21 billion was stolen.

Businesses were not immune, either.

A survey conducted by JP Morgan — AFP Payments Fraud and Control — indicated attempted fraud on company bank accounts decreased from 66 percent in 2011 to 61 percent in 2012 of businesses surveyed. However, the survey also reported the “persistency of payments fraud remains stubbornly high, meaning those organizations (that) did experience fraud experienced it repeatedly.”

Although effective preventive measures are in play, “good banking relationships involve regular communication between organizations and their banking partners,” according to JP Morgan. Only 14 percent of organizations reported discussing security and fraud prevention with their bank’s technical or security staff in 2012.

The Bank of Holland uses its close relationship with business clients to help spot fraudulent attacks on accounts. In an effort to cultivate personal relationship with its clients, it takes the time to understand the business and the type and level of activity to expect, said Kelly Osdras, cash management officer.

“When I open an account, I will talk to them, I will go out to the business,” said Osdras. “I try to figure out what the activity in the account is going to be and then I put them in the account that makes sense for them. We don’t try to be (just) their banker, but we try to be a trusted advisor and kind of be a partner with them. Even the people who are sole proprietors tend to move up and do other things, and we want to be able to help them in every step of their career.”

The Bank of Holland opened in 1998, added a permanent location on Ionia Avenue SW in Grand Rapids in 2005, and this month opened an office in Grand Haven. The bank operates on values such as long-term relationships, community stewardship, and investing time spent with clients, according to its website.

Osdras said the main difference in personal and business accounts drills down to the activity level. “Personal accounts are for individuals and business accounts are for businesses,” said Osdras. “That’s really the difference, and personal accounts tend to have less activity.”

Osdras said the bank offers two types of business accounts: one that requires a minimum balance and another that is an earnings credit account. In the past, businesses were not allowed to earn interest on a checking account; however, with an earnings credit account, the balance is multiplied with an earnings credit rate to offset service charges.

“Now they can earn interest on accounts, but it’s interest income so they have to pay taxes on it,” said Osdras. “So this is a way for them to lower some of the service fees they have in the account.”

When an account is opened, Osdras goes over security recommendations and preventive measures against fraudulent activity, which applies to personal and business accounts. In addition to checking bank statements on a daily and monthly basis, she warned against allowing websites to save passwords.

When it comes to business accounts, “positive pay” and “debit filters” help to prevent fraud.

Positive pay matches uploaded written checks with the system, and when one is flagged, the client receives an exception, which allows the client to choose between paying the check or returning it based on fraudulent activity.

According to AFP Payments Fraud and Control Survey, checks continue to be the dominant payment form targeted by fraudsters. Of the responding organizations surveyed, 87 percent said checks were targeted, in contrast to 27 percent targeting Automated Clearing House debits.

Debit filter is a means by which clients can create a list of approved individuals who can debit funds from their account, or create a list of those who are never allowed to debit.

Another strategy the bank uses is verifying wire transfers.

“We’re fortunate, though, that we know our clients,” said Osdras. “Even though we have all of this, too, it is a gut check: ‘Does this make sense? Is it something this client does on a normal basis?’”

When a business recognizes a fraudulent transaction, it must be reported within 48 hours, whereas an individual consumer has 60 days.

“There is a big difference as far as timing, if they see something fraudulent, when they have to let us know so that we can correct it,” said Osdras.

When fraud was detected, 39 percent of organizations participating in the JP Morgan survey reported that accounts were not changed and they relied on established controls to detect additional instances. Switching out accounts due to a request by the bank was reported by 13 percent of organizations.

Osdras said the first thing The Bank of Holland recommends if a client notices an unauthorized transaction or fraudulent activity is to close the account immediately. The reasoning is to immediately eliminate additional fraud; the bank then monitors the account for two to three weeks as an additional measure.

Currently, mobile banking applications are available only for personal accounts at The Bank of Holland, Osdras said, but that should change by the third quarter when the bank opens the service to business accounts.

Osdras acknowledged the increased use of technology — and fewer personal interactions — may lead to more opportunities for fraud, but strong client relationships and fraud prevention education should mitigate those prospects.

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