Bank Account Fraud

Kimberly Sidden, Vice President Government Banking, UMB Bank

Bank Account Fraud  Fraud: Intentional misrepresentation or concealment of information in order to deceive or mislead.

 Use of false identity and/or information to gain access to $$$.

Payment System Fraud  Check Fraud  $1.2 million in fraudulent checks enter the payment system everyday  Annual check fraud losses according to the Nielson Report:  $20 billion in 2003  $12 billion in 1996  $5 billion in 1993

Payment System Fraud  The American Bankers Association reports fraud losses are increasing 25% per year  Recent Uniform Commercial Code changes now have banks and their customers sharing responsibility for losses

Bank Account Fraud  Attempted check fraud was $4.3 billion in 2001. Actual losses totaled $698 million.

 The number of incidents increased but the average loss per case has decreased.

Statistics from 2001 ABA survey

Types of Fraud  Check  ACH  Accounting

Check Fraud  Types of Check Fraud • • • • Counterfeit checks Altered checks Unauthorized drafts Stolen checks

Fighting Check Fraud  Internal Controls  Account Reconciliation  Positive Pay  Paper Debit Block

Internal Controls  Review account activity daily  Reconcile accounts monthly  Implement dual controls  Destroy checks/deposit slips

Account Reconciliation  Partial Recon • • Capture debit transactions posting to account Transactions consolidated and reported daily, weekly, or monthly

Account Reconciliation (cont.)  Full Recon • • • Compare paid transactions to list of issued transactions provided by company Errors are researched and adjusted by the bank Paid and outstanding items are reported to the company

Positive Pay  Standard  Payee  Teller Line

Positive Pay - Standard  Checks presented for payment are compared to a file of issued checks  Encoding and other errors are corrected  Suspect items are reported to company daily for payment decision  Invalid and fraudulent items are returned and credit is posted to the account

Positive Pay – Payee  This service works the same way as standard Positive Pay except the payee information is also validated  Requires payee information to be included on check issue files  Also requires paying bank to capture payee information

Positive Pay – Teller Line  Highest % of check fraud occurs at the teller line  When items are presented for payment the check information is compared to check issue files for validity  Valid items that are paid are entered as paid so duplicates will be rejected

Future Products  Secure Checks  3-D Barcoding  Biometrics

Paper Debit Block  For depository accounts only  Blocks all paper debits from posting  Any attempted postings are reported to customer to raise awareness

ACH Fraud  Concerns • • • Unauthorized ACH transactions Anonymity of WEB and TEL transactions Easier to access ACH network

Fighting ACH Fraud  Internal Controls  ACH Block  ACH Filter

Internal Controls  Review account activity daily  Reconcile accounts monthly

ACH Block & Filter  Options • • • Post no ACH entries Post only ACH credits Post only certain ACH debits and/or credit entries  Features • • Incoming transactions continuously monitored Unauthorized items automatically returned

Future Products  ACH Debit Review  ACH Positive Pay

Conclusions  According to the ABA, Positive Pay is the most effective check fraud prevention method.

 Identify potential fraud by reviewing accounts daily and reconciling statements monthly.

Bank Account Fraud THANK YOU!!