Certificate of deposit fraud has always been a weak link in banks’ lines of defense. We have seen a steady incidence of certificate of deposit embezzlement cases amongst financial institutions over the last 25 years. There are no signs of this problem abating. Surprisingly, a majority of banks and credit unions are overlooking key indicators of this type of fraud, allowing some of these cases to endure for over ten years with losses sometimes reaching the millions of dollars. During this slow economy, many bank employees are in “financial distress” and many will rationalize the need to embezzle customer funds. Now is the time to make sure your anti-fraud controls are operating effectively to lower your institution’s fraud risk.
Certificates of Deposit present a prime opportunity for fraudsters due to the lack of communication the bank has with the customer during the term of the certificate and the bank potentially not even knowing if they are dormant. If certificate of deposit balances are not included on customer statements, or made available through online banking, customers are less likely to be aware of funds withdrawn from their CDs. Fraudsters know this and take advantage of any such opportunities. Many fraudsters, after embezzling funds, will issue phony statements, 1099’s or notices of renewal to give the appearance to customers that their funds are still on deposit. The brunt of CD fraud is perpetared against senior citizens
Another common scenario involves the misdirection of customer’s funds at the point of sale. For example, a member service representative accepts a customer’s funds intended for a certificate of deposit and provides them with official looking, but bogus certificate documents. The deposit is then never processed once the customer leaves, or the transaction is reversed from the core banking system, and the fraudster deposits the funds to an account they have access to.
Auditors should assist their banks in implementing some basic “prevent” controls to reduce the risk of certificate of deposit fraud. Examples of prevent controls include:
● Include CD balances on customer monthly deposit account statements
● Implement stringent dormancy controls
● Require system supervisory intervention for early withdrawals
● Restrict employees’ ability to perform early withdrawals
Most detect controls involving certificate of deposit fraud center on early withdrawals or early redemptions, prior to maturity. Examples of detect controls include:
● Monitor early withdrawals and trace disbursements to their ultimate recipient
● Monitor early redemptions and trace disbursements to their ultimate recipient
● Mail confirmation notices to customers with early withdrawals or redemptions
Data Analytics Solutions
There are numerous red flags associated with Certificate of Deposit Fraud. It’s not efficient or effective to use anything other than computer assisted audit testing (CAAT) tools to identify these red flags. But most people find that setting up CAAT tools to effectively identify these red flags is cumbersome, time consuming and sometimes impossible. Luckily for you, some companies have ready-to-go, pre-mapped data analytics solutions to help you quickly zero in on the most likely fraudulent events. Contact Risk Analytics Strategies today to learn more about these solutions.
RAS Onsite Fraud Detection Services
There is no substitute for experience and Risk Analytics Strategies, LLC brings its decades of experience in detecting insider fraud to your financial institution. We will work with you to perform a Fraud Risk Assessment of your certificate of deposit origination and operations functions and then work with you to identify the most effective data analytics routines to run to address your specific risks. We will then assist you to establish a continuous monitoring program that will allow you to sleep at night!
RELATED PRESS RELEASES
Former Assistant Manager at North Easton Savings Bank Sentenced on Fraud Charges
U.S. Attorney’s Office May 30, 2012 District of Massachusetts (617) 748-3100
BOSTON—A Foxborough woman was sentenced today in federal court for committing bank fraud while employed as an Assistant Bank Manager at North Easton Savings Bank in Mansfield. Kathleen Didonato O’Connell, 49, was sentenced by U.S. District Court Chief Judge Mark L. Wolf to one year plus one day in prison, to be followed by four years of supervised release. O’Connell also was ordered to pay $172,000 in restitution. On December 15, 2011, O’Connell pleaded guilty to bank fraud.
Between October 2010 and February 2011, O’Connell used her position to withdraw over $120,000 from the certificate of deposit accounts of unsuspecting bank customers. The bank fired O’Connell when it discovered her scheme. United States Attorney Carmen M. Ortiz and Richard DesLauriers, Special Agent in Charge of the Federal Bureau of Investigation-Boston Field Division made the announcement today. The case was prosecuted by Assistant U.S. Attorney Christine J. Wichers.
Woman Charged Federally with Embezzling from PNC Bank Customers
FOR IMMEDIATE RELEASE June 19, 2012
The United States Attorney’s Office for the Middle District of Pennsylvania, announced today the filing of bank embezzlement charges in U.S. District Court in Harrisburg against Amy R. Eyler, age 48, of Taneytown, Maryland.
According to United States Attorney Peter J. Smith, between 2007 and 2011, Eyler, who was employed as an assistant branch manager at PNC Bank in Adams County, Pennsylvania, embezzled approximately $118,000 from customer Certificate of Deposit accounts.
If convicted, Eyler faces a term of imprisonment of up to 30 years and a fine of $1,000,000. The case was investigated by the FBI. It has been assigned for prosecution to Assistant U.S. Attorney Joseph Terz.
Former PNC Bellefonte Branch Manager Agrees to Plead Guilty to Bank Theft Charge
U.S. Attorney’s Office May 15, 2012 Middle District of Pennsylvania (717) 221-4482
The United States Attorney’s Office for the Middle District of Pennsylvania today announced the filing of a one-count criminal information charging Kimberly D. Laird with stealing $78,594 from PNC Bank while working as manager of the Bellefonte, Pennsylvania branch of the bank.
According to United States Attorney Peter J. Smith, the information alleges that Laird stole the funds between January 2005 and November 2011 through a number of means: she opened credit accounts in her father’s name without authorization and disbursed funds to herself; she made redemptions from certificates of deposit accounts of five customers and withdrew the funds for her personal use; and she opened checking accounts in other names and wrote checks to pay her personal bills and expenses. According to the information, Laird stole funds from certificate of deposit accounts of four customers whose ages ranged from 81 to 89 years. Under the terms of the plea agreement filed with the Information, Laird agreed to plead guilty to stealing the funds and to pay restitution for the losses.
If convicted, Laird, a 40-year-old resident of Milesburg, Pennsylvania, would face a maximum term of 10 years in prison; a fine of up to $250,000; a three-year term of supervised release; and a special assessment of $100. U.S. Attorney Smith stated that the case was investigated by the Federal Bureau of Investigation in State College, Pennsylvania. Prosecution of this matter has been assigned to Assistant United States Attorney George J. Rocktashel.
Belview Woman Charged with Embezzling Hundreds of Thousands from Minnwest Bank
U.S. Attorney’s Office August 06, 2012 District of Minnesota (612) 664-5600
MINNEAPOLIS—Earlier today in federal court, a 47-year-old woman from the southwestern Minnesota community of Belview pleaded guilty to stealing hundreds of thousands of dollars from the customers of Minnwest Bank, in Marshall, Minnesota, where she worked. Barbara Kaye Rechtzigel pleaded guilty to one count of embezzlement by a bank officer. Rechtzigel, who was charged on July 23, 2012, entered her plea before United States District Court Judge John R. Tunheim.
In her plea agreement, Rechtzigel admitted that from 1998 through June of 2012, she embezzled the money for personal use, primarily to pay off shopping debts. At the time of her termination, on June 4, 2012, Rechtzigel was the senior operations manager at the bank’s Marshall location. To carry out her scheme, Rechtzigel created false paperwork to make bank customers believe their CDs were renewed and earning interest, when, in fact, she was stealing and spending their money.
The bank ultimately paid customers victimized by the scheme the value of their CDs, as reported by Rechtizigel, even though those accounts had been depleted by her. The bank paid out more than $1 million.
For her crime, Rechtzigel faces a potential maximum penalty of 30 years in prison. Judge Tunheim will determine her sentence at a future hearing, not yet scheduled. This case is the result of an investigation by the Federal Bureau of Investigation and the Marshall Police Department, with assistance from the Federal Deposit Insurance Corporation-Office of Inspector General. It is being prosecuted by Assistant U.S. Attorney William J. Otteson.
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