The following is an article reprinted with permission from the Fall 2004 edition of The WWR Letter:
Member Co-Conspiracy in Fraud
By: Robert Rutkowski, Esquire
Member calls concerning fraud seem to have jumped dramatically over the last few years. Technology plays a role both in creating fraudulent instruments as well as in taking advantage of Automated Clearing House (ACH) and other electronic transfers to move fraudulently obtained money quickly. However, people are still the lynchpin in the majority of fraud cases committed against credit unions today. Most of this occurs when a scam artist uses social engineering or “pfishing” to use people as his or her own tools. Social engineering is simply contacting someone by phone or email and tricking them into revealing sensitive information. Pfishing is similar but the goal is using technology to find information out about someone or to trick them into revealing passwords or account numbers.
The technique of scam artists getting help from the member to commit a fraud is also becoming more sophisticated. Credit union members have become, at times, unwitting co-conspirators in the commission of fraud. Some credit unions have developed a way of combating this phenomenon. They make a list of questions for their members and post it in the lobby. Questions asked often include:
- Are you depositing a check you received as a result of an email from Nigeria?
- Are you depositing a check you received as an overpayment for an item you sold on eBay?
- Has someone asked you to deposit your check on their behalf but allowing you to keep some of the proceeds?
People who read the poster and fall into one of these categories are directed to a specific person at the branch who is adept at handling fraud issues. One could be cynical and call this a “stupid member list”, but the list has real value. If a credit union loses money because of such a scam, often the courts will not hold the member accountable because of the lack of intent. If a court does grant a judgment against the member, a bankruptcy court may allow the person to discharge the debt because intent is in question. Stupidity can be a defense after all.
The most important thing a credit union can do to prevent fraud is to educate the front line tellers not to exchange value for a large instrument without going through a verification process with another employee. A person who is trying to commit fraud will make every effort to convince the teller to give cash or a certified check for a bogus instrument. If the credit union has policies to verify suspicious instruments with the originators and, where possible, put holds on the instruments, much over-the-counter fraud can be prevented.
Thus, fraud prevention can be as simple as having a point person who:
- Deals with customers who have questionable circumstances surrounding their deposits, and
- Acts as a decision maker when a teller is presented with a large, suspicious instrument
Having this person in place along with drafted policies to back up the procedure can go a long way in fraud prevention.
Robert Rutkowski is the Managing Partner of WWR’s Credit Union department. Located in the Brooklyn Heights operations center, he can be reached at (216) 739-5004 or firstname.lastname@example.org.