Financial Institutions Don't Stop Fraud Effectively

[Jun 24, 2008.]

TowerGroup, a research and consulting company serving the finance industry, stated earlier that financial institutions have trouble keeping on top of fraud threats from within. Institutions must actively try to stop fraud, not reactively, as they are accustomed to doing, state the TowerGroup's most recent research findings.

The problem, says TowerGroup, is that financial institutions relegate fraud management to too many different departments. Specialization is not always a good thing. The various departments responsible for spotting fraud, for alerting the rest of organization of the fraud, and for responding appropriately to the fraud need to be able to communicate better with one another. Those who would commit fraud have become experts at exploiting precisely these holes in communication to get away with their crimes.

What is needed, according to TowerGroup, is a “holistic” approach. The whole organization must be constantly on the alert for potential fraud. They must be aware that criminals are constantly refining their methods, and that fraud can take on heretofore unseen forms. Institutions should not rely on specialized departments to detect fraud according to predetermined patterns.

TowerGroup claims that the approach they propose is the most cost-effective one. The group predicts that every dollar spent on implementing their suggested policy will return to the company eightfold, via the money the institution will save.  In addition to being cheaper, it is more effective than a “tactical” approach of looking for predetermined kinds of fraud. The TowerGroup's proposes method will make security a first priority, not be an additional cost.

Their report, wherein the group details all this research, is called “Surrounded by the Enemy: The Case for Enterprise Fraud Management.” It may be obtained by calling the appropriate number on TowerGroup's website. The author of the report, senior analyst Rod Nelsestuen is also willing to arrange interviews, in which he will answer questions about his findings and views.