Posted by NationalACH on Oct 28, 2009

According to consulting firm Treasury Strategies losses caused by fraud could result in the closing of as many as 10 financial institutions within the next three years. According the Barry Barretta, a principal at Treasury Strategies, “Fraud risk in the industry is at an unprecedented level.”

Small banks are the hardest hit by fraud because they do not have the money to spend on adequate fraud protection tools nor the capital to absorb the losses caused by fraud. But, even larger banks could be impacted, particularly if they reduce spending on anti-fraud weapons. And the poor economy has more fraudsters than ever hunting for holes in bank security.

Often, fraudulent transactions come from transactions from third parties, rather than direct bank customers. This makes it more difficult to track transactions and slows down the time that it takes to discover fraud.

Sophisticated gangs for fraudsters have insiders working as employees at the bank. It’s also easy to get existing employees to become informants since some mid-level employees feel no loyalty to institutions. The insiders pass on how financial transactions flow, bank practices, and system access codes. The fraudsters then have all the information needed to scam millions from the banks.