Financial institutions have come under increasing pressures that test their ability to maintain a profitable bottom line. From a seemingly inexorable increase in violent and nonviolent crime, to a flurry of new legislation drafted and implemented in the wake of the September 11th tragedies, banks, savings and loan organizations and credit unions all have their plates very full with cost containment and curtailing losses.

Minimizing losses due to criminal activities is a full time job for security officers and their organizations. Although the majority of their time in the past has been spent in investigative and recovery activities, that trend has shifted in recent years to include a more proactive stance of loss prevention. There are two main types of criminal activities that confront financial institutions: Fraud and Robbery.

Both fraud and robbery account for a significant amount of losses on an annual basis. Both also require significant, albeit different, efforts to investigate and solve crimes. And though they utilize different strategies to minimize the likelihood of criminal actions, there is a common tactic that serves to both deter and solve fraud and robbery crimes: closed circuit television (CCTV) surveillance and recording. With the advent of the newest digital video recorder systems such as the models offered by FocusMicro, Inc., crimes are getting solved faster and with greater surety. And the criminals know it.

The Shift In Fraud

The amount of money that financial institutions lose to fraudulent transactions continues to grow on an annual basis, but the overall nature of financial institution fraud has changed in characteristics over the past decade. In the late 1980’s and early 1990’s, more than half of all the fraud reported was related to insider abuse. Since then however technological advances, increases in criminal sophistication and the availability of personal information on the internet has resulted in a dramatic shift to external check fraud schemes. Most check fraud occurs within several well know genres:

• On-us checks with forged makers' signatures
• Non-on-us checks cashed with forged endorsements
• Non-on-us deposited checks returned by the paying bank
• Kiting schemes, floating worthless checks between accounts at different banks
• Counterfeit checks

It is important for financial institutions to categorize and understand their check fraud losses so that they may adopt the best strategies to discourage or prevent the transactions from occurring.

There are more than $1.3 million in fraudulent checks returned each day, seven days a week. The most recent statistics from the FBI report that check fraud in 2001 nearly reached $20 billion, a significant upswing from the $12 billion to $16 billion that was reported in the 1998 – 1999 time frame.

There are several contributing items that have spurred the increase in check fraud crimes. Some of them are ‘good things’ that have had negative consequences for financial institutions. Others are simply the evolution of criminal activities.

• Regulation CC put needed controls on the financial industry to govern the availability of check funds and the collection of checks. The unanticipated backlash of these controls was that criminals now had an identified window of opportunity for funds availability, permitting an increase in kiting schemes. Forty five percent of returned checks are due to closed accounts or stop payments.
• The explosion of the internet has also witnessed a similar surge in identity theft, resulting in more forged signatures, forged transfer of ownerships, new account fraud and account theft.
• Technology itself, while offering many advances to prevent and solve crimes has also had the negative effect of putting sophisticated tools in the hands of criminals. As a result, there has been large increase in counterfeit documents and the losses that they generate. Counterfeits are also accounting for the largest single cost per incident.

The sad truth of the matter is that thieves know that banks, especially the larger ones, cannot afford to investigate every fraudulent transaction. The same is true of law enforcement agencies, with some organizations in larger cities setting a specific threshold dollar amount. As long as thieves stay ‘below the radar’, they run only a nominal risk of being caught and prosecuted.

Fraud Prevention

Preventing fraud is a classic case of it is far easier to say it than to do it. Fraud schemes are frequently complex and sophisticated, not easily discernable to even experienced security personnel. Even the simple task of verifying signatures will frequently bow to the need to provide prompt customer service. However prevention is far less expensive than the losses that will be suffered by the occurrence of a crime and the subsequent investigation and recovery efforts. There are several steps that financial institutions can (and in some cases must) take to reduce fraud.

• Implement a comprehensive three point Customer Identification Plan (CIP) as directed by section 326 of the USA Patriot Act. Designed in the wake of September 11th, the USA Patriot Act serves to identify terrorists and prevent their actions. Section 326 speaks to preventing money laundering through the thorough identification of persons opening new accounts. Effective in October of 2002, the requirements of a CIP also reduces the likelihood of an identity thief opening a new account and makes kiting schemes more difficult to establish and run.
• Overhaul and upgrade each CCTV surveillance system. Nearly all financial institutions have installed surveillance systems to aid in their compliance with the 1968 Bank Protection Act. Most financial institutions are still using time-lapse VCRs with obsolete multiplexers. Vast technology improvements such as those exhibited by FocusMicro’s line of Digital Video Servers yield improvements in image quality and system capabilities that are far beyond video tape technology.
• Integrate the institution’s transaction system with the CCTV surveillance system. Digital Video systems can record all of the different transaction types that your organization performs along with the digitized video images, allowing managers and security officers to quickly and easily locate crisp, clear video history of an individual transaction. This is an invaluable tool for spotting suspected criminals.
• Implement an inkless fingerprint program as recommended by the FBI. Specifically targeting non-institution customers, this program seeks to reduce the number of fraudulent checks and counterfeit instruments that are negotiated.
• Develop a comprehensive employee training program that is cost effective enough to support employee turnover, but detailed enough to put only well trained personnel in contact with the public.

The Greatest Threat: Robbery

The losses experienced by financial institutions due to robbery while extensive, are far below those caused by fraud. The greater danger that robbery poses is the potential loss of life or injury to people. Other negative effects include the potential shrinkage of business, employee turnover and loss of customers.

While the FBI reports that major crime trends are fairly stagnant, financial institutions are reporting a continuing increase in the frequency of robberies. In October, 2002 the FBI released its annual Uniform Crime Report. In it, it was reported that robberies in 2001 for all categories rose by 3.7% over 2000, the first increase in more than a decade. More disturbing than that, the report cited that bank robberies were up by 19.4% over the previous year to a record 10,246. Bank robberies also have the highest loss per incident at $4,587, higher than all other types of robberies.

The demographics of bank robbery are shifting as well, out of the big cities and into rural America. While several large cities reported a drop in the number of bank robberies, the FBI report cited that cities with less than 10,000 inhabitants experienced the greatest increase in bank robbery incidents.

The style and modus operandi of bank robbers varies widely. There are even fads among robbers, as evidenced by the string of crimes several years back that involved the use of gorilla masks and Nixon masks. There are however prevailing patterns that most bank robberies tend to adhere to.

• Robbers typically like to be unobtrusive, drawing as little attention to themselves as possible.
• Robbers usually wear some type of subtle disguise such as a hat, hooded sweatshirt, sunglasses or wig. They seek to remain anonymous and unidentifiable.
• Robbers frequently do not display a weapon, preferring to simply hand an employee a note with their demands.
• Robberies are usually planned in advance and not random. Robbers have likely visited the target institution several times to assess the security measures that are in place.
• Robbers do not distinguish between different types of financial institutions. When robbers who have been apprehended are interviewed, most were unable to tell if they had robbed a bank, credit union or savings and loan institution.

Reacting to Crisis

In 2001, the Credit Union National Association (CUNA) release the results of a survey conducted by News Now regarding credit unions and their experience with robbery. In the survey results it was revealed that of those institutions that had experienced a robbery, more than 36% did nothing to upgrade their security measures.

Thankfully more than 63% of those institutions who had experienced a robbery did take corrective actions. Of all of the changes that were made, institutions participating in the survey cited that installation and upgrading of the facility’s CCTV surveillance system was the number one most effective improvement that was made towards reducing the likelihood of another robbery incident.

Preventing Robbery

Although there isn’t any single strategy or tactic that will completely eliminate the risk of robbery, there are several things that financial institutions can do to minimize the threat and mitigate the consequences if one should happen.

1. Make certain that each facility is equipped with a Digital Video Recorder system, such as those available from FocusMicro, Inc. Place a monitor near each entrance to the building that will immediately let customers know that they are under surveillance. Create a display for ‘Customer of the Month’ and/or ‘Employee of the Month’ with exported pictures from the Digital Video system that demonstrates the clarity of the images that are captured.
2. Use only high resolution color cameras for the surveillance system, such as the All Weather Indoor/Outdoor cameras available from FocusMicro . Review the coverage of the system, insuring that full camera views are available of all areas of the facility, including the entrance to the safe deposit box area and parking lot. Check that in all key areas of the building that good quality facial shots can be had of customers and employees alike.
3. Implement a “Post a Sign, Prevent a Crime” program as utilized by members of the Massachusetts Bankers Association. Under the program, signs are posted at all entrances requesting that customers entering the facility to please remove their hats, hoods and sunglasses. The Massachusetts program has been met with outstanding positive response from customers and law enforcement agencies alike, and has been credited with a significant reduction in robberies.
4. Establish a comprehensive employee training program that is repeated at regular intervals that teach personnel how to spot potential criminals and how to react during and after a robbery.
5. Conduct a cash flow analysis for each facility to insure that only the cash that is necessary to operate for a day is present in each cash drawer.

Reducing Exposure

Each strategy for reducing the likelihood of criminal events involve the use of CCTV surveillance systems.

In both the fraud and robbery cases, the quality of the images that can be had from the latest in Digital Video Recorder systems are so much better than the very best that was ever available from VCR systems, that it can and will make the difference between success and failure in preventative and investigative efforts.

Improved image quality, coupled with the features and capabilities brought by Digital Video technology can result in a bank, savings and loan or credit union that is more profitable and safer to operate. To schedule a demonstration of the latest in surveillance and security technology, contact a FocusMicro Security Consultant today.