Dormant Account Fraud – The Importance of Proper Monitoring
One of the most susceptible areas for fraud in a bank, or financial institution, is the dormant deposit account. Dormant accounts are generally a deposit account that has been inactive for a period of time, or an account for which contact with the account holder has been lost. Most banking software systems will code an account as dormant after about a year of inactivity.
The main factor that makes these dormant accounts more susceptible to fraud is the lack of customer activity. If a customer is actively using his/her deposit account, the customer is more likely to be monitoring that account. Though I consider myself a financial tracking connoisseur, and not everyone tracks things quite as thoroughly as I do, it’s not too farfetched to think the typical customer will check a statement or account history every once in a while. Usually when an account goes dormant, it means the customer has lost track of the account or the customer is no longer in contact with the Bank. In this case, the customer is not likely to notice any unauthorized activity in the account that he forgot existed.
So, what is this unauthorized activity I speak of, and who may be performing it? Well, it is not uncommon to come across a story of a bank insider, with too much access and a lack of internal controls, that has been withdrawing money from a dormant account with plans to visit a tropical island. Most times the unauthorized activity is a withdrawal from the dormant account by a bank employee.
Let’s visit some of the control breakdowns that can make things easier for a fraudster:
- Dormant Account Reports are not properly reviewed, thus the activity in the accounts are not reviewed.
- Employees have too much access to the dormant accounts – the employee can transfer money from the accounts.
- Accounts are moved back to active status through improper methods (because of other active accounts held by the customer).
- Returned mail is handled by the same department responsible for monitoring the dormant accounts.
Here are some potential controls to address the above-mentioned items:
- Consider locking activity on dormant accounts – require a supervisory override or dual control access.
- Ensure Dormant Account reports are reviewed for unusual activity (or any activity, other than interest, since they are dormant and should have no activity).
- Consider reviewing a report of accounts approaching dormancy, as these could sometimes be a better fraud target than a truly dormant account.
- Look for transfers or withdrawals shortly before the account hits dormancy – if the activity is questionable, contact the customer.
- Review Dormant to Active status maintenance reports to ensure the changes were the result of a customer-authorized transaction and verify the authenticity of the transaction to customer signature.
- Send automatic confirmations of account activation to the customer’s address on the system.
- Require a customer-authorized transaction to reactivate a dormant account.
- This transaction should be verified through usual CIP verification procedures.
- Returned mail should be handled by a department other than deposits. A fraudster may see a trend in undeliverable mail for an account, prior to dormancy. The fraudster can use this information to target the account for fraud, knowing the customer is not receiving mail from the Bank.
Implementing these controls can help reduce the fraud risk associated with an inherently risky, unavoidable area of banking.
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