Enterprise-Wide Systems Affect Fraud Management

MBA (5/5/2008 ) Palaparty, Vijay
A lack of an enterprise-wide case system for fraud management causes most concern for financial institutions, according to an Aite Group LLC report. Sixty-two percent of study participants consider such a shortcoming as an "important" or "extremely important" impediment in their fraud management strategy.
Nick Holland, senior analyst with Aite, Boston, and co-author of the report, Fraud Management Strategies of U.S. Financial Institutions: The Drive Toward “Enterprise-Wide," said results were indicative of a common need for U.S. financial institutions to have enterprise-wide clarity when it comes to the management of fraud.

“With the rapid evolution of new fraud types and the ability for criminals to attack institutions remotely and on an unprecedented scale using the internet and inevitably, mobile, the need for the left hand to know what the right hand is doing has never been more important,” Holland said.

Other impediments were related to a lack of resources in law enforcement to follow through on fraud cases—77 percent of participants considered this area an area of importance or extreme importance. However, 85 percent of survey respondents said their institution is focused on actively supporting law enforcement.

Fraud management teams also reported a tendency to be reactive rather than proactive.Seventy-seven percent of interviewees agreed that their institution is focusing on adapting to new threats as they emerge, the report said. Less than half of interviewees—46 percent—agreed or totally agreed that their institution preventively takes defensive measures before new fraud threats materialized.

The reactive approach could be answered by a lack of resources or the uncontrollable nature of fraud. Fifty four percent of participants reported feeling restricted by difficulties related to running tests because of high integration costs. Furthermore, the same percentage of participants said that the morphing nature of fraud was of concern to them—that the rapidly changing fraud schemes impedes their operational effectiveness.

From a marketing standpoint, while fraud management could be used as a competitive differentiator among financial institutions, 38 percent of participaints agreed or totally agreed that their institution uses anti-fraud measures to set their selves apart. Sixty-two percent agreed that their institution uses anti-fraud measures as differentiators, more importantly, from a risk management standpoint.

From a customer satisfaction perspective, only one-fourth of institutions reported measuring performance by this criterion, perhaps because it could be difficult to correlate customer satisfaction to specific performance of a fraud management team, the report said. Although, 92 percent said they almost always or always measure performance of fraud management teams by the actual loss amount.

“Recovered losses and operational measures such as 'time to resolve' were less commonly used metrics for measuring performance, with 58 percent and 50 percent of interviewees respectively stating that they almost always or always measured the performance of the fraud management team by these criteria,” the report said.

Regardless, fraud management teams seem well-equipped in terms of budget, employee training and analytical technology with only 38 percent seeing a shortcoming. Fraud management teams also seem trustworthy of third party data. Only Thirty-one percent of participants considered it an impediment.