Lack of controls bolsters fraudsters

With scammers finding more complex and intricate methods to defraud financial institutions, developing effective controls is vital to risk management.

In fact, 35% of financial institution respondents to fintech Alloy’s State of Fraud Benchmark Report indicated they believe ineffective controls are part of the reason their organizations are unprepared to prevent fraud. 

“Fraud is everyone’s responsibility, and everybody has to be aware of it, so you really need to make it a cultural topic,” Lou Maslowe, chief risk officer of commercial domain for equipment financier DLL, said during a panel at the Equipment Leasing and Finance Association’s Credit and Collections conference last month. “Provide training to sales, credit and back-office staff because some of the people that are best positioned to catch a fraud are those on the first line.” 

Training all employees on utilizing effective controls and technology for fraud prevention is increasingly vital as synthetic fraud continues to rise. 

Synthetic fraud 

Synthetic fraud, or fraud that combines real and fake information to create a new identity, requires heightened controls, since some of the information is real. This type of fraud was the top concern for respondents to Alloy’s report. 

“Synthetic fraud identities are usually built over the span of multiple years as fraudsters build their fake identities’ credit history,” Caroline Lu, fraud analytics manager at Alloy, said in the report. “Fraudsters typically wait three to five years to ’warehouse’ the stolen information before they start using it to apply for accounts. We expect a lot of the PIIs [Personal Identifiable Information] that were stolen in early 2020 when the pandemic started to surface in 2023-24 (exactly three years after the leaks).”