Australian Institute of Criminology

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Fraud targeting financial sector

Media Release

20 February 2001

A paper released today by the Australian Institute of Criminology shows that the financial services sector is responding successfully to fraud.

In releasing the paper, AIC Director, Dr Adam Graycar highlighted the difficulty of controlling fraud. "Controlling fraud in the financial services sector is made difficult by the competitive demand for 'fast to market' product development, the need for flexibility in product features and delivery mechanisms, and the rapid introduction of new technologies. Together, these factors entail a significant risk of exploitation by those seeking to gain an advantage through dishonesty", he said.

Types of fraud perpetrated against the financial services sector include counterfeiting of cheques and other documents, misuse of credit and debit cards or related identification numbers (PINs), "skimming" of information from magnetic strips on cards, and the dishonest operation of automatic teller machines (ATMs).

Facsimile machines and personal computers are also increasingly being used to transmit fraudulent instructions to financial institutions. The problem of "identity-related fraud" (where false documentation is used to assume another person's identity or to create a fictitious identity) is expected to increase with the emergence of "remote delivery" financial services involving little or no face-to-face contact between businesses and customers.

While levels of fraud in Australia are somewhat difficult to assess due to varying business practices and reporting methods, fraud victimisation surveys have found that those in the financial services sector continue to experience fraud at rates generally greater than other business sectors. In a 1999 Australian business survey conducted by KPMG, 59 per cent of the 37 respondents from the financial services sector reported experiencing fraud in the preceding two-year period. In a 2000 international survey by Ernst and Young, 27 per cent of Australian bankers reported 50 or more frauds in a 12-month period, compared with 14 per cent of bankers surveyed internationally.

Industry responses to the risk of fraud include internal controls such as fraud training, risk assessment on new products and processes, automated fraud detection systems and fraud prevention policies. Combinations of such "in house" measures with vendor-supplied packages have proven successful both in identifying and in preventing fraud against the financial services sector. Cooperation and information-sharing between financial institutions and with governments and law enforcement agencies are also seen as critical.