1 CUNA Mutual Group Proprietary Reproduction, Adaptation or Distribution Prohibited © CUNA Mutual Group 2010 Alaska Credit Union League Annual Meeting Emerging Fraud Risks Facing Credit Unions Ann Davidson, Risk Management CUNA Mutual Group CUP-0310-C510

2 Disclaimer This presentation was created by the CUNA Mutual Group based on our experience in the credit union and insurance market. It is intended to be used only as a guide, not as legal advice. Any examples provided have been simplified to give you an overview of the importance of selecting appropriate coverage limits, insuring-to-value and implementing loss prevention techniques. No coverage is provided by this publication, nor does it replace any provisions of any insurance policy or bond. Please read the actual policy for specific coverage, terms, conditions, and exclusions. Bond coverage is underwritten by CUMIS Insurance Society, Inc. For general information, please contact a CUNA Mutual Sales Executive.

3 Industry Overview Tough economic times motivating criminals New schemes… old schemes with new wrinkles Attacks against financial institutions and consumers Education is the key to success

4 What You’ll Take Away… Awareness of emerging risks Information to share with your credit union staff Practical action steps to prevent growing threats

5 The Nature of Fraud Criminals are sophisticated-organized crime Criminals penetrate weaknesses Fraud schemes are utilized as long as there is a victim Cross-channel fraud… a new concept to manage risk

6 Emerging Trends New fraud landscape Danger of silo fraud monitoring New transaction options Challenges Opportunities

7 Emerging Trends Enhanced transaction channels Compliance and regulation Competitive pressure New payment alternatives Technology… today and into the future

8 Hottest Fraud Threats in Phishing, smishing & vishing 2.ID fraud 3.System intrusion 4.Cyber crime 5.Data breaches 6.Transaction fraud (ACH,Wire,Checks,Cards)

9 10 Hottest Schemes in Mortgage fraud 8.Internal fraud 9.External fraud 10.Other emerging risks –Compliance and regulation –New account –Existing account –Check image on home banking –Health care fraud

10 Phishing. Smishing. Vishing Risk –Increase attacks in 2009 –90% of attacks directed at financial services* –Focused on smishing (text message) –Threat to mobile banking members Prevention –Phishing takedown and monitoring services –Member education is critical Source: Anti-Phishing Working Group 1

11 ID Fraud Risk –Identity theft is on the rise –Identify fraud grew rapidly in 2009 Prevention –Industry efforts to curtail fraud and increase consumer education. Source: Identify Theft Resource Center 2

12 ID Fraud What to watch for: –Fraudsters are conducting their schemes quicker –Low-tech methods to obtaining information –Lack of security 2

13 System Intrusion Risk –Detecting network intrusions sometimes can be trickier than preventing them –SQL injection –Assault on authentication –Malware and keylogging Prevention –Regular monitoring of network activity –Strong intrusion detection systems 3

14 Cyber Crime Online crime complaints –Record high in 2008 –275,284 complaints –33.1% increase vs Online fraud total dollar loss –$265 million –$25 million increase vs Average individual loss amounted to $931 Source: Internet Crime Complaint Center (IC3) 2008 Annual Report 4

15 Cyber Crime Risk –Sophisticated computer fraud schemes –Financial data migrates to the Internet Prevention –Cooperation in fighting cyber crime –Education and awareness –Up-to-date malware protection 4

16 Data Breaches Economy sinks….data breaches rise Jumped nearly 50 percent in 2008 Captures information to create a financial loss Source: Identity Theft Resource Center (ITRC) 5

17 Transaction Fraud Risk –ACH –Wire –Cards – Watch for ATM skimming –Paper checks Prevention –Fraud prevention monitoring system –Early notification 6

18 Mortgage Fraud Risk –False or misleading information to obtain loans –Orchestrated purchase of properties Prevention –Crack down on mortgage fraud –Secure independent verification Income, assets, income tax history –Mortgage fraud bill (S. 386) Doubles FBI resources to pursue mortgage fraud and other financial crimes 7

19 Internal Fraud Risk –Privy to information used to open credit cards in other employees' names Charge items to company credit cards Used company funds to make 25 personal car payments Wired company money to herself via Western Union Booked at least one cruise for her family Purchased several airline tickets Prevention –Require background checks on all employees –Establish levels of authority for employees –Conduct regular audits 8

20 External Fraud Risk –Scam artists are more creative –Focus on financial benefit –Methods vary across all types of transactions Prevention –Utilize a fraud management system for all account transactions –Member education on the types of exposures 9

21 Other Emerging Risks New account Existing account Compliance and regulation Home banking check image Telephone based fraud Mobile banking Social media – Facebook, Twitter, Linked-in 10

22 Check Image Exposure Successful “phishing” attack puts online banking members at risk Fraudster travels to the check image page Information captured from the check image: –Members account number –Signature –Address –Phone –Possible Social Security Number –Any information on the check image is at risk Fraudster either creates paper checks, performs ACH items or pursues ID fraud 10

23 Check Image Exposure 10 Fraudster goes to check image page Fraudster captures information Account number Signature Address Phone Possibly SS Number Fraudulent activities via Paper checks ACH ID fraud Successful “phishing” attack puts online banking members at risk

24 Check Image Prevention Eliminate the information displayed on the check image Member “opt in” feature to view check image Member education 10

25 Common Theme is Prevention Identify the root cause Utilize a fraud management system to prevent or minimize fraud Educate employees Educate members

26 Lessons Learned Best practices do prevent fraud –Engage all credit union employees Measure savings by the “effectiveness” of the loss prevention tool Sharing information helps other credit unions and members Focus resources on root causes of the loss Being proactive pays off

27 Credit Unions Taking Action Ensure prevention processes and tools are in place and delivering intended results Find the critical balance between risk management and member service for your credit union Implement a cross-channel fraud prevention solution –All transactions –Credit union member account level Working together helps ensure success credit union success

28 Credit Union Protection Resources Credit Union Protection Response Center at Credit Union Protection Resource Center at –RISK Alerts; Webinars; White Papers; Templates –UserID and Password required For insurance coverage information at

29 It’s Question Time…

30 CUNA Mutual Group Proprietary Reproduction, Adaptation or Distribution Prohibited © CUNA Mutual Group Thank You! Ann Davidson Risk Management, CUNA Mutual Group , ext