Ten Largest Loss Exposures

for Credit Unions

Don Thompson, CFE

Risk Management Consultant for

Allied Solutions

Jay Slagel, Vice President

Claims and Risk Management

Allied Solutions

Largest Exposures to Loss

• Employee Dishonesty

• Faithful Performance

• Wire Transfer

• Burglary

• Robbery

Largest Exposures to Loss

Continued

• Plastic Card

• Forgery

• Fraudulent Deposit

• E-Fraud

• Employment Practices

Agenda

• Robbery

• Burglary

• Wire Transfer

Robbery

• Robbery is defined as “taking something of

value from a person using violence or the

threat of violence”

• Unlike burglary, robberies generally occur

during business hours

On Premise Coverage Robbery / Burglary

• Loss of Property resulting from Theft committed

by a person physically present on Premises..

• Loss of damage to offices, furnishings, fixtures,

supplies … resulting directly from Theft on

Insured Premises ..

• Loss resulting from mysterious disappearance,

misplacement, damage or destruction while on

the Premises ..

Coverage Definition

Property means:

Physical items in which the Insured has a financial

interest or which are held by the Insured in any

capacity:

currency, coin, bank notes,

Checks, drafts or share drafts,

original mortgages, documents of title,

evidences of debt, security agreements,

money orders, certificates of deposits; or

precious metals, jewelry, gemstones, tickets,

stamps or coupons.

Coverage Definition

Theft means: Taking property …

W/out consent and with the intent to

deprive the CU of property, or

By false pretense and with the intent to

deprive the CU of property.

Theft does not mean taking of property by

forgery, alteration or Counterfeit.

Coverage Definition

• Premises means: any of the Insured’s offices;

the Insured’s retained attorneys’ office;

the Insured’s ATM located anywhere within the building

housing the CU office; or

the Insured’s ATM located in a parking lot, driveway or

sidewalk immediately adjacent to the Insured’s office

but not greater than 500 feet from the Insured’s office.

Premises does not include a Service Center’s place of

business.

The Robber

Looking for 3 things:

Element of surprise

Cash on hand

Lack of witnesses

Opening

Closing

Robbery

October 2011---loss, $156,000

– Occurred at opening

– Turned off alarm

– Forced to open vault

– Tied up

Robbery, What Went Wrong?

One person arrived alone

Ambush code

Inadequate separation of duties

Robbery

• Written procedures

• Opening procedures

– 2 employees arrive together

– 1 remains in vehicle

– Ambush code

– All clear sign

– Call police

Robbery

Ambush Code

• Does everyone know it?

Separation of Duties

• No one employee should have the alarm code

and the full safe/vault combination

Arrive in Pairs

• Remote actuator

Robbery

• Loss $186,700

• Takes teller drawers, then vault

• Other employees observed the robbery

• Did not set the alarm until the robber left

Robbery

When do you set the alarm?

• When it is SAFE to do so

Burglary

• Holes cut in roof or adjacent walls, during

weekend

• Cut alarm system wires

• Cut open safe

Burglary, What Went Wrong?

• Inadequate motion sensors

• Inadequate alarm line security

• Inadequate safe/vault alarm components

Motion Sensors

• Throughout office

• Safe/Vault area

• Control cabinet area

Currency Vault Alarm

Components

• Door Contact

• Heat Sensor

• Audio accumulator

Currency Vault, Old Style Door

New Currency Vault Door

Safe Alarm Components

Safe components:

1. Door Contact

2. Heat Sensor

3. Seismic Device

Or

1. Door Contact

2. Capacitance

Alarm Systems

• Line Security

– Cellular back-up

• Battery back-up—48 hours

• Check regularly

• Separate codes for perimeter/area and

safe/vault

• Time clocks for after hours

SAFES

Do these safes look good to you?

SAFES

Not the best choice for cash

Composite Money Safe

Vault/Safe Ratings

• Cash should only be stored in vaults with a

rating of Class I or better

OR

• Safes with a rating of TL-15 or better

Funds Transfer Coverage (key coverage language)

Covers loss resulting directly from a fraudulent instruction

through email, fax or phone from a person purporting to be

your member provided you:

– Performed a Callback Verification involving the

instruction or

– Followed a commercially reasonable procedure set

forth in the Funds Transfer Agreement that governs

the instruction.

Instruction rec’d must be logged or recorded by the CU

and cause a debit or credit to the account.

Wire Transfer Fraud

• Telephone request to transfer $98,562 from

HELOC to money market account

• 10 minutes later, another call to wire funds to

Moscow, Russia

• Answered authentication questions

• 1 week later $45,000 transferred to MM account

by home banking

• $63,100 wired to Bangkok Thailand

Wire Transfer Fraud

• Telephone request to transfer $105,000 to

Korea

• Faxed copy of signature and driver’s

license

• Compromised member’s call forwarding

• Second request, tried a LOC advance,

member’s cell phone called

Wire Transfer Fraud

• Two transfer requests by telephone,

$28,600 & $44,300

• Caller knew:

– Money was in the account

– Internet banking ID

– Social Security #

– Recent account activity

– Year account opened

– Faxed copy of fraudulent Driver’s License

QUESTION?

If a member uses home banking, why

would they call to transfer funds from a

HELOC to checking?

AUTHENTICATION Telephone Requests

• ALWAYS perform callbacks

– Most bonds require callbacks for

coverage

• Limit amount that can be transferred by

telephone

• Check for recent address or telephone

number changes

• Be extra cautions of foreign wire transfer

requests

AUTHENTICATION

Telephone Requests

• DO NOT USE

–Social security number

–Date of birth

–Address

–Mother’s maiden name

Coverage Definitions

Callback Verification

Outgoing call must be made by the CU to:

1. Verify the identity and authority of the

member,

2. A Secure Telephone Number and

3. Confirm that the instruction for the wire was

sent by the member who the CU believes to

be an authorized sender to initiate the wire

transfer.

Coverage Definitions

Secure Telephone Number means a phone

number:

Provided by the member when acct. opened,

Provided after the acct. opened by the member while physically present on CU premises,

Provided in a signed written funds transfer agreement with the account holder,

That was a replacement number provided the CU confirmed legitimacy of the change by direct contact with the member,

That the CU obtained through a public or private telephone directory, or

Was a replacement number for the member that the CU received at least 30 days prior to the wire transfer instruction.

Authentication What to Use

• Password or pass phrase;

• Year member’s account was opened;

• Branch at which member’s account was opened;

• Type or year of vehicle securing member’s loan;

• Source of direct deposit;

• Do you use bill pay service?

AUTHENTICATION What to Use

• Name two non-utility payees;

• Do you get paper or e-statements;

• Payable on death beneficiary;

• List other accounts on which you are joint owner;

and

• Last loan paid off, approximate date, and

collateral used.

Callback Documentation

– Callback Information

• Name of employee performing the callback;

• Phone number used for the callback;

• Source or verification of the secure telephone number;

Callback Documentation

• Name of person (member or members authorized representative or employee) confirming the funds transfer request;

• Date of the request and the “callback verification” request;

• Time of the request and the “callback verification” request; and

• Identification questions used

Callbacks

• Should be conducted by an employee other than

the one taking the request

• Listen for delays, clicks, etc. which could

indicate call forwarding

Funds Transfer Best Practices

Set appropriate limits for wire transfers through telephone, fax, and e-mail requests

Develop and use a clear and complete Funds Transfer Agreement

Clearly establish a Callback Verification process using a password and/or information not easily obtained by others

Log all calls – Date, time, method of identification (includes questions and answers), member providing the information, and employee initials.

s s

Funds Transfer Best Practices

Segregate duties between employees receiving the transfer request, conducting the call back, and making the transfer

Train staff regarding call forwarding scams and to listen for audible clues

Be wary of a telephone number that was changed within 30 days of the transfer request

Communicate policies and procedures with all staff

THANK YOU

Don Thompson, CFE

Donald.thompson@live.com

503 705-7796

Jay Slagel, Vice President

(800)785-5527

Jay.Slagel@alliedsolutions.net

www.nafcu.org/allied