For more information: 
Phil Tschudy 608/231-7188  philip.tschudy@cunamutual.com
Rick Uhlmann 608/231-8940  rick.uhlmann@cunamutual.com

August 14, 2007

Ongoing Staff Training Essential to Preventing Fraud
AACUC Conference Attendees Urged To Recognize Fraud Schemes, Use Preventative Tools

BALTIMORE – Protecting your credit union and its members from fraud requires familiarity with current scams, use of fraud prevention tools and ongoing training for employees, a risk management expert told an audience at the African-American Credit Union Coalition 2007 Annual Conference on Saturday.

Chetta Hebron-Byrd, risk manager with CUNA Mutual Group, said it’s important to understand the mentality of fraud perpetrators.  “This is a full-time job for them.  They don’t care if you’re young or old, rich or poor.  They’re out to defraud you and your members,” she said.

Credit unions are frequent victims of new-account fraud involving identity theft.  In this scenario, scam artists open accounts under someone else’s name and Social Security number for the purpose of defrauding the credit union with bad checks or by obtaining loans.

“We recommend developing written policies that provide front-line staff with specific procedures to confirm the identity of the person opening the account,” she said.  To minimize fraud losses, staff should:

• Closely inspect the individual’s identification or driver’s license, including issue and expiration dates.
• Compare the signature on the new-account application with that on the driver’s license.
• Do not accept employment identification alone; ask for a second form of ID.
• Review the full credit report for loan applications and compare the address and personal information the member provides to ensure it matches information on the credit report.  Mismatched addresses may be a sign of identity manipulation that must be resolved before the account is opened.
• Minimize credit card account takeover by establishing prudent address change procedures and flag members’ accounts to warn them an address change has been made on their account.

Staff can also help prevent members from being victimized by alerting them to the most common fraud schemes.  One such scam is the “Overpayment Scam” in which a member selling merchandise is contacted by a fraudster posing as a legitimate buyer.  The perpetrator sends a counterfeit cashier’s check for an amount substantially more than the purchase price.  The member notifies the buyer of the mistake and is instructed to return the excess funds by wire transfer.

“The member doesn’t realize the cashier’s check is worthless until after their money has been wired out,” Hebron-Byrd said.  “Tellers should ask members if the cashier’s check was from an Internet sale and, if so, whether the buyer overpaid for the item and asked for the excess amount to be wired back.”

She also described the “Bogus Lottery,” which occurs when victims are informed by mail or phone they have won a foreign lottery.  Before they can collect, they are told they must pay lottery taxes and a fee.  “This whole scheme doesn’t make sense.  Why would you have to pay money to receive money?  Yet, the greed factor plays a part in people continuing to fall for these schemes.”

Hebron-Byrd recommended foreign checks be accepted for collection only by sending them “without entry” to the Federal Reserve or the financial institution where the funds are to be drawn upon.

Yet another tactic used by fraudsters is the “U.S. Postal Service Money Order Scam” where the victim is contacted with a request to assist in negotiating U.S. Postal Service money orders in return for a percentage of the value of the money orders or a flat fee.  The member is instructed to deposit the money orders, which are counterfeit, and to wire the balance of the funds.

“It’s a big red flag any time multiple money orders are presented.  Tellers should be trained to spot this scam and to verify their authenticity by contacting the Postal Service,” she said.

Hebron-Byrd, who has more than 18 years of risk management and internal audit experience, said regardless of the type of scam, credit union staff is the first line of defense in thwarting fraud.  She encouraged employees to stay abreast of current scams by reading Risk Alerts issued regularly by CUNA Mutual to its Bond policyholders.

CUNA Mutual Group is the leading provider of financial services to credit unions and their members worldwide. More information on the company is available on the company’s Web site at www.cunamutual.com.