Internal Fraud: Crime of Opportunity

Tom Lekan, senior vice president and the chief security officer at Cleveland-based KeyCorp, remembers how not too long ago an employee needed to clear a hurdle before accessing customer information. "The person responsible for the files would ask, 'Why do you need that file?'"

Now, thanks to computers and automation, employees at the lower levels of the organization have much greater access to that data. Knowing this, Lekan says, an increasing number of people who seek work at banks and other businesses that store private information do so with the express purpose of stealing information.

Fraud at all levels is a big part of the reason Lekan, a veteran in bank security, says he works in "a double-digit growth business." Today Lekan's staff includes professional financial crime investigators, crime analysts, research intelligence specialists and physical security professionals.

What's the most effective way to prevent internal fraud? Lekan is a big believer in complete and accurate background checks of new employees. This is not the place to cut corners, he says. Previously, when relying on an inexpensive, outside reference-checking service, KeyCorp had very few candidates rejected. But after bringing the work in-house, Lekan says his staff found reason to reject several hundred potential employees. "Our in-house staff digs deeper into the background of candidates, especially looking for deception, criminal records and just plain lies about work history, experience, and education. To do this with an outside firm would be very expensive," he says.

Lekan offers a range of reasons to explain an employee's motivation to steal. Some employees are placed in banks by organized crime networks, while others are long-time employees disgruntled for a number of reasons, including a feeling that the company "owes them." In some cases, the employee just didn't know better. KeyCorp makes it a priority to articulate to employees exactly the type of ethical behavior it expects them to exhibit. "So many times when you talk to employees they say, 'I didn't know that was wrong or against the ethical code,'" Lekan says. Clear policies help ensure honest people do the right thing in challenging situations, he says.

In a tactic borrowed from Lekan's law enforcement days, Key also runs an anonymous hotline to give employees a chance to report suspicious activity without running the risk of being exposed as a snitch. "A lot of people just don't want to get involved, or they may even be friends with the suspected employee," Lekan says. He estimates the hotline received more than four calls in the last 10 years that resulted in surfacing some fairly significant crimes. "Most internal fraud is uncovered by someone providing information through a hotline or reporting it directly to someone in charge," he says. For that reason, Lekan makes his name and contact information, as well as that of KeyCorp's director of Operational Audit, highly visible on Web sites, brochures and other documents to make it easy for employees to reach them.

KeyCorp also runs an incentive program to reward employees who expose crimes. Through Fraud Reduction is Our Goal (FROG), the bank awards gift cards, award certificates, pizza parties and more to employees or groups of employees who prevent a crime. "It's the same as an incentive for sales," says Lekan.

Once caught, a dishonest employee will be prosecuted, a process that Lekan says is not for the inexperienced or faint of heart. Investigating an internal crime requires careful preparation of the case, management commitment and a savvy presentation to what can be overworked and understaffed law enforcement officials. "They will give you all of seven minutes to explain why your case should be prosecuted," he says.

In Lekan's view, all this effort is just a necessary cost of doing business in this industry. "In banking, a lot of people are exposed to money and information," he says. "And without controls, there is temptation."