Fraud Schemes in the Banking Institutions: Prevention Measures to Avoid Severe Financial Loss

The main incentive for fraudsters is in yielding the monetary gain – of which making banking institutions more fraud-fragile as these are where bulk of the money are kept. Banking institutions are becoming more and more susceptible to fraud over the years although various control measures have been put in place. Fraudsters are now more versatile in designing their modus operandi to circumvent the controls. The fraudsters could originate from both internal (employees) and external sources (customers, supplier, contractor, and lawyer). As banking institutions engage in wide range of activities, fraud could potentially affect many parties, including the shareholders, the depositors, the borrowers, the staff as well as the banking institution itself. A study was conducted among management levels in banking institutions in Malaysia, with focus on branch managers and assistant managers that handle the mortgage loan and hire purchase loan, to examine the types and extent of fraud occurrences in the portfolio of mortgage loans and hire purchase loans. Results show that in general, the most common fraud cases in branches that handled mortgage was money laundering, whereas for branches that handle hire purchase loan which were a common fraud occurrence in the banking sector of Malaysia. This paper will also showcase various attempted frauds and fraud cases for both internal and external fraud scheme in the banking institutions. This paper is geared towards providing valuable learning points for staff of banking institutions who handle daily banking operations in order to assist them in detecting and preventing similar occurrence of fraud cases.