Fraud - Ernst & Young's 11th Global Fraud Survey

Ernst & Young's 11th Global Fraud Survey sheds light on how businesses have coped with increasing fraud and corruption risk during the financial crisis, and examines the growing pressures on the CFO, internal audit, legal and compliance functions. It reviews the risks and challenges that businesses will face as they navigate clear of the financial crisis and begin to focus on growth.

This reflects the views of over 1,400 senior decision-makers in major companies in 36 countries across the world.

Fraud continues to rise as compliance struggles for recognition. The survey indicates continued need for anti-fraud measures, even against a tough financial background. However, this could be a result of the way fraud has come under the spotlight in recent years.

David Stulb, global leader of Ernst & Young's fraud investigation and dispute services practices says: "Regulators in western Europe have become much more aggressive and have been using US-style investigative techniques and settlement practices. In some jurisdictions, such as the UK, significant outreach efforts to encourage whistleblowers have been undertaken. These efforts are believed to have already yielded results."

Stulb explains that legislative developments have also been a factor. "While there was lively debate over the UK Bribery Act in the weeks before its passage, the final version of the Act is very robust, including penalties against corporations for failing to prevent bribery."

At the same time, there has been a drop in resources available to those that must prevent and react to instances of fraud. Ernst & Young states that one in five of the survey respondents from legal departments have seen their budgets fall in the last year.

Stulb says: "The UK lawyers and compliance officers I regularly meet are eager to hear about new and emerging risks for their organizations and what steps they can take to mitigate them. However, I suspect many of them face significant internal challenges to secure the investment required to take these steps."

The survey also shows the growing, and uncertain, nature of compliance as a specialty. More than half of those in the field have been in a compliance role for less than five years. This reflects the substantial growth in recruitment in this area, but also suggests some challenges ahead. Outside of specialist fields, there can be a lack of appreciation for the role that compliance can play in an organization. Some 70% of chief compliance officers interviewed said demonstrating the value of compliance to the wider organization was a significant challenge.

According to Stulb, though, this can be related to the industry that officers work in, particularly those under the scrutiny of external regulators.

"Many companies operating in heavily regulated industries, such as financial services and life sciences, have developed sophisticated compliance and internal audit systems. They are keenly aware of the value brought by investing time and effort to protect their brand, and, as a result, compliance is already high on their corporate agenda."

The report also looks at growth in the next year, in particular mergers and acquisitions. Fifty-three percent of global respondents said they are targeting growth for their companies in the next year, with 42% in Japan targeting aggressive growth.

This is likely to throw up particular issues as groups expand into new markets with different cultural practices, emphasizing the importance of thorough due diligence pre-acquisition.

Key findings specific to the UK include:

• Increased enforcement against fraud, bribery and corruption is a priority in many major markets. The passage of the UK’s Bribery Act is the latest example of a more robust approach to punishing the unethical conduct of individuals and corporates. Individual executives and directors will not be immune from prosecution. 76% of our UK respondents say their directors are concerned about personal liability for actions carried out by their company.
• Despite this concern, organizations are not behaving in a way that would increase their own protection. Alarmingly, 18% of UK companies have not performed a fraud risk assessment over the last 12 months, and 1 in 10 (8%) have never completed one. Performing such an assessment will help prioritise actions to deal with the most significant fraud risks and is therefore fundamental when budgets and resources are scarce.
• Having coped through the downturn, many companies are now looking for new growth opportunities, which may come through entering new markets or making acquisitions. These efforts can expose companies to numerous new risks, potentially including corruption issues. To minimize such risks, businesses should undertake thorough, focused pre-acquisition due diligence. However, 34% of UK respondents rarely or never perform fraud or corruption related pre-acquisition due diligence, while 47% rarely or never perform a similarly focused post-acquisition review. These steps are vital to reducing the risk of successor liability and subsequent regulatory enforcement actions.

When growth returns, we expect more challenges, more potential for fraud, more exposure to corruption and more interest from regulators. In the coming months, if they haven't done so already, companies will need to review or improve their procedures to achieve long-term sustainable and ethical growth.

Download Ernst & Young’s 11th Global Fraud Survey at:

http://www.ey.com/Publication/vwLUAssets/Driving_ethical_growth_-_new_markets,_new_challenges:_11th_Global_Fraud_Survey/$FILE/EY_11th_Global_Fraud_Survey.pdf

Phishing - Anti-Phishing Working Group publishes a global survey

Phishing has always been attractive to criminals because it has low start-up costs and few barriers to entry. But by mid-2009, phishing was dominated by one player as never before, the Avalanche phishing operation. This criminal entity is one of the most sophisticated and damaging on the Internet, and perfected a mass-production system for deploying phishing sites and crimeware - malware designed specifically to automate identity theft and facilitate unauthorized transactions from consumer bank accounts. Avalanche was responsible for 66% of all phishing attacks launched in the second half of 2009, and was responsible for the overall increase in phishing attacks recorded across the Internet.

The statistics also show that phishing remained highly localized in certain Internet namespaces, and that some anti-phishing measures had noticeable impacts. While phishing remains a damaging phenomenon involving many millions of dollars in losses, the increasingly concentrated nature of much phishing offers some opportunities for improved response and mitigation.

This new report seeks to understand such trends by quantifying the scope of the global phishing problem, especially by examining domain name usage and phishing site uptimes. The report examines all the phishing attacks detected in the second half of 2009. The data was collected by the Anti-Phishing Working Group (APWG), supplemented with data from several phishing feeds and private sources. The APWG phishing repository is the Internet’s most comprehensive archive of phishing and e-mail fraud activity.

You can download the full report at; http://www.apwg.org/reports/APWG_GlobalPhishingSurvey_2H2009.pdf

Mobile Banking - A new product is launched in Kenya

Kenya's largest mobile operator, Safaricom, and Equity Bank, have unveiled M-Kesho, a mobile banking product targeting rural areas. M-Kesho will allow M-Pesa (Safaricom's mobile money transfer service) account holders to deposit money, withdraw cash and access loans.

"If all M-Pesa customers are banked as is envisaged with the M-Kesho product, Kenya will be the most banked country in Africa and in the developing world," said Mr. James Mwangi, Equity Bank chief executive.

The product will transform M-Pesa accounts into bank accounts, enabling M-Pesa customers to open savings accounts where they will be able to transfer as little as a Ksh.100 (US$1.3) at no cost.

Speaking during the launch in Nairobi, Kenya’s President Mwai Kibaki said M-Kesho is a landmark product that will integrate the telecommunications and banking sectors and would improve access to cost effective financial services.

Other than deposits and withdrawals, M-Kesho customers will also be able to access micro-credit and micro-insurance products, and earn interest on their money.

Mobile Banking – New text service for UK customers

MBNA Europe, a wholly owned subsidiary of Bank of America, has introduced new mobile banking text service, to enable UK customers to text for their credit card information.

By using the mobile banking text service, customers can use their mobile phone to get credit card account information, including balance, payments and transactions, by texting to a dedicated mobile short-code number.

To use the service, customers with mobile phone numbers registered to their accounts can send “Bal”, “Trans” or “Bill” to the dedicated short-code number for the latest information on their accounts.

Ian Craig, sales, service and operations executive for Bank of America Europe Card Services, which operates the MBNA brand, said: "The mobile banking text service is one of a number of exciting new improvements we will be making to our services. With this service, we are able to provide our customers with another way to bank that is simple, straightforward and puts their credit card information at their fingertips whenever they need it.”

Remittances and the White House

A piece on the “White House Blog” lauds pending Wall Street reform Legislation as something that will provide “benefits (to) hardworking individuals here in the United States as well as their families abroad” by overcoming certain barriers which are specified as;

“Remittance transfer providers currently are not required to disclose, prior to initiating a transaction for a consumer, the amount that will be received at the other end, making it essentially impossible for consumers to effectively comparison shop. No federal agency is specifically charged with protecting the rights of consumers using remittance services and federal regulations that apply to many other consumer payments transactions generally do not apply to remittance transfers. Although most states regulate remittance transfer providers to some degree, few require disclosures designed with consumers in mind. Meanwhile, researchers have found that the millions of families sending financial assistance Mexico frequently have difficulty understanding the total cost of sending a remittances, specifically the exchange rate and fees charged by the provider, before they engage in a transaction.”

Will this legislation also extend to millions of illegals who really do need protection too?

Read the full entry at http://www.whitehouse.gov/blog/2010/05/20/wall-street-reform-and-sending-money-home

The US’ best mobile banking apps

Not every bank has jumped into the mobile banking market at full steam. This is also true of the US where even some of the coutries most popular banks don’t yet offer iPhone apps or mobile-ready websites.

A recent web based survey, looking for the most convenient “on-the-go” banking experiences found the following mobile banking offerings from four of the US’ most popular banks.

Chase

Chase offers applications for iPad, iPhone, iPod Touch and BlackBerry as well as access to accounts via standard text messaging.

Chase iPhone App

• Cost: Free. Client must be enrolled in Chase Mobile to make transactions with app.
• Standard functions: Text banking allows client to see account balances, review transaction history and check credit card due dates. The mobile app is much more helpful: Client can pay bills and schedule payments through Chase Online Bill Pay, transfer money between Chase accounts, wire money to outside accounts, and check balances and history.
• Extras: The Chase Mobile app includes a helpful “Find ATM/Branch” feature that uses the phone’s geo-location capabilities to find the nearest Chase branches. The app also provides the hours, contact information and number of ATMs at each branch. If the client needs help managing his/her accounts, the “Contact Us” tab includes one touch dialing to Chase’s help lines.
• Aesthetic appeal: The Chase Mobile app runs quickly on the iPhone and features easy-to-read white text on Chase’s familiar blue background.

Bank of America

Bank of America has a standard text messaging banking system as well as apps that work on the BlackBerry, iPad, iPhone and iPod Touch devices.

Bank of America iPhone App

• Cost: Free. Clent must be enrolled in the Bank of America “Online Banking” service to use certain features of the app.
• Standard functions: Bank of America’s text banking lets client check account balances, view credit card account details and see transaction history. The BofA app allows the client to access account details and balances, transfer funds to other Bank of America accounts and pay bills.
• Extras: The BofA app helps the cleint find nearby locations based on the phone’s geo-location abilities. One can also input a zip code or address in order to plan ahead.
• Aesthetic appeal: The BofA app uses smaller fonts and weaker colors than the Chase platform does. It also takes a bit longer to load pages.

Citibank

Citibank boasts three separate mobile apps. One works on the iPhone and iPad, the second on the iPod Touch, BlackBerry and Palm smartphones, and the third on many kinds of basic cell phones.

Citibank iPhone

• Cost: Free. User must be a Citibank client to make any transfers or view account information.
• Standard Functions: All three of Citbank’s apps allow the user to view balances, wire money to others and transfer money between your Citibank accounts. The iPhone and iPad versions also allows the client to track their Citibank credit card accounts.
• Extras: If the user wants to be reminded often of the status of her accounts, the cleint can sign up for a very comprehensive text alert system. The cleint can choose to be alerted when your balance dips below a certain level, when deposits are made, when bills are due or when CD accounts are about to mature, for example. The iPhone and smartphone apps provide lists of the bank branches closest to the phone’s current location. The user can also search by zip code or address.
• Aesthetic appeal: Citigroup’s app suffers from the same ailment as many other iPhone and smartphone platforms: Some of the fonts are too small for comfortable reading.

Wells Fargo

Wells Fargo users have access to apps for Blackberry, iPhone, iPad and iPod Touch, as well as the ability to get account info via text message.

Wells Fargo iPhone

• Cost: Free. To access account information or make transactions you must be a Wells Fargo Mobile customer.
• Standard Functions: The iPhone app allows the cleint to check available balances, monitor credit card activity, transfer funds and pay bills. The bank’s text service provides balance and account activity information.
• Extras: The Wells Fargo application includes bank-finding functionality and the ability to filter search results depending on what services each particular branch offers. If the user does not have any room for additional apps on his iPhone, he can visit wf.com, which has a fast and easy-to-use site that fits the iPhone perfectly.
• Aesthetic appeal: Wells Fargo’s mobile properties have a very standard look (not nearly as slick as Chase’s offering). But the apps load screens quickly and the app’s toggle menus make searching for branches easy.

The mobile banking apps offered by these popular banks are more alike than they are different. Considering the fact that all the apps come free of charge and all offer similar benefits, a clear leader in the mobile banking market has not emerged.

Flash crash prompts circuit breaker roll-out

The Securities and Exchange Commission (SEC) has called for uniform circuit breakers on all S&P 500 stocks in response to the "flash crash" that caused mayhem earlier this month.

Under the proposed rules, which are subject to Commission approval following the completion of a comment period, trading in a stock would pause across US equity markets for five minutes if its price changes by more than 10%.

The pause rules, which will be piloted for six months from June, will give the markets a chance to attract new trading interest in the stock, establish a reasonable market price and resume trading in a "fair and orderly fashion", says the SEC.

The plan - which has the backing of the national securities exchanges and Finra - comes after tthe so-called "flash crash" on 6 May, which saw the Dow Jones industrial average plummet in minutes, with 30 stocks in the S&P falling at least 10%.

Mary Schapiro, chairman, SEC, says: "We continue to believe that the market disruption of May 6 was exacerbated by disparate trading rules and conventions across the exchanges. As such, I believe it is important that all the exchanges quickly reached consensus on a set of uniform circuit breakers that would be triggered when needed."

In a statement welcoming the rules, Nyse Euronext says: "The adoption of this market-wide mechanism will promote investor protection and is designed to help prevent similar events from taking place in the future. This result is a meaningful step towards re-affirming the integrity of, and confidence in, America 's capital market system."

Although the SEC says the plunge was compounded by a lack of consistency, it has still not identified the underlying cause.

A joint report, carried out in partnership with the US Commodity Futures Trading Commission (CFTC), suggest a "severe mismatch in liquidity" played a part.

However, it "found no evidence that these events were triggered by "fat finger" errors, computer hacking, or terrorist activity, although we cannot completely rule out these possibilities."

Meanwhile, CME Group has carried out its own investigation into the crash, concluding that high-frequency traders were not, as has been suggested, responsible.

CME Group says "there is no visible support of the notion that algorithmic trading models deployed in the context of stock index futures traded on CME Group exchanges caused the market fluctuations in question".

In fact the operator goes further, claiming "automated trading contributes to market efficiencies, generally bolsters liquidity and thereby contributes to the price discovery function served by futures markets".

The joint report may be downloaded at

http://www.sec.gov/spotlight/sec-cftcjointcommittee/sec-cftc-prelimreport_may62010.pdf