As mortgage fraud continues to increase in the United States, a federal agency has released a guide for banks and other institutions on how to implement a fraud hotline.
The Federal Deposit Insurance Corp. has released a Financial Institution Letter, “Guidance on Implementing a Fraud Hotline,” (FILL-80-2005, Aug. 16, 2005), to help financial institutions implement fraud hotlines.
Mortgage fraud is on the upswing, with the number of suspicious activity reports to the Federal Bureau of Investigation in 2004 almost triple those in 2003, according to a report by the FBI released in May.
In another fraud-fighting move, The Office of Federal Housing Enterprise Oversight, in late July finalized a regulation requiring mortgage giants Fannie Mae and Freddie Mac to report mortgage fraud in a timely fashion.
The FDIC publication, released in mid-August, provides guidance to financial institutions on implementing a fraud hotline to minimize potential and actual fraud risks as part of a bank’s governance and enterprise risk management program.
Key elements are awareness, defining reportable events, operations, independence, privacy, tracking, investigations and reporting, according to the report.
Fraud hotlines should be advertised and marketed to employees, service providers and customers so the public and the industry is aware that a bank or other institution has one, the guidelines said. Also, employees and others should be trained about what kinds of improprieties are reportable events, the FDIC said.
Fraud hotlines can be opened internally or through a third party and may cost the banks money, but the report said “the savings in loss prevention should outweigh the cost.”
The hotlines should be operated independently from those of bank management so complainers will feel confident in reporting misconduct, the FDIC said. Privacy is important, and institutions should consult with legal counsel on privacy/whistleblower protections to ensure the source of the information remains confidential.
Complaints should be tracked, and decisions to investigate should be made on a case-by-case basis, the publication said.
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