The Fraud Examiner

CFE Helps Fight Fraud in Native Texas

January 2017

ACFE Member Profile
Karen Sheppard
Assistant Vice President
Frost Bank

Having been a CFE for nearly a decade, Karen Sheppard, CFE, assistant vice president, Frost Bank, has seen fraud affect all kinds of people. “Fraudsters are ruthless and they don’t care how many lives they destroy. They prey on the homeless, the lonely and even the disabled,” she said. After initially becoming interested in fraud through working on a kiting scheme, Sheppard has continued her efforts to prevent and investigate fraud in her native Texas. 

What steps led you to your current position?

I started working in the banking industry in 1981 — I was a sight payer at the time. I eventually moved to working with charge backs and kite suspects. From there, I became supervisor for deposit fraud and have been in this position for the past 17 years.

What is your current role and what does it entail?

I am currently an assistant vice president and fraud detection supervisor. I supervise seven fraud detection analysts. We work with daily reports and analyze numerous deposits looking for counterfeit checks that have been deposited. Mobile banking has made a big impact on our daily work and it leaves the door wide open for fraudulent deposits to be made. I feel that fraudsters are more comfortable making mobile deposits rather than facing an actual teller.

We see so much fraud on business accounts. Either the bank takes the loss or the business takes the loss. Depending on the situation, fraud could put someone out of business very quickly.

How did you become passionate about fighting fraud?

I became passionate about fraud quite by accident. I was working charge backs back in the early 90s when we saw our first big kiting case. This case involved a car dealership’s account at Frost and a related account at another financial institution. The customer was making large deposits at Frost using checks drawn off of his related account at another bank. The check would be returned to Frost as NSF (non-sufficient funds) and then the customer would request for the checks to be re-cleared. This went on for months. Checks would charge back and the bank would re-deposit. The customer continued to deposit checks on an almost daily basis and the process would repeat. Things finally came to a head when the bank decided not to re-clear any more of the checks. You can imagine what happened next when all of the checks starting coming back. We were left holding the bag and incurred a large overdraft.

We had not seen too much fraud up until this time and this case opened our eyes. From then on, I learned to look at things a little differently and realized that you could detect fraud in many ways if you just opened your eyes to the red flags. Do we take losses due to kite activity? Absolutely — but we are more cautious when re-clearing items that have been charged back.

What is a memorable case or project that you have worked on?

We were getting hit with a rash of attorneys falling victim to online scams and we were trying to figure out a way to make our deposit fraud report more meaningful. I worked with my manager and sorted the report in order for the IOLTAs (Interest on Lawyer Trust Accounts) to appear in a separate category. From there we set low parameters and viewed deposits that were out of the ordinary for this type of account. I remember working the report one day and I detected a large check that had been deposited. The check ended up being a counterfeit. I got in touch with the officer on the account and he contacted the customer. They were very thankful this was detected because they were to wire the funds out that day. Since setting up this report in April of 2010, my team and I have detected and saved our attorneys close to $20 million.

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