March 26, 2012 -- When $20,000 disappeared from a small community bank near Birmingham, Ala., administrators knew they didn't have to look far for a suspect.
It was an inside job. It almost always is.
Bank employees led investigators to a suspect, a woman identified only as "Sally," who had recently thrown a wedding that cost more than her salary, was married to a drug dealer who had many run-ins with the law, and had bad credit and a criminal history, according to Alton Sizemore Jr., the former FBI agent who investigated the case.
She even failed a polygraph "with flying colors," he said.
Sally was emboldened by the lack of bank controls and confident that her theft was too insignificant to keep the feds around for long.
"She was not the least bit intimidated by two Feds and proved the point by stealing another $20,000 the second day we were there," Sizemore said.
Investigators could not gather enough evidence for a sum they considered small, so within days, the FBI gave up.
"Short of a miracle, this case was going to be a bust," Sizemore said.
The case is typical for how law enforcement agencies deal with internal bank theft, showing little interest in cases involving less than $100,000. The crimes cost banks millions of dollars a year in losses, often paid for by banks and their consumers.
The Best Way to Rob a Bank
"Committing fraud within a bank is much safer than robbing a bank. You don't have to worry about getting shot, you don't have a gun, and you're not going to be thrown in jail for commission of a crime with a weapon," Sizemore said.
Banks report any incidences of suspected fraud to FinCEN, the government-run Financial Crime Enforcement Network. Each year from 2001 to 2010, an average of 6,460 reports of suspected fraud are sent from banks to FinCEN.
In 2011, there were more than 5,500 reports of suspected embezzlement at banks. Of those cases, approximately 580 were investigated, and of those investigations, 429 cases, or 8 percent, ended with convictions, according to FBI data.
In other words, employees had a 92 percent chance of robbing a bank and getting away with it that year.
"I can tell you everyday there are (reports) coming in with a low dollar range that never get looked at, never get off the ground," said Keith Slotter, an FBI Special Agent in Charge of the San Diego Division. "If you have a fraud in there for $5,000 and with a quick check, you see the main suspect is not suspected of doing anything else, has no record, you don't do it."
In a survey by financial services research and consulting firm Aite Group last year, on average banks said internal fraud represents 4 percent of their total fraud losses. Conservative estimates for check, debit, and credit card fraud for U.S. institutions place that figure over $6 to $8 billion, meaning internal fraud is likely between $240 million and $300 million per year.
That's a low estimate, according to Julie McNelley, research director for Aite Group. McNelley believes that internal fraud can represent as much as 10 percent of the total fraud losses in financial institutions.
"It's very hard to detect and in some cases it is not well tracked," she said.
FBI agents and fraud analysts say law enforcement does not have the resources to prosecute what they consider "small time" thefts.
Many FBI field offices and U.S. judicial districts consider cases of $100,000 or less to be generally unworthy of prosecution, according to Sizemore and Slotter.
"If a bank can determine that an employee defrauded them out of $12,000, and they terminated him or her, a case of that dollar amount is not going to rise to the threshold of prosecution guidelines in any federal jurisdiction," Slotter said.
Thousands of internal thefts of amounts up to $100,000 go unprosecuted each year, and many thefts of more than $100,000 are prosecuted without convictions.
"We get thousands of Suspicious Activity Reports on a daily basis, go through every single one and make a determination (whether to investigate)," Slotter said.
The decision whether to investigate is often determined by the prosecutive guidelines set by the U.S. Attorneys in each district, said Darrell Foxworth, special agent at the FBI. Each district has the ability to focus its resources on the crimes most important to that area, he said.
If a district's U.S. attorney does not want to spend time prosecuting a $20,000 theft, the FBI won't investigate it, he said.
Best Way to Rob a Bank Is From the Inside
If the FBI and U.S. Attorney's office decide not to prosecute a case, the Secret Service, the district attorney or local police can choose to investigate, but they often have even fewer investigators than the FBI, Sizemore said.
"We don't have the resources to prosecute every $5,000 or $10,000 fraud," Slotter said.
Another reason for the lack of prosecutions and convictions is the fact that many banks are unwilling to report internal thefts to authorities, according to fraud analysts.
McNelley said banks make a calculated decision whether to report internal theft cases.
"Banks build their reputations on trust," she said.
As banks make the decision to prosecute cases, they calculate if they have sufficient proof and if the incident is significant in magnitude to incur a risk to their reputation associated with having it publicly known, she said.
Some banks employ internal investigators, according to Douglas Johnson, vice president of risk management policy at the American Bankers Association.
Ultimately, the banks' bottom line and bank customers are affected. As products are priced, the cost of fraud or internal theft factors into a bank's pricing methodology, so to some extent the cost is passed on to consumers.
"So really everyone is impacted by this crime," McNelley said.
Johnson noted that at most banks, there are capital reserves in place to account for losses that might occur throughout the year from theft or other financial crimes. Typically, the bank is able to replace the money without passing the cost onto the consumer, he said.
Fraud analysts and FBI investigators say that banks can cut down on internal theft by putting in place better controls.
"Often, when you look behind the curtain the bank's controls were ignored, everybody was going through the motions but trusted the perpetrators and in many cases gave them control over the areas they were stealing from," Sizemore said.
"There are too many serious bank frauds taking place to spend valuable resources chasing a fraud where unfortunately the bank is complicit in having no internal controls and poor management," he said.
McNelley said the problem will persist, especially in times of financial distress.
"It's an issue that's not going to go away," she said. "Internal fraud has been around since the dawn of man. It will continue to be an issue."