Determining a loan applicant’s creditworthiness is based, in large part, on their financial history.
Do they have sufficient income to repay the loan? Do they have existing funds to cover payments in the event of an emergency event? Does their financial history contain red flags, such as bounced checks, missed payments, unexplained deposits or undocumented, recurring transactions to a private lender? All these questions and more will determine if an applicant should receive a loan and, if so, the amount and the terms.
To make a sound decision, loan underwriters typically request 3-6 months of bank statements, as well as pay stubs, utility bills, tax forms, and other financial documents, to assess the applicant’s creditworthiness and determine their level of associated risk. But what happens if the documents submitted as part of an application are fraudulent?
A quick Google search reveals countless shadowy service providers who can produce fake bank statements. These documents are made-to-order, meaning they can contain the exact balance amounts and transaction history that the borrower believes they need to pass a credit check from a mortgage company or lender, housing authority, government agency or other party.
Our data shows that 10% of all financial application documents submitted in an online channel have been manipulated. Perhaps more importantly, our research suggests that a fraudulent application document leads to a loan write off rate of 60% on average. Put another way: Document manipulation is highly correlated with loan write-offs.
In this post, we take an in-depth look at how fraudsters use fake bank statements and other financial documents to fool unsuspecting lenders, as well as how these organizations can leverage technology to improve their fraud detection capabilities so that they can stop bogus applications more quickly, accurately and cost-effectively than ever before.
What is a bank statement?
A bank statement is a record of all transactions associated with an account over a period of time. Bank statements are produced and delivered by the financial institution. Usually this is done on a monthly basis, though a custom report can be requested by the account holder for any given period on demand.
While most banks provide a paper copy of the statement via mail, many financial institutions now provide digital statements via email and even allow the account holder to “go paperless” and opt out of mail delivery. In the case of digital files, the statement is delivered in a non-editable format, such as a PDF.
What’s on a bank statement?
- Starting and ending balances
- Cash withdrawals
- Debit transactions
- Credit transactions
- Recurring payments
- Fees and service charges
- Personal information of the account holder
- Account information
- Bank information
What is a bank statement used for?
A bank statement has a variety of applications for both the account holder and third-parties.
For example, a bank statement serves as an important financial planning tool for the individual bank customer. Account holders can use statements to track and monitor their spending, make sound financial decisions or establish their financial solvency when applying for a mortgage loan, personal loan, housing rental, government assistance or even foreign visas and permits.
Third parties, such as lenders and underwriters, property owners, rental agencies, or government officials can review bank statements and other financial information as part of the application process to assess the risk of the person applying for a loan or other service. Some common scenarios include:
- Financial institutions review a bank statement from a savings account, as well as other documentation, to determine is an applicant is eligible for a mortgage loan and, if so, in what amount based on their cash flow and cash reserves.
- Credit card companies can review bank statements to supplement an applicant’s credit history and credit reports to determine if they are eligible for a new account or an increase in the credit line of their existing credit cards.
- Immigration officials may use a bank statement to establish if a person has sufficient funds to support themselves during a tourist visit or short-term stay.
- Government agencies may review the bank statements of small businesses to determine their eligibility for government programs, such as a PPP loan from the Paycheck Protection Program (PPP) offered by the Small Business Administration (SBA).
Is a fake bank statement illegal?
Production of a false bank statement isn’t illegal on its own. Rather, it’s how the document is used that becomes a matter of legality.
For example, many companies that offer fake account files do so under the guise of providing novelty bank statements for actors to use as a prop in various stage performances. The same can be said for a fake utility bill, fake credit report or other false documents.
While it may not technically be illegal to produce novelty documents, using a phony bank proclamation to obtain a mortgage loan, credit card, personal loan or PPP advances is a crime, punishable by fines, probation or even jail time. In recent years, government agencies within the United States and throughout the European Union, in particular, have taken steps to crack down on fake document production rings. However, a quick internet search reveals that many remain in operation today.
How do you spot a fake bank statement
Thanks to technology, even people with basic graphic design skills can produce a high quality fake bank statement or manipulate an authentic statement to meet the needs of their loan application.
Financial institutions and other organizations have two options when reviewing bank statements and other documents:
- Manual review: An underwriter or other authority reviews the document content and metadata by hand and uses their knowledge and expertise to identify potential instances of fraud.
- Digital review: Artificial intelligence (AI) or machine learning (ML) software automates the document review process and compares submitted files against known authentic statements or an official document to determine discrepancies invisible to the naked eye.
Manual document reviews
For decades, organizations relied on skilled document analysts to conduct manual document reviews. Today, these checks are considered obsolete as fraudsters have become more adept at forging documents and tools such as a bank statement template become more readily available via the internet.
For lenders, mortgage companies, government agencies and other sizable established organizations, manual document reviews are simply insufficient at stopping fraud. However, for some organizations, such as property owners, it may be impractical to purchase or maintain document review software.
In those cases, it is a good idea for reviewers to do a side-by-side comparison between the sample file and an authenticated file to review applications from new clients. This will help the reviewer quickly spot inconsistencies in the document formatting, bank logo, document components and transaction details. Reviewers can also look for these common mistakes in fraudulent documents:
Formatting inconsistencies, spelling errors, typos and other mistakes
Many fake bank statements are produced in a country other than where the account holder is based. This may lead to discrepancies in spelling, currencies, addresses or date formats; the document may contain other signs of manipulation, such as formatting errors, inconsistent margins or spacing, use of a mix of fonts or type sizes. If the submitter provides three or more fake bank statements, these files often contain noticeable formatting discrepancies from month to month.
Many times, especially on edited bank statements, people change numbers on one line of the statement, but forget to update the balance figure or totals throughout the file to reflect the update. Likewise, when a fraudulent statement is produced in full, the transactions may not add up to the correct amount. Reviewers should always “do the math” on a suspected false bank statement and confirm that the figures match. If several months of bank statements were provided, this test can also be done from month to month in order to ensure all balances align. Many fake account balances fail to pass this simple test.
When producing fake statements, many fraudsters use whole or round numbers to make it easier to reconcile the transactions for the month. This is highly uncommon, as businesses rarely price goods and services based on whole numbers. On the other hand, some countries round up purchases to avoid the use of pennies, even in digital transactions. For statements from countries like Finland, Sweden, Netherlands, Australia and New Zealand it would be a red flag to see decimal figures ending in any number other than a 0 or 5. Aside from these few exceptions, real bank statements almost always contain a mix of whole and rounded numbers.
Many fake document producers develop 1-2 pages of “random transactions” to make the account appear legitimate. However, reviewers who use a discerning eye may be able to spot unusual or suspicious activity within the sample page – or the absence of usual transactions consistent with the person applying for the loan. Regular transactions would include things like: a monthly or bi-weekly proof of deposit from an employer that matches the name and amount on the paystub submitted by the applicant; monthly rent or mortgage payments; utility payments, like water, electricity, and cell phone, internet or television service from a local provider; a monthly payment for common subscription services like Netflix or Spotify; grocery store transactions consistent with the location and lifestyle of the prospective borrower.
Automated document reviews
Reviewing documents manually is neither an efficient or an effective way to check documents for signs of fraud or manipulation – especially as the tools and methods fraudsters use to create fake documents become more sophisticated.
While a well-trained, experienced fraud analyst can spot obvious inconsistencies in text style, spacing, alignment, and color, as well as obvious manipulations of metadata properties, such as PDF editing software like Photoshop or an untrusted document author, manual reviews can be time-consuming and are subject to human error and bias during the analysis process.
The best way to detect fraud is by using AI-powered software. Artificial intelligence leverages advanced algorithms using millions of data points to check every aspect of a submitted document – from margins to metadata. When mixed with ML, the software is capable of learning, meaning that it becomes more precise and accurate over time as the model is exposed to more and more examples. This evolutionary component of the technology is critical since criminals consistently find new ways to document fake bank accounts.
Fraud detection software is able to review documents with high degrees of accuracy in mere seconds, producing clear, simple results that mortgage lenders and other organizations can use to make an informed decision about an applicant – saving the organization both time and money.
Detect fraudulent bank statements with Inscribe
Lenders can fight back against document fraud with the right technology. Inscribe uses rules-based fraud detection capabilities and machine learning to generate a full analysis of the legitimacy of an application document.
Inscribe automates the document review process for files like bank statements, credit card statements, pay stubs, tax documents and driver's licenses, instantaneously detecting issues within fake and manipulated documents that are often invisible to the human eye – especially when such online banking files are viewed via a web browser.
Inscribe’s automated fraud analysis enables your team to make quicker and more precise decisions. Our analysis reveals that a thorough manual investigation of an individual document can take 5-10 minutes, slowing down decision making process by hours or extending coordination lifecycle with potential borrowers by several business days. With Inscribe, you’ll receive a complete analysis of the file metadata, pixel level information, and file history in just 10 seconds.
To learn more about how Inscribe can help your company automate time-consuming and complex document fraud reviews, improve the speed and accuracy of reviews and reduce loan write-offs, contact us to schedule a personalized demo today. It’s the one step in the document review process you can’t afford to miss!