Technology has opened doors for
fraud. Counterfeit checks that are
produced on a home printer with basic software can fool a seasoned banker.
In many cases, it’s impossible to tell the difference between an honest check and a
well-crafted imposter.
“Even the most honorable person who is
faced with a financial calamity in his or her
personal life may attempt fraud,” says
Craig Johnson, president and CEO of
Franklin Bank in Southfield, Mich.
The key to preventing fraud includes a
combination of segregation of duties,
involving a third party to help audit the
books and taking advantage of tools
designed to lock out opportunities for
fraud.
Here, Johnson provides a banker’s perspective on common fraud activity and
what you can do to prevent it at your work-place.
How can a dishonest employee manipulate
check stock, and what can employers do to
make counterfeiting more of a challenge?
Fraud involving checks has increased
exponentially over the last several years
with the advent of technology and the ability to scan documents. The payee and dollar amount can easily be changed, and a
bank can mistake the tampered check for
the real thing. As an employer, you can protect yourself by purchasing a quality check
stock with watermarking and other security features so banks, customers and vendors will recognize it as an ‘official’ check
from your company. Cheaper check stock
is much easier to copy. Also, if you produce
your own check copy in-house, keep the
stock under dual control and away from
the general staff. In other words, do not
give the key to the check safe to the same
person who is responsible for all financial
transactions.
What are other ways that businesses are
defrauded?
Checks may be intercepted by an
employee responsible for billing or accounting, and the payee may be altered.
The check can be rerouted into another
account and cashed at another financial
institution. The check will post as cashed
on the company books, but several months
later, the supplier who was supposed to
receive payment may call and say, ‘We
never got paid.’ This is an instant red flag.
Employees responsible for issuing checks
and balancing the bank statement have an
opportunity to issue checks to themselves,
fictitious vendors, family, friends, etc. The
issuing of checks and the reconciliation of
the corporate checkbook should be segregated duties. One way to detect possible
fraud is to run a report of employee social
security numbers and addresses against
your vendor or supplier list. Any ‘hits’ must
be thoroughly investigated.
How can technology work to an employer’s
advantage?
You can avoid the above scenario by
using Internet banking. Set up Automated
Clearing House with major suppliers so
you can pay them electronically. You’ll
have more control over payment timing,
and you’ll log a virtual paper trail that cannot be altered by employees at your company or the payee’s organization. If your
financial institution offers ‘Positive Pay’
take advantage of this service. By using
Positive Pay, it is harder for individuals to
counterfeit or alter a stolen check and have
it post to your corporate account. If the
check number or amount is wrong or if the
specific check number has already been
paid (duplicate check), the check will be
rejected and will require a representative
of the company to intervene and make a
pay or return decision.
Provide employees with a toll-free number they can call anonymously to report
fraud in the company. For a nominal fee,
you can subscribe to a service that fields
these calls and communicates concerns to
a key person at your company. Offering
your staff a confidential way to say,
‘Something’s wrong here,’ can go a long
way to preventing fraud before it gets out
of hand.
What are other fraud red flags?
The last thing an employee will discuss at
work is personal financial struggle, but this
is almost always the impetus for fraud.
Consider the fraud triangle: motivation,
opportunity and rationalization. In today’s
environment of high gas prices, record
foreclosures and, in many cases, uncertain
career futures at consolidating companies,
there is plenty of motivation for employees. Be observant and know your employees well enough to recognize these obvious
changes in their lifestyles. Does an employee never take vacation or leave his or her
desk? This could be a sign that he or she
must stay on top of fraudulent activities.
Requiring employees in key areas to take a
one week vacation (consecutive days)
each year will help in this area. There is a
good chance that if something is amiss that
it will be discovered during this time.
CRAIG JOHNSON is president and CEO of Franklin Bank,
Southfield, Mich. Reach him at [email protected] or (248)
386-9860.