Check fraud is on the rise. Annual
losses from check fraud among U.S.
businesses are estimated at $10 to $20 billion according to sources cited on
the eBankLink Web site, and those
experts further estimate that fraud will
grow by 2 to 3 percent a year. On one
hand, technology has created greater
convenience for businesses by providing
access to many traditional banking functions online, but technology also makes it
easy for trusted employees or criminals
to commit fraud by gaining access to
bank account information and creating
knockoffs of company checks. Executives must take precautions to stave off
check fraud losses given today’s high-tech environment.
“Check fraud happens more often than
you might think,” says Sherri Cope, vice
president of Risk and Operations for Fifth
Third Bank, Tampa Bay. “It is often committed by a highly trusted employee, who
yields to temptation and takes funds,
intending to slowly repay the money.
Employers must be aware of the risks and
take preventive measures so they don’t
become fraud victims.”
Smart Business learned more from
Cope about how companies can become
victims of check fraud and the best ways
to prevent it.
How might a company fall victim to check
fraud?
Checkbooks or blank checks left out on
an employee’s desk or on a printer stand
invite fraud, because, in a matter of minutes, a vendor or visitor can take a few
checks out of the middle of the book,
without anyone noticing. Sometimes contractors or vendors can wash away the ink
on a check and type in any payment
amount before cashing it. But in today’s
environment, technology is a fraud
enabler. Criminals can create realistic
copies of your company’s checks if they
have your banking information or a sample check to copy; banking passwords can
be lifted by employees or visitors if they
aren’t protected; and criminals can get
access to your online account information
by two fraudulent activities called phishing and pharming. The term phishing
refers to social engineering attacks to
obtain access credentials, such as user
names and passwords. Pharming redirects a legitimate Web site’s traffic to a
similar-appearing but bogus Web site, so
users unknowingly enter their names and
passwords.
What are the best practices for preventing
fraud?
Create separate accounting functions
for payables and receivables and use multiple employees to process transactions.
Accounting checks and balances are a
safeguard against errors and fraud, and
you don’t want employees to become too
comfortable, thinking that no one is
reviewing their work.
Executives should review the bank
statements each month to look for irregularities and compare checks against
accounting ledgers. Most banks stipulate
that fraud be reported within 60 days, so
it’s incumbent upon executives to stay
current in their oversight of financial
records. Create written procedures directing employees how to secure blank
checks and banking passwords and
require them to shred cancelled or scrap
checks.
Also train employees how to recognize
e-mails that are really pharming and
phishing attacks in disguise and install
network security that screens out suspicious e-mails designed to lure employees
into divulging your company’s banking
information.
What should executives do if they discover
check fraud?
As soon as you realize something is
wrong, call your bank and make a police
report, because time is of the essence. It’s
best to close out the account and reopen
a new one, but the decision often depends
upon what has been compromised.
Companies should immediately notify
their vendors, because replacement
checks will need to be issued on the new
account.
How can a bank help?
First, issue as few checks as possible.
Pay vendors and employees electronically
and use Internet banking because it gives
you a real-time view of what’s happening
with your accounts. If you have a high
number of transactions, consider positive
pay. Positive pay is an automated fraud
detection tool offered by the cash management department of most banks. It
matches the account number, check number and dollar amount of each check presented for payment against a list of
authorized checks issued by the company.
All three components of the check must
match exactly or the bank will not pay on
the check.
Your banking representative should be
partnering with you and suggesting proactive systems and procedures to keep your
business from becoming a fraud victim.
SHERRI COPE is vice president of Risk and Operations for Fifth Third Bank, Tampa Bay. Reach her at (813) 306 2499 or
[email protected].
