It happens every day from Sacramento to Savannah — employees and strangers commit fraud, stealing businesses’ money. And with each person involved in a company’s finances, the organization becomes more exposed.
“It sounds scary,” says Catherine Iconis, forensic associate with accounting and consulting firm Tauber & Balser PC, “but there are a variety of things that companies can do, and that’s what make this less scary — you can protect yourself.”
Smart Business spoke with Iconis about how companies can identify, prevent and protect themselves against fraud against their bank accounts.
What kinds of bank account fraud should businesses be aware of?
A variety of fraud can be committed against your bank account, which is usually referred to as types of white collar crimes. First there’s check fraud, where checks are altered, counterfeited or forged.
But it’s not necessarily check fraud. Employees can forge or tamper with company checks or submit false invoices, among other schemes to defraud the company.
Who commits fraud against businesses?
Anyone can commit fraud against your bank account. There have even been instances of bank tellers stealing customer information. It is important to keep your account information under lock and key.
Limit who has access to checks and deposit slips. With employees, the more control they have, the more damage they can do.
What can companies do to recognize and identify fraud committed against their bank accounts?
Reconciling your bank account and looking at the cancelled checks, if available, is one of the most important things to do. Do it on a regular and consistent basis.
The Uniform Commercial Code has been revised so that businesses and individuals have a shared responsibility with their financial institution to detect fraud — review your customer or depository agreement to verify the time frame you have to identify fraud before you become personally responsible for losses. Sometimes it’s 30 days from when you get your bank statement, and sometimes it’s going to be less, sometimes it’s going to be more.
If you have a really good relationship with your banker, and know them on a first-name basis, you can call them up and say, ‘There’s this check that doesn’t look right,’ and they might be able to look into it more quickly.
And according to the Association of Certified Fraud Examiners’ 2004 Report to the Nation on Occupational Fraud and Abuse, anonymous tips are the No. 1 way that people find out about fraud. With Sarbanes-Oxley, they’re requiring publicly traded companies to have a confidential reporting mechanism now, such as a hotline or tipline.
While only publicly traded companies are required to have this, I recommend it to everyone. If you can afford having a service like that, have it, and not only have it available to employees, but to customers and vendors and other parties that might be aware of any fraud that’s happening to you, from outsiders or insiders.
How can companies protect themselves from bank account fraud?
Make sure you keep your account information as secure as possible. Limit access to that information, and have select personnel in charge. Try to split up the responsibilities there. A major issue is separation of duties; don’t give one person total control of the banking process. Also, reconcile your accounts consistently and make sure to shred information once you are done with it.
When it comes to people that are looking at that information or are in charge of that information, you want to do background checks on them. I think it’s extremely important for anyone that’s in charge of your bank account information. You’re putting a whole bunch of trust in these people.
Also, Hogan Personality Tests give the employer the candidates’ advantages and disadvantages or risk areas. And as another incentive, it helps reduce turnover costs.
Have your employees bonded with employee dishonesty insurance. This will protect you against a variety of fraud. If an employee steals anything or writes checks that weren’t authorized, you can file a claim and hopefully be reimbursed for that.
The problem with employee dishonesty insurance is that it can be really hard to prove. The best thing to do is to keep records of everything and have as much detail of everything that happened. The best claims are the ones that have an actual affidavit or confession attached to them, where the person says, ‘I did this; this is how I did it.’
Finally, consider the use of Positive Pay. This service allows you to submit a list of authorized checks to your bank so that the bank can verify checks before they are paid.
Catherine Iconis has worked at Tauber & Balser PC since 2002 as an associate on the forensic accounting services team. She is also a member of the real estate niche group. Reach her at (404) 814-4933 or [email protected].
