Forged schemes Forged endorsement schemes Altered payee schemes Concealed check schemes Authorized maker schemes How is fraud perpetrated:? Employee forges name of authorized signer objective is to obtain a blank check Employee usually has access to blank checks Bookkeeper, a/p clerk, office manager, etc. Other methods to obtain checks Checks not secured Employee wrongly obtains key, combination, password to gain access Voided checks not destroyed How to destroy? Print counterfeit company checks How is fraud perpetrated:? Intercept company check intended for third party This check is already created by normal payment processes. Employee doesn’t need access to blank checks Convert check by forging endorsement Using fake ID if possible. Intercepting the check: Employee’s duties involve handling signed checks Signed company checks not secured Checks given back to employee who prepared them Normally a “trust” violation “Sign this and I’ll send it out” Checks returned to company (incorrect address) How is fraud perpetrated:? Intercept company check intended for third party Change name of payee Method depends on who prepared the checks Checks not prepared by Employee: White-out payee name “Tacking On” (I.R.S. becomes I. R. Stevens) Set up a new DBA account in this name at a local bank. Checks prepared by the Employee Employee obtains signatures on blank checks (Employee highly trusted) “Just sign a few checks and I’ll be able to pay the bills while you are on vacation / away of business/ …” Check typed or written in erasable ink (WHAT!) Employee gets authorized person to sign How is fraud perpetrated:? Very blatant, not very common Employee prepares check payable to self Gives check to authorized signer along with stack of legitimate checks Check gets signed; signer not paying attention, trusts Employee. How is fraud perpetrated:? Very difficult to defend against: Fraudulent checks written by Employee with check-signing authority Cash, pay personal bills, etc. Where controls prevent signer from handling blank checks or bank statements, Employee uses influence to override controls
To whom is the made payable? To the Employee (most common) easier to detect than payments to others To an accomplice To “cash” To legitimate vendors (purchasing personal items) To fictitious person or entity Which would you choose and why? Forging the signature Free-hand forgery overlooked by retail businesses Sometimes easy to do with “simple” signature Photocopy legitimate signature onto check Also can allow employee to change the payee of check in the accounting records. Old carbon copy scam. Signature stamps / check signing machines Computer-generated signatures Miscoding fraudulent checks to wrong account # Alter delivery address – check mailed to Employee book example of password access not being updated for new job assignment. A common problem in automated information systems. Converting the stolen check: Forge endorsement Smaller amounts work better as ID is less likely to be requested Dual endorsement Should be a for most normal disbursements Signed check given to Employee to mail Change payee and/or amount When cashed check returned with bank statement, Employee restores original name, amount Erasable INK. Book example Get owner to sign small checks Change payee and amount Charge disbursement to large vendor How / where would this be detected? How is fraud concealed:? How is fraud concealed:? How is fraud concealed:? How is fraud concealed:? How is fraud concealed:?
How is fraud countered and/or detected:? Use distinctive ink for check signing Have authorized check signers verify their signatures on canceled checks on a test basis Investigate nsf checks or out of balance conditions in checking account How is fraud countered or detected? Separate functions of cutting, signing, and delivering checks Surveillance cameras in mailroom Independently investigate customer complaints that payments not received Investigate any returned check with a dual endorsement How is fraud countered or detected? Require use of permanent ink on all checks Strictly segregate check preparation from delivery and bank statement reconciliation Use computer-generated checks Consider EFT in place of checks, where practical How is fraud countered or detected? Do not let check signers have access to blank checks Require dual signatures over threshold amount. Limit signing level of employees Confirm all checks to current vendor list Spot-check cancelled checks for support Look for lifestyle changes in authorized signers How is fraud countered or detected?