Introduction. Dishonesty, untrustworthiness, betrayal.

What is Fraud? Deceit, trickery; intentional perversion of the truth in order to induce another to part with something of value or to surrender a legal right.

What is Embezzlement? To appropriate (as property entrusted to one’s care) to one’s own use.

How bad is it - stats?

-1.2 million+ worthless checks enter the banking system each day.

-Check fraud losses over $20 billion per year

-Check fraud is growing at a rate of approx. 25% per year.

-Average loss for small business was $127,500. For large business $97,000.

Key Factors.

-Smaller organizations often lack basic accounting controls.

-Having a single employee who writes and signs checks, reconciles the bank statement and keeps the company books makes it easy to commit and conceal fraud.

-The level of trust that tends to exist between co-workers makes them less alert to the possibility of dishonesty.

What to do?

-Separation of Responsibilities

-Security and Control of Account Documents and Information

-Proper Check Issuing Procedure

-Prudent Personnel

-Computer System Protection

-Check Printing Safeguards

Separation of Responsibilities

-Maintaining adequate checks and balances is essential on protecting you association from dishonest people

-Separate access to and responsibility for issuing checks from that of balancing and reconciling statement.

-Reconcile your bank statement promptly – within two or three days after receipt.

-Authorized signers should NEVER be the same people who reconcile the account.

Security and Control of Account Documents and Information

-Store your reserve supply of blank checks in a secure, locked location that is accessible only to authorized personnel, preferably under dual custody.

-When not in actual use, lock your working supply of blank checks in a secure place separate from your reserve supply.

-Canceled checks and bank statements contain sensitive information and should be stored in a secure place.

-Provide proper protection for all checks that have been issued but not yet mailed or delivered.

-Notify your bank immediately when someone who is authorized to transact business with the bank leaves and remove that person’s access to all bank accounts and electronic access.

-Use bank services such as Positive Pay or Check filtering to reduce the chance for fraud.

Proper Check Issuing Procedure

-Never sign a check that has no payee.

-Checks used for transferring money between accounts should be made payable to the name of the account to which they are being deposited.

Prudent Personnel Practice

-Verify references and last place of employment of any new employee.

-Telephone previous employers to confirm all relevant information supplied by the applicant.

-Be alert to major changes in someone's spending patterns of financial circumstances.

-Enforce mandatory vacation policies especially for those with access to financial records or computer access.

Computer System Protection

-Change passwords periodically.

-Never share passwords.

-Computer systems should create an audit trail of all changed to the master file records including who made the changes.

-Immediately delete the computer access of individuals no longer authorized.

Check Printing Safeguards

-Iridescent printing with distinctive colors

-Watermarks

-Erasure-resistant ink

-Void or Copy pantographs

-Microprinting

Summary

In most states, the code that governs check-related fraud assigns significant responsibility to an account holder for preventing and detecting fraud. Prevention and early detection are two of the main factors in reducing exposure.

 While these suggestions have proven effective, you should consult with your own outside auditors or accountants in developing controls appropriate to your situation.