Protect Your Company from Cheque Fraud
Here's a cautionary tale for organizations that use paper cheques: A charity's $50,000 cheque to a payroll supplier was somehow intercepted. The payee name was chemically stripped from the face of the cheque and a new payee name inserted. The fraudulent instrument was cashed. The money was gone.
Although the client was eventually reimbursed by its bank, suspicion turned toward staffers at both the charity and the payroll supplier. A perpetrator was never caught, but the work environments at both organizations were irreparably damaged. Employees left. Donors balked. Reputations were tarnished.
Could something similar happen to your business?
Since September 2008, the Canadian Payments Association has required businesses to adopt new cheque format standards to leverage emerging imaging technologies. Of course, another important goal of the new cheque standards is to reduce cheque fraud.
According to the CIBC, commercial fraud, which includes cheque fraud, costs North American businesses more than $20 billion annually. Further, cheque fraud is projected to grow 25 percent each year.
Businesses of all sizes can take steps to protect themselves from cheque fraud. Basic internal controls are the first step, but technology has made other options available as well.
The following techniques are listed in order of applicability based on company size, from small to larger organizations. Note that fees generally increase accordingly.
Online Bill Payment: Using an online bill payment system works well for routine payments such as credit card and utility bills. Some suppliers may also accept online payments, although a confirming e-mail or fax may be required to provide invoice information.
Payroll Direct Deposit: Payroll cheque fraud is the most common type, but is easily thwarted by using direct deposit. Stop issuing manual cheques and instead use a payroll service or one of many widely available software packages that generate a bank file for direct deposit.
Cheque Verification: Why not do a daily download of cheques cleared by the bank? Available in Microsoft Excel or ASCII formats, a cheque verification file can be quickly uploaded into the company's accounting system for reconciliation. Fraudulent changes in cheque amount will be detected automatically, and by reviewing the images, it's easy to catch changes in payee. Daily or weekly reconciliation also saves considerable time at month end.
Positive Pay: If your business writes more than 1,000 cheques per month, consider this option. Positive pay involves generating a cheque file and sending it to the bank prior to mailing cheques. As cheques clear, the bank verifies them against the file, making it easy to catch fraudulent changes in amount, signature or date.
Electronic Funds Transfer (EFT): EFTs are easy to set up. One list can be used for regularly occurring payments to vendors, and another can be generated for one-time or sporadic payments. Unlike online bill payment, EFTs include detailed information about each transaction, including purchase order numbers, item details, shipping releases and detailed invoices, along with the funds. Banks also offer enhanced security controls for EFT services, including a user ID and PIN for the person setting up the transaction and a different user ID and PIN for the person approving the transaction.
Lockboxes: Instead of customer cheques coming to a business location, cheques can be mailed directly to a bank lockbox address. The bank receives, opens and deposits all incoming cheques, and sends the business an image file along with an electronic file for uploading into the accounting system.
To avoid fraud, some businesses are attempting to do away with paper cheques altogether. As technology has increased the capabilities of clever criminals, and banks have responded with more secure options, the possibility of going cheque-free is becoming more viable — and more attractive.
To find out more about steps your business can take to prevent fraud, please contact our firm.