Prevent In-House Treasury Fraud and Theft or Pay the Consequences

A company’s financial information and resources are perhaps its greatest assets. That’s why it would be devastating if they were tampered with or stolen. Unfortunately, today, check fraud poses a significant threat to organizations.

In fact, corporate check fraud now is reaching epidemic proportions and costing banks and companies billions of dollars a year worldwide. If you haven’t experienced the problem already, you may be lucky. Chances are you’ll be faced with check fraud sometime in the near future unless you take steps today to combat it.

Limit Your Exposure to Check Fraud

Even with the ease and abundance of electronic payment systems, checks continue to be the most popular method of making payments in the U.S. They also are just as popular with counterfeiters, forgers and thieves. Why? Because check fraud is a relatively low risk crime with potentially high payoffs and a good chance of success.

Your company could stand to lose hundreds, thousands, or even hundreds of thousands of dollars due to check fraud. That’s why treasurers need to establish strong internal safeguards to protect your company from check fraud. Here are some precautions to take:

Convert as many of your payments as possible to ACH and other electronic payment systems.

Without a check, counterfeiters, forgers and thieves have nothing to steal, alter or copy. Plus, you can save on the check printing and postage costs of payroll, pension payments, vendor payments and shareholder dividends.

Use a positive pay service for your disbursement accounts.

These services provide reports that identify potentially fraudulent checks by comparing the serial numbers and dollar amounts of posted checks with your issued checks. An exception report lets you identify checks that have already been paid, checks with serial numbers that were never issued and checks with incorrect dollar amounts.

Reconcile your accounts promptly, on a daily basis if possible.

The quicker you reconcile, the sooner you can detect a fraudulent check after it has been presented for payment, and the faster you can contact your bank to return the item. Train your staff to look for suspicious items and how to use stop payments and voids.

Request large-dollar payment reports from your bank.

These reports show all large-dollar payments that have posted to your account. As another safeguard, you can specify the minimum dollar amount for reported transactions. Available early in the day, these reports can help you quickly identify fraudulent checks.

Use check stock, fonts and inks that prevent or detect fraud.

Order checks designed specifically for your company, not generic checks. Find number fonts that prevent the dollar amount from being removed or altered without detection. Use inks that smudge or discolor to show alterations and erasures. And, get stock with microprinting, watermarks, pantographs, holograms, borders and patterns that would be impossible to duplicate.

Safeguard your blank checks and signatures

Lock up checks and signature plates and keep them in separate locations. Make frequent, unannounced audits of your check stock. Limit the number of official check signers and immediately notify your bank when authorized signers change. Consider using multiple signers for checks over a certain dollar amount. Centralize your company’s check-writing function as much as possible.

Separate your check-writing and account reconcilement functions

By doing so, you increase the chances of catching dishonest employees and stopping internal check fraud before it can occur.

Employee Theft also Is a Major Concern

Many corporations are learning the hard way that the usual deterrents to theft, such as locks, alarms, security personnel and guard dogs, do not provide all necessary protection. That’s because employee theft is just as prevalent as check fraud. Employees often know a company’s security measures and how to get around them. Some unscrupulous insiders may even devise ways to pay themselves for services not rendered or products not shipped. And it’s difficult to catch employees in any wrongdoing.

Then there is corporate espionage, where security breaches may involve trash searches, utility disruptions and other acts of vandalism. Plus, competitors can use sophisticated techniques to hack into systems, such as impersonating an employee to enter a secure area, wiretapping and eavesdropping. So what measures can be taken to tighten controls and security?

Employees Are Your Greatest Asset, But Some Are a Risk

In addition to protecting your company from check fraud, you also may have to protect it from competitors, as well as your employees. Corporate espionage is a growing problem, but one that can be alleviated or mitigated by taking some simple precautions. Hiring trustworthy employees is the first and best defense. One way to ensure that reliable people are hired is to perform thorough background checks on everyone, including clerical workers, who will have access to your information and accounting systems.

According to Brendan Hewson, senior vice president of Bank of America’s Corporate Security International Services, “Failure to check references can later cause embarrassments, theft, fraud and even reputational damage.” His advice is to “check what is not there.” If there is a gap in employment or something is missing from a potential employee’s background, research it. Hewson feels “you should not assume anything. All circumstances should be treated as unique.”

Once hired, employees should be monitored for behavioral changes that can signal financial or family difficulties, addictions, psychological illnesses or other problems. Be on the lookout for suspicious spending, excessive absences, changes in physical appearance or a decline in job performance. Implementing more formal monitoring programs that include periodic medical exams, mandatory personal financial statements and computer surveillance also are good ideas.

If you lay off or fire employees, take immediate steps to safeguard your information systems. Security experts suggest escorting former employees from the building, and requesting the return of ID, badges and keys. Also remember to change passwords and cut off access to computer systems.

Restrict Entry to Buildings and Computers

Confidential information is everywhere in companies — on desks, computers, laptops and PDAs. How can access to these areas be controlled? State-of-the-art electronic security, including passwords, keys and badges and/or eye or fingerprint scans, should be required for entering offices and computer systems. Reinforce these safeguards by locking doors and windows, using guards and watchdogs, alarming entries and exits and installing surveillance cameras.

To protect computers, all communications should pass through a firewall barrier. This allows for the review of all computer traffic and the refusal of any communication not meeting predetermined criteria. Wiretapping into cables to display and record any information that’s being exchanged also is suggested.

Have a Back-Up Plan

With computers and laptops spread throughout companies, backing up information has become extremely complicated and is often ignored. However, it must be done. Be sure to have formal back-up procedures in place, and insist your employees follow them. Encrypt copies of confidential information in case laptops are lost or stolen. Any important information not stored on computers should be catalogued, filed on microfilm/microfiche and stored in a safe location with a designated custodian.

Install Detection and Anti-Virus Programs

Protect computer and telecommunications systems with specialized programs that warn of intrusion. Alarms or warning messages can signal viruses, the use of unauthorized passwords, repeated password attempts, unauthorized users trying to enter your systems, unusual log-ons that occur early in the morning, late at night or on weekends, or major changes in computer usage.

Anti-virus programs, already used for catching bugs before they disrupt computer systems, also can be used to detect slowdowns in processing time, attempts to change protected files, a loss of computer memory and other signs of intrusion. As such, be sure your anti-virus programs run automatically and regularly.

Always Be on Your Guard

The most important advice for protecting your financial information and resources is never to let down your guard and have a comprehensive program in place. “Guidelines should be created and continuously developed,” suggests Hewson.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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