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3/16/2011

Check Tampering Schemes

Dishonest employees often obtain checks, place false information on them, and divert them for personal gain.  This can be done through forgery by signing the check on the face or forging an endorsement on the back of the check.  A paycheck or a business check can be altered for a different amount or payee.  There are concealed check schemes where the fraudster prepares the check and includes it in a stack of checks to be signed, typically during a very busy part of the day, and the signer fails to recognize the false check.

 

However, another scheme, prevalent in the Washington, DC, area and perpetrated by an organized ring of criminals, is where a signed check which has not cleared the bank is stolen by a bank or vendor employee.  The check is taken to a copy machine business where it is duplicated, redacted for payee, check number and amount, and then reissued to a “mule” who cashes the check for a small fee.  The primary target has been mid-to-large size construction companies, but it can happen to anyone.

 

Effective internal controls help catch these check tampering schemes early.  Daily monitoring of cleared checks or using a “positive pay” service provided by your bank are two recommendations.  Clearly, timely bank reconciliations are a must.

Posted at 10:50 AM by WATKINSIT\acontres | Permalink | Email this Post | Comments (1)

March 16. 2011 | Mary Lou Gervie

 

 

Check Tampering Schemes

 

Dishonest employees often obtain checks, place false information on them, and divert them for personal gain.  This can be done through forgery by signing the check on the face or forging an endorsement on the back of the check.  A paycheck or a business check can be altered for a different amount or payee.  There are concealed check schemes where the fraudster prepares the check and includes it in a stack of checks to be signed, typically during a very busy part of the day, and the signer fails to recognize the false check.

 

However, another scheme, prevalent in the Washington, DC, area and perpetrated by an organized ring of criminals, is where a signed check which has not cleared the bank is stolen by a bank or vendor employee.  The check is taken to a copy machine business where it is duplicated, redacted for payee, check number and amount, and then reissued to a “mule” who cashes the check for a small fee.  The primary target has been mid-to-large size construction companies, but it can happen to anyone.

 

Effective internal controls help catch these check tampering schemes early.  Daily monitoring of cleared checks or using a “positive pay” service provided by your bank are two recommendations.  Clearly, timely bank reconciliations are a must.

 

Comments (1) »

 

PERMALINK
Tags: forensic accounting,

Comments

Rich Wilkinson

I saw another particularly insidious scheme just recently.

An A/P clerk changed the name and address of a real (and very active) vendor in the Vendor Master File of the firms accounting system to his own, waited until after the weekly check run and then changed it back. When the very real check arrived in his mail box, he simply negotiated the check, closed the account and disappeared. The company "auto-signed" their checks, relying on physical control of check stock and printed checks to protect them.

The vendor, in this case, was a utility and the amount was quite large. Because the check was real, neither their positive pay or reconcilation processes (both of which relied on check numbers and amounts) caught the fraud. The first sign of a problem was when the utility cut off service to the firm.

This recent instance is the third one I know of personally. Once stung, all of the firms instituted master file change monitoring, but the lessons were expensive.
at 3/16/2011 11:08 AM

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