Don't let your business become a victim of bank fraud

Your bank or credit union is the lifeblood of your business and critical spoke in the wheel of daily commerce. To their credit, financial institutions are working hard to make doing business more convenient for us.

Recent interactions with clients, however, has led me to the conclusion that some of these conveniences, used improperly or without oversight, can increase a company’s risk of fraud.

This doesn’t have to be the case! Understanding these products – what they can and can’t do – and your role in proper oversight over your banking transactions increases the likelihood that these products can work in your favor and decreases the chances that a fraud scheme goes unnoticed.

Positive pay

Simply put, positive pay ensures that the bank only pays on checks presented to them that match the amount and check number you have provided in advance. Checks presented to the bank that do not match the positive pay file, commonly called “exceptions,” must be cleared prior to being paid. I highly recommend that companies ensure that exceptions are cleared only by someone other than the person who initiates the positive pay file or who has access to the company’s check writing system.

Online bill pay or funds transfer access

I once investigated a fraud where an unscrupulous controller directed $5 million of my client’s funds to his own account using online bill pay. The bank statements indicated that expenditures were legitimate. It was only when the set up file was reviewed that it was discovered the funds were being misdirected to the controller’s personal account. Any online transfers of funds from your company to an outside source should be set up by one person and authorized by another. Many online banking systems can be set up with these dual controls, requiring the actual funds transfer be approved by a user different than who set up the initial transaction.

Remote deposit

“We only go to the bank once a week because we only receive checks, we don’t take cash.” Checks written to your business are as easily converted for someone’s personal benefit as cash. It is highly recommended that cash and checks be taken to the bank daily, this eliminates the risk of theft or loss (and increases your cash flow!). Many banking institutions provide remote deposit machines that allow you to deposit checks as you receive them. While there are transaction fees associated with this convenience, it can be a convenient way to increase your cash flow and decrease your risk of fraud from a skimming scheme.

Online banking

Access to banking transactions online is one of the most delightfully convenient products banks provide. Too often, however, my clients are choosing not to receive paper statements and/or choosing not to receive images of their cancelled checks. As such, the most critical oversight function in a business, the review of the bank statements and cancelled checks, is foregone. Take it from me, it is excruciating to wait for cancelled check images to load and most business owners don’t have that kind of time! Fraudulent disbursements (i.e. someone writing checks to themselves or their vendors for their personal benefit) are the number one fraud scheme, and the review of statements and cancelled checks is the number one way such a scheme is uncovered. Ask your bank to send you paper statements with the cancelled check images and perform that simple review function before your bookkeeper or accountant reconciles the account.

Work with your banker to identify what conveniences make sense to streamline banking functions and add additional security. And as with any of life’s conveniences, don’t lull yourself into a false sense of security. Your active participation in oversight and monitoring is the best internal control you can implement.

Published in the Vancouver Business Journal July 25, 2014

Knowing When to Walk Away... and When to Run

Tiffany was recently interviewed for an article in The Fraud Examiner, the online newsletter for the Association of Certified Fraud Examiners (ACFE).

July 2014

By Scott Patterson, CFE

You have been toiling for months on a case and you know where the evidence is leading. The satisfaction of solving the puzzle and unraveling the trail of fraud is what a fraud examiner lives for. As you present your findings to your client and discuss the need to dig further into certain clues and red flags, this is your moment.

Yet, the meeting turns … strange. Your client seems to either not hear, or not understand, what you are telling him. Finally, it becomes clear: Your client wants you to stop pulling on the thread you have been unraveling, and put your attention elsewhere. Despite your protests, and the evidence you have gathered, your client wants you to firmly shut that door.

It is a dilemma that would put any fraud examiner in a bind. You know there is more to the story, but the client who writes your check is telling you, in no uncertain terms, the scope of your job – and how to do it. Which stones to turn, and which are off-limits.

While it may be difficult to do, the best decision when your work is being compromised is to disengage from the client. That’s what ACFE faculty member Tiffany Couch, CFE, CPA, CFF, has had to do more than once. In a recent interview with the ACFE, Couch discussed uncomfortable situations in which she had to make the choice to leave business behind, and keep her ethics – and reputation as a CFE – intact.

“I’ve had a few ethical dilemmas in my career,” Couch said. “Most recently, I was working for a city, and I’d been there for a very long time, six to eight months, off and on.  And … I was noticing that the client was at risk in certain other areas – areas that they had not communicated to me about.

“But because of my proximity … I could see what was going on,” Couch said. “I went to the city council, and I said: ‘You’ve got a problem here.’”

'Being Too Fussy'

After sharing her insight with the council, Couch immediately received pushback – from none other than the city’s mayor.

“The mayor called me into his office, shut the door, and said: ‘You’re being too fussy. You are here only to do your job. And your job is not to tell us – or to be looking at – these other things.’”

Couch, nonplussed with the mayor’s response, soon found herself in an argument. She explained to the mayor: “Now you’re asking me not to do my job, because my job is to tell you everything that I see. Whether or not you agree, if it’s my opinion that it’s a problem, and I’m concerned, I have to communicate that to you – and the rest of your fellow city council members.

“And [the mayor] said, ‘No, you’re not going to do that.’”

That was that. With Couch convinced she could not effectively do her job, she decided that afternoon to disengage from her client, the city. And while the choice was clear, she said that having to just walk away from months of work was difficult to do.

'Am I Hearing You Right?'

Sometimes, you might be put to an ethical decision before you are even hired. Couch recalls a situation where she was a lock for a big job, “a six-figure case, easy,” that would provide a long period of work. “It was a fraud investigation … It was just really going to be fun,” she said.

Unfortunately, her first meeting with the potential client’s attorney raised red flags right off the bat.  According to Couch, the attorney told her that the client was being accused of various wrongdoings … and he further told her that “we have all of these documents, and here’s what happened.  And here’s how I’m going to explain it. And I want you to testify. I want to make sure that you testify that all of this was reasonable and okay.”

Couch was shocked. “This was at the first meeting before I’ve even looked at any documents,” she said. “And I thought, ‘Did I hear him right?’

“So, I asked a few other questions, and I could clearly understand what he was saying. And he was looking at me and saying: ‘I want you to testify the way I want you to testify – so that my client will not be in trouble.’”

Her integrity on the line, Couch walked away from the opportunity.

“That night the associate called and she said: ‘You had the case, Tiffany.’ And I said: ‘Yes, I know I had the case.’ And she said: ‘Why did you not take it?’

“Because he was telling me how he wanted me to testify before I even looked at a single document,” Couch said. “And I’m never going to be known as the expert who can be paid for her opinion. You pay me for my time, my opinion is my own.”

Such a statement serves as an important reminder for all fraud examiners. Your opinion is your own – along with your integrity and reputation. Taking the ethical route is not always about accepting the right engagements. It also means knowing the ones from which to walk away.