Check tampering is one of the common fraudulent activities that pose great challenges to financial institutions and businesses today. Criminals either in organized groups or independently deceive innocent victims who pay money to receive value by manipulating checks using the advancement in computer technology. The fraud is significantly through counterfeiting via desktop publishing and copying to facilitate for duplication of financial document as well as deletion of information using chemical methods to fit the details of the criminal. Apart from the final consumer, other victims that are affected by this form of fraud include businesses and financial institutions that issue and accept checks.
According to Wells (2008, p. 121) in the book Principles of Fraud Examination, discusses Check to tamper in the 5th Chapter and analyses the Case Study: A Wolf in Sheep’s Clothing.
In this case study, Mellisa Robinson known to be a devoted wife, active and charitable giving her time and money to various community organizations, worked as the executive secretary of a worldwide charitable organization. Historically, Robinson through hard work in 1985 and dedicated time for the company was eventually rewarded with the position of the executive secretary.
The worldwide charitable organization chapter in Nashville just like any other charitable entity engaged in fundraising activities during holiday seasons through the sale of candy bars and peanuts on street corners. The funds from the sales would be in cash but a significant amount would come in checks. The board of directors entrusted Robinson with the job of executive secretary assisted by a treasurer. Other employees such as David Mensel who was a certified fraud examiner and CPA worked alongside Robinson, but kept a keen eye on the secretary’s dealings (Wells, 2008, p. 121).
Although the audit exposed that Robinson was guilty of stealing $60,800 in checks, she is suspected to have stolen more because the amount of currency that was channeled through her office was not accounted and recorded. Although the organization’s charter required an annual independent audit to be conducted, that was not possible during Robinson’s tenure as executive secretary due to the ‘lackadaisical’ nature of the board of directors. Once she was made executive secretary Robinson began pilfering money from the organization’s three accounts. She was able to avoid the double-standard signature required for each check by writing checks to herself while forging the second signature. Apart from writing herself checks, Robinson wrote checks to cash and the transaction would be recorded in the books as checked to a legitimate source, such as office supply store and hotels which were expected to appear in the ledger. For instance, checks that would be meant for hotels where club meetings were regularly held, the checks running up to four thousand dollars a month would later be discovered to have been posted in the checked as made to someone else. Efforts to change Robinson’s manual checking system into the elaborate computerized system were futile (Wells, 2008, p. 122).
At one point, suspicion of Robinson’s dealings by Mensel could not be accepted by the “trustworthy” board of directors. However, their confidence in the secretary would not last long as the organization that was once “financially very sound” was hit by sudden financial strain. Although her idea to sacrifice her precious office space and instead work from home was meant to boost the organization’s financial resources, her absence at the premises also provided time for her critics to plan their investigation. Her activities to embezzle were of course boosted by her working from home, but this was not going to last longer than it had. When she was finally confronted to provide the information, the board discovered that apart from altering or forging checks, Robinson had checked some unknown sources. Checks she had altered were drawn to schools that her children attended and other charities of her choice (Wells, 2008, p. 123).
According to David Mensel, a certified fraud examiner and CPA, the currency collections lacked oversight as all the money would be collected and handed over to the secretary, who was entrusted with full mandate over the collections. Her fraudulent activities were a success because of relaxed operations of the board of directors. Additionally, the amount of trust and confidence that the board and colleagues had for Robinson made it impossible for them to demand for financial information, which Robinson was not willing to avail. Mensel’s suspicions about the executive secretary’s behaviour fell to deaf ears on the board; further discouraging the treasurer from proceeding with the job of checking on Robinson’s dealings. Consequently, the confidence that the board had for Robinson, made it easy for her to convince them on various changes; such as moving her office from the organization to her home; and excusing herself whenever board members asked her to provide financial information. The board should have been categorical with the requirement that annual independent audit be conducted as and when need be.
According to the National Check Fraud Center (NCFC, 2010) website businesses are the most affected entities by check frauds. Some precautions that businesses can undertake to reduce the likelihood of check frauds include (a) ordering deposit slips and checks wisely ensuring that they process easily through the bank’s clearing system; (b) keeping adequate physical security over deposit slips and checks even in a locked safe, especially if an individual employee is in charge of drawing checks as in the above case study; (c) assigning the accounts payable responsibilities to more than a single employee to curtail malice while issuing and reconciling checks; (d) adopting fraud prevention services such as those provided by your banks, such as limiting large denomination losses by unauthorized persons using maximum dollar amounts on accounts.
Because fraudulent employees would use any available means to tamper with checks, the business should be wary of counterfeit checks by following a certain criteria. Employees should often fan through a group of returned checks to get wind of counterfeit that may be in a different color. In addition to color, counterfeit checks would not be perforated as legitimate ones that have one rough edge. Companies produce own checks from blank stock using in-house printers with MICR capabilities, to reduce chances of counterfeiting. Similarly, forgers are limited by the inability to incorporate at the bottom of a check the name of the bank and customer’s account information (NCFC, 2010).
The organization should adopt the charter’s recommendation of annual independent audit; convert to the elaborate computerized checking system; ensure two or more signatures are mandatory for every check to be accepted; encourage employees to be accountable during board meetings, and avail on request any pertinent information.
References
National Check Fraud Center [NCFC] (2010). Check Fraud Prevention. Web.
Wells, Joseph T. (2008). Principles of Fraud Examination” 2nd Edition, Wiley Publishing.