02 Dec 2014

Check Fraud – A New Priority for Today’s Fiduciaries

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Banking Tip:

Check Fraud – A New Priority for Today’s Fiduciaries

Check WashingCheck fraud is a problem that will cost American businesses and banks an estimated $50 billion this year alone. These days anyone with access to a personal computer, a scanner and off-the-shelf software can create doctored checks that even a seasoned CFO would have trouble spotting. Technology-savvy criminals can reproduce hundreds of realistic counterfeit or forged checks in a matter of hours if they access basic bank account information.

Check fraud hits your practice’s bottom line directly. It also disrupts your business. Imagine the hassle you’d have to go through to close accounts, issue stop payments, and reissue payments. The concept is therefore simple and straightforward: Your office needs to take basic steps to protect itself against the threat of check fraud.

Historically, many trustees have not taken the probability of check fraud seriously – primarily because banks were often held responsible for check fraud losses. However, recent changes in the Uniform Commercial Code have redefined liability for business check fraud to include a standard of “ordinary care” that emphasizes greater responsibility and reasonable check issuing standards by the trustee community. Financial institutions are no longer automatically expected to shoulder the burden of check fraud-related losses. Trustees themselves may now be held responsible as well.

Tips to Prevent Check Fraud

Preventing check fraud is not a simple task. There are many things to be done that, when executed together, will help to protect your practice from check fraud. While we are trying to offer some tips to help you fight check fraud, this list is neither exhaustive nor does it suggest that you can be 100% fraud-proof.

  • Provide details of checks distributed by 3rd parties to the BMS Banking Center within 24 hours
    — The BMS Banking Center can provide an extra level of safeguard against check fraud when you use a 3rd party – such as a payroll company – to print and distribute checks; however, the BMS banking center must have all the necessary details (in a spreadsheet format) within 24 hours. Details that must be provided include: Date of issue, Check #, Payee Name, Amount, and Account Number.
  • Use tightly controlled check printing procedures
    — Ensure that employees not involved in the distribution process do not have access to check printing equipment or check stock. The MICR toner and check stock should be kept in a secure location and available only to staff that is directly involved in the printing and distribution of checks.
  • “Checks” and balances
    — Literally. If you think there is a risk of internal check fraud, make sure that one person does not have access to the entire check printing process. Fragment the procedures so that a person’s activities will only affect part of the process.
  • Review Bank Communications in your BMS software daily
    — BMS offers several options to check banking transactions processed by Rabobank against your case ledgers: Alerts on the home screen, daily Bank Activity logs or banking reports.

    • The home screen in your software includes banking activity alerts. Review these daily and investigate further if the alert includes information that you were not expecting.
    • Every banking transaction processed by Rabobank is documented within the “Bank Activity” module in your BMS software. You can compare the “Bank Activity” against your case ledger to ensure that a check processed by Rabobank matches the number and amount that was written.
    • Run a banking report to get a specific days transactions for one case or all cases in order to quickly get a list of checks that cleared each day.

What to do if You are a Victim of Check Fraud

If you happen to become a victim of check fraud, you need to take quick action in order for Rabobank to take action on your behalf. You must contact the BMS Banking Center by no later than 4:00 pm of the day after the fraudulent check cleared your account. Please be prepared to provide details of the fraudulent check. The BMS Banking Center will then send you a form to complete on behalf of Rabobank. This form must be returned immediately. Rabobank must contact the depositing institution within 24 hours of the clearing of the fraudulent check – the clock is ticking!

If you miss these deadlines, the options for recovery of estate funds by Rabobank are limited – taking significantly longer and not guaranteed.