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Are we relying too heavily on technology to identify check fraud?

By Marilou Vroman, CPA, CFE

Remember the days when bank statements would arrive at the dealership in large packages with pages and pages of statement activity and all the original cancelled checks that cleared? Perhaps you remember the days when the bank would call when a check had only one authorizing signature on it or the signature didn’t look exactly like an authorized signer?  For many dealers with relationships with larger banks, these days will probably seem like a thing of the past.

Today, so much of our daily banking activity has become technologically more sophisticated – disbursement checks are scanned, and the originals are rarely, if ever, returned.  Account balances are available 24/7 and statements may be delivered electronically.  Even “positive pay”, where the dealer can provide the bank with payees, dates and amounts of cash disbursements in advance for the bank to validate, helps to ensure payments are valid and not fraudulent.  Bank reconciliations can be performed daily with immediate access to so much information.  This would all seem like great news from a fraud prevention perspective, but is it enough?  Have we come to rely too heavily on technology to detect and prevent fraud?

The reality is there are many times we have seen checks successfully clear the bank with inappropriate or insufficient signatures on behalf of the dealer.  We’ve seen irregular endorsements, altered payee names or payment amounts.  In fact, we discovered a fraudulent check endorsement scheme whereby the payee name on the front of the check was legitimate but a secondary endorsement on the back of the check was used to divert the dealership’s funds fraudulently without detection.

Who is really monitoring the payments coming out of your dealership’s operating or payroll accounts? Is it the same person who has access to write checks writing their own report card and reconciling the account?  If so, the first step is to ensure monthly bank statements are delivered to an address different from the location where checks are printed and signed, such as the dealer’s home address or dealers personal email account if statements are electronic.  An individual with no access to dealership cash should reconcile the bank accounts.  A second set of eyes without check writing privileges should review the monthly cancelled checks and electronic disbursements for anything that appears unusual or uncustomary.   These may seem like the basics, but if you trust without verifying, you may be surprised to learn what transactions today’s technology is allowing to run through your dealership’s bank accounts.

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