Check tampering occurs when an employee steals, alters, or forges a check that’s payable from the employer’s business account. Easy access to the business checking account and blank checks make this an appealing form of occupational fraud for an opportunist in search of quick cash.
It amounts to 20.1 percent of fraud cases in small businesses compared to only 8.4 percent in larger businesses.
There are several methods of check tampering. On altered checks, the name of the payee is changed to that of the fraudster, who then misappropriates the funds. On forged checks, the signature of the authorized signer or payee endorsement is forged.
Concealed checks are fraudulent checks that are submitted in a batch so the authorized signer doesn’t notice any irregularity and signs anyway. Finally, in what’s known as an “authorized maker” scheme, a fraudster is authorized to sign checks for the company. When he or she also has access to the company’s checks, misappropriating funds is simple.
Here's one example of a common Check Fraud Scenario...
An IT company had a bookkeeper whose husband lost his job. This landed the couple in a short-term cash crunch, and they were unable to pay their AT&T phone bill. The bookkeeper was authorized to write checks on her employer’s behalf, so it was easy to write out a check to the phone company and code it to telephone expenses in the books.
Fortunately, our second set of eyes realized the expense was higher than usual; plus, AT&T wasn’t the client’s telephone vendor. We called AT&T to determine what account the payment was for. Of course, this immediately revealed that the bookkeeper had used company funds for her own purposes. She was immediately escorted out of the building, and the client had the locks to the premises changed.
To combat tampering, check cutting and preparation duties must be separated from check signing responsibilities. It’s also imperative that an independent eye, like the owner, manager or outsourced controller, review statements for discrepancies before remitting to the bookkeeper. Businesses should consider outsourcing bank reconciliation if staffing restrictions prevent acceptable separation of duties.
Implementing separation of duties within your check cutting and preparation duties can deter employee check tampering within your organization. However, no system of fraud prevention can rely on trust alone, so if your business does not have the internal resources to maintain separation of duties, you can minimize your risk by outsourcing elements of your bill payment process. We will continue this blog series with additional checklists on how to handle the most common forms of embezzlement and occupational fraud.
Statistical Source: ACFE 2016 Report to the Nations on Occupational Fraud and Abuse ( http://www.acfe.com)