Who Commits Fraud

Fraud is a broad term for a lot of sub-categories; not only does fraud affect individuals, it also affects every industry. Customer fraud, cybercrime, asset misappropriation, and bribery and corruption have the highest frequency of overall fraud experience. The perpetrator could be an internal worker, external to the company, or cooperation between both. Because of that, customers, hackers, and middle to senior management are the top perpetrators of fraud. “Nearly half of reported incidences resulting in losses of $100 million or more were committed by insiders.” $42 billion in losses were reported due to fraud in the last two years. For instance, check fraud results in tens of billions of dollars lost annually. Fraud can result in:

  • Civil or criminal actions against the company
  • Reputation and brand harm
  • Management distraction
  • Loss of market position and employee morale
  • Loss future opportunities or business

 

Most disruptive fraud events by industry

 

Costs of Check Fraud

The most common forms of check fraud include forged signatures, forged endorsements, counterfeit checks, altered checks, check kiting, third-party bill paying services, and demand drafts. Therefore, it is important to take these steps to detect and prevent check fraud:

  • Review the controls related to receiving, storing, and issuing checks.
  • Reconcile bank statements in a timely manner.
  • Segregate check writing from account reconciliation.
  • Limit the number of employees with signing authority.
  • Get a professional assessment of your organization’s controls.
  • Talk to your bank about ways it can help protect your account (cost may depend on bank size and volume of checks). A common defense is Positive Pay.

Approximately 1.2 million bad checks go through the check processing system every day. However, 500 million checks are forged leading to $10 billion in total losses every year. In 2016, banks stopped $5.9 billion in check fraud yet still suffered from $789 million in check fraud. Paying by check is more susceptible to fraud than any other kind of payment, and it costs significantly more at $4-20 per check on average. Costs include physical supplies, labor, unused checks, and risks. Victims of check fraud are often accused of fraud after facing fees and penalties after the original check is found to be fraudulent and personal funds were spent against the fraudulent funds. If checks bounce or are returned they incur a separate fee in addition to overdraft fees.

 

Banks Hate Fraud

Banks are not liable for most bad checks. If the bank can establish that the customer was negligent in how they kept their checkbook or account information, the bank may be able to shift liability for forged checks to the customer. Criminals use the account and routing numbers, that are clearly printed on every single paper check, to commit cybercrimes. Cybercrimes include counterfeiting which is commonly used to print and use a check with the victim’s name and account number on it. Check washing use chemicals to erase the ink. As a result, criminals can rewrite the amount on the original check.

Many banks end up covering the costs of fraud and will either implement fees, enforce Positive Pay, or may end business with the fraud victim. Because of this, the victim is forced to close their bank account, reconcile statements, leave money to cover uncashed checks (that may never be cashed), create a new account with a different bank, and order new checks. As a result, this process can be extremely costly and time intensive.

Positive Pay is an automated cash-management service employed to deter check fraud. Banks use positive pay to match the checks a company issues with those it presents for payment. Any check considered suspect is sent back to the issuer for examination. The system acts as a form of insurance for a company against fraud, losses, and other liabilities. There is generally a charge incurred for using it, although some banks now offer the service for free.”

 

CourtFunds Eliminates Check Fraud

CourtFunds eliminates the risk of check fraud presented to your business. You will eliminate the cost of cutting checks and the ability of your recipients to alter checks or use your banking information. CourtFunds offers many disbursement options so the recipient can choose what works best for them. Recipients can choose to receive a debit card, donate to charity, or transfer the funds to their personal bank account, PayPal, or a merchant gift card. Finally, they can request a paper check sent from CourtFunds so your company does not take on that liability. Fund recipients can view balances and transactions 24/7 online. Also, they can also rest assured that their money is FDIC insured. CourtFunds provides immediate bank account reconciliation so your company has a lower risk of financial statement fraud and customer fraud.

 

Definitions

Fraud: wrongful or criminal deception intended to result in financial or personal gain.

Forgery: the action of forging or producing a copy/ imitation of a document, signature, banknote, or work of art.

Customer Fraud: deceptive business practices that cause consumers to suffer financial or other losses. The victims believe they are participating in a legal and valid business transaction when they are being defrauded.

Asset Misappropriation: the act of stealing the company’s property or using it for personal gain, with the breach of trust.

Financial Statement Fraud: the deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statements to deceive financial statement users.

Check Kiting: this fraud involves opening checking accounts at two or more institutions and covering checks drawn on one account with deposits of checks from the other account that does not have funds. By relying on the float time involved in processing checks, the fraudster carefully times deposits of the worthless checks to artificially inflate the balance of an account.

Demand Drafts: a method used by an individual for making a transfer payment from one bank account to another (withdraw funds from customer checking accounts using their bank account numbers and bank routing numbers). Demand drafts differ from normal checks in that they do not require signatures to be cashed and payment cannot be stopped. Drawn and issued by a bank.

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