This, our final article of ten in our Fraud Awareness Series, considers cheque fraud.

Even though cheques are less common today, according to the Information Security Media Group, cheque fraud is estimated to be one of the top three frauds plaguing the banking industry, together with phishing and bank card fraud.

According to the Association of Certified Fraud Examiners’ 2012 Report to the Nations on Occupational Fraud and Abuse, cheque tampering still accounts for over ten percent of all occupational frauds with the average loss from this type of fraud reported to be approximately $143,000 and going undiscovered for over 30 months.

There are three main types of cheque fraud: counterfeit, forged, or altered cheques. The differences are subtle. By creating their own cheques and adding the pertinent account and banking details, counterfeit cheques avoid the need to possess the victim’s actual cheque stock.

Forged cheques are usually genuine cheques, but they contain a forged signature. Altered cheques are legitimate cheques signed by the account holder, but they will have been altered in some way, usually to change the payee or amount.

Persons involved in corporate cash disbursements/receipts cycles, accounting and/or with access to corporate cheque stock can be in a unique position to take advantage of cheque fraud.

There a number of controls that can be implemented to reduce the likelihood of these frauds. As with other cash-type frauds, segregation of duties is important and a single person should not perform more than one of the following functions: authorising/signing cheques, performing bookkeeping, possessing blank cheque stock, or reconciling the bank account. Other controls could include measures such as:

• Security: Blank cheque stock should be physically stored in a safe or other secure location;

• Limits: Two signatures should be required for cheques exceeding a set threshold;

• Order: Cheques should be written in numerical order.

Fraudsters that steal cheques often take them out of sequence in an effort to avoid detection, so periodic inventory of cheque stock should be performed. Steps should also be taken to investigate long outstanding cheques. Avoid pre-signing cheques (ie blank cheques) or making cheques out to “cash” which increase the risk of theft.

Other fraudsters target individuals by focusing on classified ads sales where they pay for goods by issuing a fraudulent cheque to the seller for a larger amount, asking for cash or a transfer back for the “overpayment”.

Because it can take several weeks (or longer) for the fraudulent cheque to be discovered, the victim may have already transferred the goods and/or the “overpayment” allowing the fraudster to disappear.

One way to avoid being victim to this is to avoid accepting cheques from parties that you do not trust and be suspicious of scams that ask you to transfer cash back.

Protect your account details and personal information to reduce the risk of counterfeit cheques. Secure electronic payment methods should be used in place of cheques where possible.

If you find any of your cheques are missing or if you think you may have been a victim of cheque fraud, you should contact your bank as soon as possible. A local Certified Fraud Examiner may also be able to assist you with considering the available options, including reporting the matter to the relevant local authorities.

KRyS Global, a boutique fraud investigation and asset recovery firm based in Bermuda that can assist with investigations into this type of fraud, wrote this article as a way to increase community awareness about fraud. For more information contact Mathew Clingerman, managing director, KRyS Global at Mathew.Clingerman@krys-global.com.