Real Examples Of Fraud Scams 

While high-tech fraud makes splashy headlines, good old-fashioned check fraud is still the number one fraud threat, according to the Association for Financial Professionals’ (AFP) Payments Fraud Survey. In the latest survey, 74% of respondents, which include nearly 700 bank treasury and finance professionals, report organizations experiencing check fraud. These true stories of check fraud highlight the latest solutions that can help your business prevent this pervasive fraud.

$49,000 Loss

A fraudulent check cleared a business checking account two weeks prior. The check amount and serial check number matched a legitimate check they’d paid, however, while reviewing the check image they noted the payee on the check was altered to be payable to a person, not the business they’d paid. The payment discrepancy became apparent when their vendor alerted them of their past-due invoice. Everything except the payable information matched the original, so the fraud wasn’t detected in their visual review of checks clearing their account. The Federal Reserve requires that checks that are fraudulent, insufficient funds, uncollected, or for any other reason be returned by midnight of the following business day. Since the regulatory deadline for returning fraudulent checks had passed, we were no longer able to return the check. Deposit and treasury management agreements state the client assumes liability resulting from losses or damages if they haven’t subscribed to First Business Bank’s security services. Meanwhile, the business worked with law enforcement in its locality as well as the jurisdiction of the financial institution where the check was deposited, who spent countless hours investigating the fraud. Ultimately, the client lost $49,000, which could have been prevented by security solutions.

Prevention: Payee Positive Pay, a check fraud solution, would have immediately detected the altered payee and the check would have been returned timely to the Federal Reserve with no loss of time or money. With Payee Positive Pay, you electronically submit your check register to us, and when the checks are deposited and they match, they will be paid automatically. If they don’t match, you’ll receive an alert to decide whether to pay or return the check.

Testing The Waters

Three counterfeit checks were presented against an account in May 2018. They notified us after the Federal Reserve’s check return deadline, so we were unable to return the checks and the client took the loss. We advised them to close their account or set up Payee Positive Pay. Then, in December 2018, two fraudulent checks came through – one on December 24 and the other on December 31, which totaled $799.97. The client hadn’t closed their account nor implemented check fraud prevention, and we were unable to return the checks. Unfortunately, the client mistakenly thought that requiring two signers on the check would protect them from further fraud, but this internal employee fraud control measure doesn’t prevent external check fraud. This type of pattern is common — fraudsters “test” the account by passing fraudulent checks, and if that’s successful, they’ll wait to give victims a false sense of security that the fraud is finished. After a few months (or even years), they begin writing checks against the account again.

Outcome: The client closed the account, and opened a new account with Payee Positive Pay to ensure they are protected against check fraud.

Check Cashing Fraud

Two non-client individuals went into First Business Bank’s Madison office about two minutes apart to cash checks drawn on accounts of two separate clients. The individuals went to different Client Service Associates. One asked to cash a check drawn from the account of a client of our Northeastern Wisconsin office and so the Client Service Associate didn’t know him. When she performed an account inquiry, she noted the check number was out of sequence, the signatures didn’t match, and the check stock was different. When she told the check casher that she would call our client to verify the check, the individual took the check back and exited the branch. The next person presented a $1,500 check drawn on an account of a Madison client. The check serial number, check stock, and drawee signature matched – but it was a forgery.  Since all the data matched, the check was cashed, however, it was fraudulent. The local police department was contacted and an incident report was filed. We don’t know how these individuals obtained the bank clients’ account numbers, and, in the one case, valid serial number, and signature. However, checks are often stolen out of mailboxes or en route to the post office.

Prevention: To avoid check fraud, pay vendors with ACH payments, implement bill pay via our Online Banking applications, enable electronic statements and loan notices, review account activity (including check images) daily, and implement ACH and Payee Positive Pay services.

  In January 2019, First Business Bank instituted a stronger check cashing procedure to protect our clients:

  • If we don’t know the person cashing the check, clients may receive a call to confirm the validity of the check.
  • If we are unable to reach a client, we may call the account officer to provide updated contact information or help make input into the decision-making process.

Urgent Impersonation

A fraudulent business email (business email compromise) was sent to an employee at a different business requesting payment of an invoice for $24,500, which was purported to be “extremely” past due. The fraudulent email, which was marked urgent, looked like it came from the owner of the vendor company. The employee paid the invoice, but the owner recognized the fraud when the check cleared their account. He reported it to First Business Bank past the noon deadline, but fortunately, because it was a federal holiday, the bank was able to return the check in accordance with regulatory requirements. The client otherwise would have taken the $24,500 loss not to mention loss of employee time and resources of law enforcement and bank staff. No one is immune from check fraud, but First Business Bank’s fraud protection solutions can greatly reduce the risk of check fraud and other losses. Working in conjunction with each other, these solutions provide more security for your business. Other solutions that help manage fraud losses include, but are not limited to:

  • Online Banking internal daily review of transactions clearing deposit accounts (remember to validate the payee of each check image since often the payee is the only item that is altered)
  • Internal dual control for issuing checks and reconciling accounts
  • Tokens for authorizing transactions such as ACH and wires
  • Dual control for ACH and wire transactions, validating back to the source document
  • Electronic statements
  • Paying vendors via ACH rather than paper checks
  • SecurLOCKTM Equip app for debit card transactions
  • ACH Positive Pay
  • Payee Positive Pay
  • Account Reconciliation