Saturday, April 27, 2013

Protect your organization from fraud

To avoid losses from counterfeiting and check fraud, get serious about protecting your own business, a police detective and a banker told local business managers Thursday.

These days, prosecutors and law enforcement agencies don’t have the resources to aggressively track down and prosecute fraudsters, said Coos Bay Police Detective Scott Rogers at a workshop organized by the Southern Oregon Financial Fraud and Security Team.

Yet counterfeiting and check-fraud rings are constantly coming up with new ways to part you from your money.

Rogers said a current method of counterfeiting is to chemically wash the ink off a $5 bill and use a color copier to print a larger denomination onto it. Because the fake bill is made of authentic paper, the pens sold for detecting counterfeit currency won’t work on it.

An ultraviolet light unit is a foolproof way to make sure that a bill or credit card has the right kind of security markings. The units cost about $50 for a countertop model, or less for a battery-operated device that can be used in a vehicle or outdoor booth.

Chemistry also has given check forgers some new opportunities, said Jen Hibbs, regional operations coordinator for Sterling Bank. They can wash ink off a check and change the amount or payee.

Pens with ink that can’t be washed off are available. Hibbs also suggested depositing mail only in locked mailboxes.

Another important line of defense against check fraud and embezzlement is for the business owner to check the bank statements each month. You have 60 days to dispute payment on an item, but if you have multiple fraudulent checks from the same person, the period goes down to 30 days, because that shows you didn’t “exercise ordinary care” in protecting your checks.

“Ordinary care” also means locking up blank checks and promptly reconciling bank statements.

Hibbs said banks offer a service called “positive pay,” in which you provide a daily record of the checks you wrote and the bank matches it with checks that clear. There’s also “reverse positive pay,” in which you approve items presented every day before the bank clears them.

In 2012, 55 percent of businesses with revenue less than $1 billion reported attempted or actual payment fraud. Checks accounted for 82 percent of these frauds. For all businesses that reported check fraud losses, the median loss was $19,200.

If you experience check fraud, your bank may make you use positive pay, but you can also use it as a preventive measure.

Your own employees also have opportunities to defraud you. In fact, the Association of Certified Fraud Examiners found that a typical organization loses 5 percent of its revenue to fraud each year, with the median loss $140,000. Small businesses have higher median losses because they typically have fewer fraud-detecting systems in place.

According to the ACFE, 87 percent of occupational fraudsters had never been charged with or convicted of a fraud-related offense. Tips — not accounting controls or audits — uncovered 43 percent of frauds discovered.

Separating financial functions among employees of a business helps prevent embezzlement, Hibbs said. Requiring employees to use their vacation time also helps; some embezzlers never take a vacation or sick day because they always have to be at work to cover up their thefts.

And employees who sign a company’s written policy articulating “zero tolerance for theft” are 70 percent less likely to steal, she said.

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