Preventing Losses from Fraud, Forgery, and Embezzlement

June 25, 2014

How I Learned to Stop Worrying and Love Positive Pay

Let’s face it, if your business account has money in it, there are people who want it. They will figure out whatever way they can to take it away from you. While you're busy 24/7 providing superior customer service or cranking out the world’s best widgets, there are folks who have nothing better to do than think up ways to separate you from your hard-earned money. We could be talking about folks who are thousands of miles away, or they may just as likely be inside of your organization.

What You Can Do About It

The key to reducing the risk of fraud, forgery, and embezzlement is a combination of prevention and detection.

Employ Checks and Balances

Setting up separation of duties and dual controls within your own business is a good place to start. No one person in an organization should be able to issue checks or execute payments by herself. If your business is small enough, the owner should take care of signing all checks and approving all transactions.

Many businesses are fortunate to have trusted and competent bookkeepers, but the more authority you invest in any one person, the greater the risk to the business if that trust is betrayed. Good accounting controls protect the honest employee first and foremost. There are few worse situations in a business than when money has gone missing and suspicion and accountability for the loss falls on everybody.

Protect Your Physical and Online Resources

Another important preventative is creating a system for keeping checkbooks secure. Checkbooks and pre-printed checks should be locked up whenever they're not in use. It is an all too common occurrence for an office visitor or disgruntled employee to steal a few blank checks from the book where they won’t be noticed for a while. These crimes of opportunity can usually be prevented if the blank checks are treated like cash and kept secure.

Online cash management systems provide another opportunity for evildoers to get into your cookie jar. You can easily minimize risk by following a few online cash management best practices. A little bit of prevention today can save you time, trouble and money tomorrow.

Review Your Account Often

Reconciling one’s account ranks up there in popularity with cleaning out the garage, but prompt, periodic reconciliations are essential to catching accounting errors and detecting irregularities. Ideally, assign someone different to prepare the reconciliation than the person who writes checks or authorizes payments. Whoever reviews it, if not the owner, must be independent. Check beginning balances against prior reconciliations, and trace outstanding items back to the source entries on the bank statement or check register.

It used to be that reconciliations could only be done monthly when the statement was received in the mail from the bank. Now that transactions can be viewed or downloaded in real time from online cash management systems, reconciliation can be performed at any time, as often as desired. If your account has a high volume of transactions, consider performing the reconciliation more frequently. Since it will be a smaller task each time you do it, it's possible it won't take you any more time than doing it once a month.

Even if a formal reconciliation is not performed on a more frequent basis, it still makes sense for someone to review transactions that post daily, just to make sure that everything is as expected.

Prompt reconciliations and regular checking are very important when it comes to recovering unauthorized or fraudulent debits. Depending on the type of transaction and your bank account agreement, you may have as little as 30 days after receiving your statement to report unauthorized transactions and recover your money.

I recall a case of a business that did not reconcile its accounts promptly and had to take a loss on a series of forged checks not reported in time. They not only couldn't recover their loss, but they also lost their right of recovery for the more recent fraud transactions since they failed to report the earlier ones.

Use Positive Pay

One of the best tools for prevention and detection of account fraud is Positive Pay. A business that uses Positive Pay sends a data file of checks issued to the bank. The bank’s systems then match incoming checks against the issued checks' information and suspend payment on any that don't match. This is very effective for stopping forged and counterfeit checks. Many business accounting systems can produce a positive pay file, so adopting this effective measure is simple.

Business Bank of Texas believes in Positive Pay as a mutually beneficial arrangement for both us and our customers, and offers this service free of charge. Contact us today by e-mail or by phone to find out more. When you call us during normal business hours, your call will be answered by a human being who will be glad to hear from you.

Topics: Bank Customer Tips, Accounting & Finance, Content Type

Dwayne Kolly

Business Bank of Texas

Dwayne Kolly brings a wealth of financial management and operations experience to Business Bank of Texas. Kolly has served community banks in south and central Texas for nearly 30 years, and is the bank’s CEO and Chief Financial Officer. He is a graduate of the Southwestern Graduate School of Banking at SMU (1993).
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