How Convenient Banking Can Lead to Fraud

by Dana Fortini, Supervisor
Gray, Gray & Gray, LLP

Banks are bending over backward to make life easier for their customers. Extended hours, branches open on weekends, and a host of online banking services all help to save customers time. Among the most innovative and convenient of these new services is the ability to deposit checks by submitting a scanned image or digital photo of the check via a smartphone or tablet device. What could be easier?

Stealing from your employer, that’s what…
Unscrupulous employees have been caught “double dipping” by depositing a paycheck electronically, then scanning the check again and depositing it into a separate account. Since you no longer have to present the actual check, it is not physically stamped as “deposited,” and there is nothing preventing the holder of a check from repeatedly submitting it for deposit in multiple accounts.

This illicit activity came to light recently with a client of our accounting firm. During a routine reconciliation of the client’s payroll account, we discovered that one check had cleared twice. Further investigation revealed that an employee had deposited the paycheck at two different banks, using each bank’s online deposit service.

We reported this fraud, and, after some negotiation, the bank used for the payroll account has agreed to refund the money. The employee was terminated and criminal action is being considered.

This is a growing problem of which every business should be aware and alert. Had our firm not reconciled the payroll account and caught the error, the employee may have gotten away with the theft this month and in subsequent pay periods. And if one employee is attempting this double deposit, you can be sure that others are trying it as well.

Some employees (and others) are going so far as to use the bank routing number and account number from their paychecks to pay personal bills online using payroll account funds. We have uncovered drafts from utility companies, phone companies, and credit card companies that have been paid using stolen account information.

Major banks are aware of the problem and are working to resolve check fraud on a case-by-case basis. Many have instituted policies such as check deposit limits. But most currently have no system in place to automatically deter this type of check fraud.

Regular bank fees do not cover this situation. Some banks are happy to sell commercial customers a service to protect against loss due to fraud, but there is an extra fee for the protection.

For now businesses are on their own. Here are some steps you can take to help prevent payroll account fraud:

  • Remember when issuing checks that your routing number and account number are all the information someone needs to access your account.
  • Review your payroll statement every month, or have your accountant do it for you. The only items clearing a payroll account should be payroll checks, direct deposit checks, and payroll taxes.
  • Reconcile the account monthly.
  • Report any discrepancies immediately to your bank.
  • Urge employees to have their wages deposited directly into their bank account, limiting the ability – and temptation – to double deposit a paper check.
  • Close and reopen payroll accounts every 1-2 years to avoid having the same account number in use – and available for fraud – for a prolonged period.

Modern technology is a wonderful thing. But it requires a new level of diligence to help avoid old-fashioned greed.

Dana Fortini is a Supervisor at Gray, Gray & Gray Certified Public Accountants, Westwood, MA. Gray, Gray & Gray has served the accounting, tax, valuation and business advisory needs of businesses in a variety of industries for 68 years. The firm can be reached at (781) 407-0300, or on the web at www.gggcpas.com.

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