Check Stealing

1
Check Stealing Conversion
2
What the scheme involves

• Theft act
• Conversion
• Concealment

3
Check stealing The Theft Act

• Steal checks coming through the mail
• Customer payments
• Vendor refund checks
• Steal outgoing disbursement checks

4
Check stealing Conversion

• Dual Endorsement
• False Company Accounts
• Altered Payee Designation
• Check for Currency Substitution
• Other

5
Dual Endorsement

• The check is endorsed by the company and the
  thief to be converted to cash.
• May involve having an accomplice working at the
  bank.
• The second name is usually a false name to
  prevent the thief from being caught.

6
False Company Accounts

• Thief opens a bank account using a name similar
  to the defrauded company
• Uses the bank account to extract money for
  personal use

7
Altered Payee

• The thief will insert his/her own name in as the
  payee or the name of their accomplices.
• This involves altering the check and can easily
  cause suspicion with the bank.
• Done very seldom in this scheme.

8
Los Angeles County Check Fraud

• Involved a clerk in LA County Tax Collection
  Office
• Stole payments of 12.4 Million
• Cashed by international ring of forgers by
  substituting the payee
• Uncovered by taxpayers who received delinquent
  tax notices
• Source LA Times

9
Check for Currency Substitution

• The thief takes a check and substitutes the check
  for cash.
• The employee must have access to some cash in
  order for this to work. This is usually easily
  done and very common.

10
Check Stealing Concealment

• Lapping
• Stolen Statements
• Creating False Statements
• False Account Entries

11
Lapping Concealment

• One of the most common ways to conceal this
  fraud.
• This involves taking money from one account to
  cover the balance in another account.
• Continues until
• 1. The scheme is discovered
• 2. Restitution is made to the accounts
• 3. An entry is made to adjust the A/R balance

12
Stolen Statements

• The fraudster
• Steals the statements
• Changes the customers billing address to one the
  criminal controls
• Falsifies the statements and sends them to the
  customers
• Not very effective, since most customers expect a
  statement

13
Correct Journal Entry

• Debit Cash xxxx
• Credit Accounts Receivable xxxx

14
Three Basic False Account Entries

• Debiting an Expense Account instead of the cash
  account
• Debiting existing or fictitious A/R accounts
• Accounts about to be written off or very large
  accounts
• Writing off accounts using discounts and
  allowances or bad debit expense.

15
Red Flags of Check Conversion Schemes

• Dual Endorsement on the checks
• Forged Endorsements
• Employees having bank accounts with a similar
  name as the company
• Alteration of the payee
• Write-offs of accounts receivable
• Accounts not being posted on the same day as
  payment is received
• Customer Complaints

16
Ways to Detect the Fraud

• Analysis of accounts receivable days outstanding
• Looking at checks for suspicious dual
  endorsements
• Reviewing journal entries to the A/R and bad
  debit accounts
• Looking for companies with similar names that
  might be owned by employees
• Reconciliation of A/R to Deposit and Cash Account
  to the Bank
• Check Employees Work Area for Records of Lapping
  Scheme

17
Ways to Prevent Check Stealing

• Proper Segregation of Duties
• Independent Reconciliations
• Use a Lock Box

18
Diagram of Check Theft
19
Check Process

• Check is received either by the mail worker at
  the company and stamped for deposit only or send
  to bank lock box
• Turned over the A/R to post to account
• Check is then sent to bank lock box
• Deposit is reconciled to A/R
• Bank Account Reconciled to Company Cash Account

20
Employee Duties

• A/R Clerk
• Can apply payment
• Can write off accounts as bad debts
• May receive check from mail after it has been
  stamped

21
Collections Clerk

• Calls customers to get payment
• Cant apply payments or make journal entries
• Does not receive checks from mail clerk

22
Who has the first question?