Document Counterfeiting

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Unless you’ve been bitten, most companies are unaware of the growing problems related to counterfeiting and illegal duplication of valuable documents.

Did you know that…

Statistics from the Association of Certified Fraud Examiners show that, on average, small businesses that fall victim to fraud will lose $190,000 – twice the amount lost by larger corporations.

According to Pricewaterhouse Coopers’ 2005 Global Economic Crime Survey, almost four-in-ten Canadian organizations surveyed did not report incidents of fraud to law enforcement agencies (2005).

Business cheque fraud is especially common, as 75 percent of all transactions between companies are done via cheque. In Canada, cheque fraud accounts for 40 percent of all fraud and, despite many businesses increasing security measures, fraud continues to grow by 25 percent a year.

Scam artists, reports Canada One, often exploit the close relationship between Canada and America. Business owners may cash a fraudulent cheque, but since it needs to be sent to the originating country to be verified, often times a month or more will pass before it is cleared.

It is reported that retailers lose $750 million through the illegal copying and mall-redemption of coupons, as well as an additional $700 million from altered or duplicated cash register receipts.

Unfortunately, these constantly rising statistics remain relatively unknown to the general public. Unless a company has been hit with a string of bad cheques or counterfeit gift certificates, most business owners remain unconcerned over this source of perplexity.

In recent years, this problem has expanded because of the availability of inexpensive, high-tech equipment. During this period, color copiers, flatbed scanners and desktop publishing software have become the counterfeiters’ tools of the trade. Today’s casual counterfeiter can get started in business with very little training and a capital investment of less than a thousand dollars. The target of these perpetrators is varied. Anything from cheques, birth certificates, drivers’ licenses and other forms of personal identification; to gift certificates, discount coupons and admission tickets; to other printed products that often are overlooked, such as prescription forms, product warranties, cash register receipts and even U.S. and Canadian currency.

Commercial cheques especially are susceptible to this problem. With an unprotected cheque, a person need merely whiteout the PAYEE and AMOUNT areas, scan in the unprotected
document and “overlay” a new payee and dollar amount. Then it’s just a matter of imaging the new counterfeit cheque on a color laser printer. Most any convenience store, retail location or bank branch will accept these documents without questioning their authenticity. Because of this problem, U.S. federal regulations require that companies exhibit “due diligence” when issuing cheques. In layman’s terms, what this means is that if a business doesn’t take proper precautions in the issuance of their cheques and if these documents were counterfeited and later cashed, the liability for this loss would be split between the issuer of the cheque (you) and the bank that cashed this bad cheque. This “shared” liability would be based on a formula of “comparative

negligence.” Although “due diligence” is not specifically regulated in Canada, Canadian courts make their rulings based on the same criteria as U.S. courts.

So how does a small business owner protect himself from this criminal element? Awareness is key. Business owners must be aware of the problem and have at least a basic knowledge of how
these lawbreakers work.

Others agree that to protect against this problem, the best offense is a good defense. Companies need to take a proactive approach by having their valuable documents protected with overt (obvious) security features.

A variety of counterfeiting deterrents can be used to fight this ever-growing problem. Experts agree that the idea here is to put just enough obstacles in front of the would-be counterfeiter such that this person will become frustrated and move to an easier target.

Counterfeit Deterrents:

Security Paper: The base paper stock can include a variety of features-visible and invisible fluorescent fibers; artificial and true watermarks; and chemical sensitivity to bleaches and ink eradicators.

Security Inks: Invisible ultraviolet (UV) and fluorescent inks; heat sensitive inks that change color or disappear at a specific trigger temperature. Hidden Image Technology: When copied, these background patterns form Image Technology messages that are detectable immediately on the duplicate (e.g. “VOID,” “COPY,” etc.).

Custom Borders and Microtype: These fine-line designs and minute lettering are difficult to reproduce off a scan of the original document.

Warning Bands: This overt warning line will discourage anyone who might attempt to counterfeit the protected document.

The preceding steps taken, the business owner should not neglect to train employees properly on what to look for and how to identify a counterfeit document. Similar to paying on an insurance policy, a decision to upgrade your document security should involve a comparison of cost of this effort as compared to any loss that might occur if these procedures are not implemented.

Don’t Write Off Cheques, Financial Experts Say

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LuAnn LaSalle

MONTREAL— The Canadian Press

Cheques may seem old-fashioned in a world besotted with electronic transactions, but is it time yet to write them off entirely?

Cheques are comparatively costly, take longer to process and are a good deal more bothersome than swiping a piece of plastic. Nevertheless, the paper payment system still has its uses, according to financial experts.

“I think the cheque’s future is downward, but it’s still going to be with us for a while,” said Christie Christelis, president of Technology Strategies International in Oakville, Ont.

Over the last 15 years, the debit card has displaced the cheque almost completely in the retail sector, said Mr. Christelis, whose firm tracks the Canadian payments industry.

“I don’t know many stores that accept cheques these days. If you think about the consumer experience of writing a cheque, it’s time consuming,” he said.

The value of payments with personal cheques used by Canadian consumers is excepted to decline to $113-billion by 2014, down from $144-billion in 2009, said Mr. Christelis.

While it can be cheaper to use online or telebanking to pay bills, schools, summer camps and small businesses all still use cheques.

“It’s a very useful tool,” said small business owner Igor Romanov, who runs appliance repair business ARS International Inc. in Montreal.

“It’s less expensive for the customer and less problems for me,” he said. “I do trust my customers,” he added, noting he has had very few bad cheques.

Without cheques, Mr. Romanov said he’d have to pass on the price of a wireless payment device and the cost of credit card transactions to customers in terms of his prices.

ING Direct Canada CEO Peter Aceto said he would prefer transactions to be “electronic,” but he doesn’t think cheques are going to leave the financial landscape entirely.

“Even though, I think, there’s no doubt there’s a trend that Canadians are using cheques less and less,” Mr. Aceto said from Toronto.

Mr. Aceto said he had hoped to eliminate accounts with cheques. But when ING customers were asked if they could do without cheques, the answer was no, because they needed to “write a couple from time to time,” he said.

“I think our customers feel very comfortable with that direction, it’s just that they can’t be 100 per cent cheque-less yet.”

Mr. Aceto said ING provides its customers with 50 free cheques and free e-mail money transfers, an alternative to cheque writing for consumers sending or paying money to other consumers.

At the Bank of Montreal, cheques are included as part of monthly transactions with a BMO banking plan. If a consumer doesn’t have a plan, the fee is 75 cents per cheque.

Consumers need to know how many cheques they write monthly or yearly and if it’s worth the cost of ordering personal cheques, which can cost at least $35 for 50 cheques and about $40 for 100 if ordered from a cheque-making company.

The United Kingdom plans to phase out cheques by 2018 due to declining use.

Mr. Aceto also said that Canadian commerce would benefit from fewer paper transactions.

“I think at the end of the day, paper has with it issues of security and cost and just inefficiency in general.”

But NEBS Canada, which supplies cheques to small businesses, has found the use of cheques has remained relatively stable in recent years.

“Mostly, it’s for the paper trail,” said Wes Carrington, associate product marketing manager at NEBS in Midland, Ont.

“When you’re doing your accounts payable or payroll, it’s always nice to have that receipt to show that you’ve made the payment,” Mr. Carrington said, noting NEBS continues to improve security features to prevent cheque fraud.

For Marie, a mother of two children, cheques are part of the school routine. She said she regularly writes cheques for school trips, lunches and after-hours care.

“I write about four to six cheques a month to my children’s school, for their summer camps and even for a few bills,” she said. “Cheque writing for me is costly but it’s kind of a necessity.”

Toronto Area Employee charged in $2.2M Fraud

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Toronto Area Employee charged in $2.2M Fraud

An internal accounts payable audit recently revealed that an employee at liquid dispensing equipment manufacturer Hibar Systems allegedly stole $2.2 million from the company, Durham Region News, and the Toronto Star reported on June 4th 2011.

Lynda Janet Dingwell – a senior employee in the company’s accounts payable department was recently accused of manipulating accounting records and making duplicate payments.

Detective Fred Kerr of the York Regional Police’s major fraud unit told the media outlet that Dingwell “left a great trail, except nobody caught it in the firm for quite awhile.”

Discrepancies in the company’s financials went back as far as 2006.

Dingwell, who had worked for the company’s Richmond Hill, Ontario-based office for 24 years, was charged with fraud over $5,000, theft over $5,000, and money laundering.

John Poulet Cheque Writer Service recommends that conducting regular internal accounts payable audits can help employers to identify and address embezzlement earlier, which could minimize losses. Additionally, if employees are aware that audits are conducted often, they may be less likely to attempt to steal from the company.

Do you worry about your business being the target of internal fraud? Contact us for a free and confidential consultation.

Industry Experts: Cheque Fraud still a huge issue

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Recently, I had the opportunity to hear two experts speak on the topic of fraud.  Jas Anand – Senior Director, CIBC Fraud Strategy, had some surprising stats prepared for his presentation.  Here are just a few:

  • Over 5 billion cheques are processed in Canada per year, totaling over $41 Trillion dollars.
  • Commercial and business transactions are still cheque based. Adoption of electronic transactions has been very gradual
  • 93% of all reported fraud is cheque fraud
  • 61% are a result of payee name alteration
  • 57% are a result of counterfeit cheques with your companies MICR info
  • 41%  from loss, theft or counterfeit of employee pay cheques

These statistics are surprising because, like me, you may have assumed fraud has moved into a more sophisticated digital age. The fact is, cheque fraud is still rampant and will affect most businesses if measures are not taken to reduce the risk.

John Poulet recommends the following to reduce your risk:

  • Know your employees:  Criminal and financial background checks
  • Set up anonymous reporting system (“whistleblower” hotline)
  • Complete, secure cheque writing system with audit capabilities.
  • If your cheque volumes are low, you should protect them with a cheque protectograph. All manual cheques should also be written with a protectograph
  • Laser cheques should be secured in a locked office or cabinet
  • Software should have advanced security features

If you have any questions or concerns about cheque fraud, John Poulet is here to help. Call us for a confidential consultation.

~Neil Crawford