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Free Fake ID Templates
George Calvin, Divisional Controller for ABC Company, looked up from his work as the accounting supervisor, Sue Johnson came into his office.
"We need to talk," Sue said. "I just received a call from the manager of a local check cashing service. He said that one of our payroll checks had bounced, and he faxed me a copy of it. Look at this."
Sue placed the fax in front of George. The check clearly had been stamped "NSF" for insufficient funds.
Within the next few hours the company received several more calls from check cashing facilities and convenience stores reporting that the company's payroll checks were being resumed. Finally, the bank called to alert the company that they were resuming phony checks drawn on the company's general disbursements account.
After obtaining copies of the first few bad checks, Sue suggested that they refer the situation to headquarters. George shook his head.
"I'm afraid we're on our own. In the past when I've tried to get help from corporate on this sort of thing, I've been told that investigations are to be handled locally at the division."
Sue frowned, "I'm not really comfortable with that. We've never handled any real investigations. What if we do something wrong?"
"All we can do is our best!" George said with a smile.
Because the phony checks did not match ABC's tape of issued and outstanding checks that was provided to the bank, they were identified by the bank as fictitious and resumed to the services who cashed them before they cleared the company bank account. Thus, the check cashing facilities suffered the resulting losses, not the company. However, George and Sue still wanted to learn all they could about the case; they hoped to identify ways to prevent recurrences of such criminal activity and to determine if company employees were involved.
* The "Investigation"
George and Sue's inquiry fumed up several interesting facts. First, approximately 70 fraudulent checks, lacking magnetic encoding and totaling $50,000, had been cashed. The check amounts -- between $400 and $900 per check -- were reasonable payroll check amounts, and the check paper's pattern, the information, and the signature all resembled those on the company's accounts payable checks. All the checks were made payable to one of five fictitious names.
Every check displayed one of two check numbers, which matched the numbers printed on two legitimate accounts payable checks to real payees.
The checks had been cashed throughout the large metropolitan area. The perpetrators had been very cautious. They never visited the same check cashing service twice, they avoided cashing checks in the same immediate geographical area, and they only cashed a few checks each week.
George and Sue next reviewed the check issuing process to determine who had access to issued checks before they were mailed and who had access to blank check stock. Their inquiry revealed that all completed checks had a system generated company name, address, and logo; check number; date; payee name, number, and address; check amount; magnetic bank code; and authorized signature of the corporate controller. In addition, they learned that the blank check stock, which contained no watermarks or VOID icons that would appear on a reproduction, was stored in an unlocked copier room. Almost anyone in the company could have unrestricted access to the check stock.
They also learned that, while ABC utilized a highly sophisticated magnetic reader system of photo IDs to control entrance to buildings, access to the mail room was not controlled via magnetic card reader. As a result, anyone with building access also had access to the mail room and the copy room where blank checks were stored.
After considering what they had learned from their inquiry, George and Sue proposed a possible scenario. Someone, perhaps an employee or a contractor's employee, had taken two of ABC's completed accounts payable checks, possibly from the mail room. The payee name, number, and address, as well as the check date and amount, were masked out on the two stolen checks. The masking had probably been accomplished by cutting and pasting portions of stolen blank accounts payable check stock so that the phony checks matched the blue color of legitimate company checks.
Then, utilizing a high-tech mono-chromatic copier, the altered checks were used as templates for making master fraudulent blank checks. The stolen blank check stock, which was unsecured in the copier room, was loaded into the copier, and excellent quality blank checks complete with company logo, authorized signature, check number, and bank encoding were produced.
Finally, one of five names matching phony ID cards, a date, and an amount were typed on each fraudulent blank check. What appeared to be an employee number was also included. The perpetrators later mailed the two stolen valid checks to the payees for whom they were intended!
George and Sue decided that, based on their findings, it was appropriate to interview employees who had access and opportunity. Before doing so, they contacted the human resources to request guidance and direction. Human resource management responded to the request made by George and Sue with a resounding no! They were told that if the police had enough evidence to talk to employees, that was fine; but HR would not agree to discussions with employees who only might have committed fraud!
With that door closed, the investigation was almost over. The check cashing facilities had turned the case over to the local police. ABC notified all check verification services in the area that an unknown number of fraudulent company checks were in circulation and provided the five fictitious payee names. Otherwise, there was very little that ABC or law enforcement could do to stop or resolve the check cashing scam. The metropolitan area, which spanned more than 80 square miles, was home to numerous check cashing services; and more than 30 independent police agencies operated in the area. Coordinating the investigation was difficult. The police were unable to build a solid case.
Although ABC suffered no monetary loss, management recognized that the company could have been liable for losses suffered by the check cashing services because of the company's negligence in failing to secure the stolen blank check stock. ABC's CEO had company internal auditors review security measures and controls in the acquisitions and payments cycle.
* Internal Auditing's Findings
The auditors who investigated the check fraud were convinced that the scheme had to involve company personnel. They reviewed employee personnel records to link names and addresses used on the fraudulent checks to corresponding data in company master files. No viable link was identified. The team conjectured that the original checks were stolen while left unattended in either the mail room or the reception area. Although the team suspected two specific employees who appeared to be spending beyond their means, no solid evidence was found linking them with the fraud.
Once they formed a hypothesis of how the fraudulent checks had been created, the auditors recommended that blank check stock be removed from the unlocked copier room and placed in a locked cabinet, accessible by the controller. Also, a new blank check stock was chosen, with pre-printed check numbers, water marks, and VOID statements that would appear throughout the background on any attempted reproduction.
Although policies and procedures pertaining to building access were found to be adequate, the auditors suggested stricter enforcement. Access to the mail room was restricted, and it was decided that the room should be locked when unattended.
The company's check generation and audit tape generation programs were modified. Since the new check stock contained pre-printed numbers, the modified program required the starting check number to be entered into the system. The program printed check numbers in the magnetic ink encoding area, and processed the bank audit tape for those check numbers. A log was established to provide accountability for all checks.
* Lessons to Be Learned
This case highlights several essential, but often ignored, principles for fighting fraud:
Suspected wrongdoing warrants complete investigation by those trained to do so!
A complete investigation should include protection of the innocent and identification of the perpetrator. The perpetrator's method of operation -- the "how it happened" -- must be established so that appropriate controls can be implemented to prevent recurrence.
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