Protecting against check fraud perspectives and best practices

Transcription

1 Protecting against check fraud perspectives and best practices Presenter Name Corp Title, Functional Title Date of presentation 2016 Wells Fargo Bank, N.A. All rights reserved. For public use.

2 Agenda Check fraud trends Making the most of positive pay A closer look at some types of check fraud and best practices Internal embezzlement Forged endorsement Mobile deposit fraud with duplicate presentment 1

3 Payment fraud continues its evolution 73% 42% 71% of organizations experienced attempted or actual payments fraud of them report that the number of fraud incidents increased of organizations experiencing payments fraud, were victims of check fraud Source: 2016 AFP Payments Fraud and Control Survey 2

4 Payment fraud trends Payment Forms Targeted 100% 75% 50% % % Check ACH Credit/Debit Card Wire Source: 2016 AFP Payments Fraud and Control Survey 3

5 Check fraud loss trends 20% of organizations incurred loss from check fraud* Check fraud is continuing to evolve A growing trend mobile deposit fraud with duplicate presentment *2016 AFP Payments Fraud and Control Survey 4

6 Reasons for check fraud losses Organizations incurred financial loss due to check fraud for various reasons: 41% 29% 25% 20% 18% No positive pay Clerical errors Account reconcilement not timely Stolen check stock Internal fraud Source: 2016 AFP Payments Fraud and Control Survey 5

7 Positive pay for fraud prevention Compares incoming checks with check issue information provided by the customer Positive Pay The best way to prevent check fraud Checks that don t match are shown to the customer for decision (exceptions) Customer makes return or pay decision Unauthorized checks are returned 6

8 Positive pay effectiveness Counterfeit continues to be the leading type of check fraud. Positive pay is highly effective at stopping counterfeits, but when isn t it as effective? Internal embezzlement Forged endorsement Ineffective use of the positive pay service Positive pay alone will not prevent payee alteration fraud Positive pay 99.4% effective Original check with altered payee Counterfeit check matches legitimate item but has a different payee 7

9 Making the most of positive pay Payee Validation Key service to prevent payee alteration fraud Event Messaging or text notification of positive pay exceptions Mobile access to positive pay Identify if there are exceptions Review and decision exceptions Input issue information for ad hoc checks or small volumes of checks Automation tools Mapping tools Automated upload from QuickBooks 8

10 On to some specific types of check fraud

11 Internal embezzlement Embezzlement is a special type of fraud Trusted persons become trust violators Not prevented by positive pay alone Strong internal controls are critical Opportunity Pressure Fraud Triangle Rationalization Not always reported to the bank or to law enforcement Source: Donald R. Cressey, Other People's Money (Montclair: Patterson Smith, 1973) p

12 Internal embezzlement a scenario Trusted employee Frank was the company controller. For 11 months, he created checks payable to an accomplice. Frank uploaded the issue information to the bank. He timed his activity to coincide with his manager being out of the office at monthly business meetings. 11

13 Internal embezzlement How you can protect your company from check fraud Use positive pay and payee validation services Monitor and reconcile accounts daily Secure check stock Conduct surprise audits and/or rotate assignments Implement segregation of duties and use it properly Separation of check writing, positive pay decisions, and reconcilement functions Dual control for sending check issue information to the bank Ensure authorized signers on bank accounts are kept up to date Know your employees and vendors 12

14 Internal embezzlement How you can protect your company from wire fraud Require more than one approver for wires Restrict Freeform Wire and Template Maintenance user entitlement to only those individuals with a real business need Perform credit and background checks on all new employees who have access to wires Regularly review/audit user entitlements 13

15 Forged or missing endorsement fraud Forged endorsement fraud typically involves an intercepted check. A trusted employee is often the perpetrator stealing or rerouting the check. Recovery rate Based on number of fraud cases Notification time frame Recovery rate days 84% 181 days 1 year 67% > 1 year 46% Quick action is key to mitigating risk of loss. Source: Wells Fargo Treasury Management, 2015 check fraud case volumes, forged and missing endorsements 14

16 Forged endorsement How you can protect your company Ensure that controls are in place to prevent tampering with vendor information, including addresses Reconcile vendor statements and invoices timely Outsource check printing to a reliable vendor Proactively examine images of checks clearing the account to ensure the endorsement is correct Know that endorsement fraud is often not detected until a payee reports not receiving funds 15

17 Mobile deposit fraud with duplicate presentment what is it? This type of check fraud involves remote deposit capture via a mobile device (smartphone, tablet, etc.). The same item is subsequently negotiated a second time, usually at a bank branch, retailer, or check casher. The payee receives funds twice for the same item. 16

18 Mobile deposit fraud a scenario The fraudster Diane deposited a check via a mobile device. She then cashed it at ABC check cashing company. The mobile deposit check cleared first and the cashed check was returned as a duplicate payment. ABC check cashing company submitted a Holder in Due Course (HIDC) claim against the maker of the check. 17

19 Holder in Due Course (HIDC) A legal concept that can impact a maker s liability for a check. A HIDC gives value for a check, in good faith, and without knowledge of any fraud or claim to the check. Losses typically relate to duplicate checks negotiated at check cashers. Consult with your attorney for more information or guidance about Holder in Due Course. Quick action is key to mitigating risk of loss. 18

20 Mobile deposit fraud trends Many mobile deposits with duplicate presentments are honest mistakes. However, the increase in mobile deposit use has created new opportunities for fraudsters. Bank losses related to remote and mobile deposit capture are increasing. Losses and impacts are also increasing for business customers. 1 in 7 Americans have deposited a check using a mobile device within the past year Survey conducted for ABA by Ipsos Public Affairs, July 8 13, Cases for mobile deposit fraud more than doubled from 2013 to 2015 Source: Wells Fargo wholesale check fraud cases 19

21 Mobile deposit fraud and social networking Social media is sometimes used to communicate opportunities for mobile deposit fraud. 20

22 What are banks doing to mitigate the risks of mobile deposit fraud? Various controls on deposits via mobile devices Detection processes for duplicate presentments Offer of fraud prevention services such as Positive Pay Claims processing on behalf of clients Real-time information exchange on presented checks, including duplicate presentments Limited capability currently Active initiative to expand capability 21

23 Mobile deposit fraud How you can protect your company Use positive pay and payee validation services Investigate duplicates closely Reconcile daily Require a waiting period before reissuing a check Be prepared to take action against a perpetrator Take quick action if you receive notice of a Holder in Due Course claim Investigate! Submit claim to bank for the mobile deposited item 22

24 For more information about protecting your business online and offline: Visit the Fraud Protection page on Treasury Insights at treasuryinsights.wellsfargotreasury.com For your questions and comments, please us at 23

25 Thank you