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Cheque Fraud Partnering Session & Mitigating Fraud , Bank Offered Solutions Hosted by: Global Transaction Solutions June 23rd, 2007.
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Cheque Fraud Partnering Session&
Mitigating Fraud , Bank Offered Solutions
Hosted by:
Global Transaction Solutions
June 23rd, 2007.
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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•The Basics of Cash Management
•Cheque fraud prevention
•Mitigating Fraud , Bank Offered Solutions
•Questions & Answers
Introductions & Agenda
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Cash Management Solutions
Information & Control SolutionsEnables your business to assign varying levels of online permissions and
authorities to individual users and allow them to monitor and manage financial transactions in their current account, helping them to operate their business
more efficiently and mitigate risk effectively
Disbursement SolutionsEnable your business to more efficiently
manage corporate payments and increase control over the timing of payments
Supplier PaymentsPayroll
Money Flows Out
Collection SolutionsProvides your business with greater certainty around the timing of deposits and allows you to accelerate cash inflows through increased
efficiencies & alternate payment options
Money Flows In
Customer payments Company
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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What is Cheque Fraud?
Fraud on the frontCounterfeit - A fake cheque that has been completely reproduced or copied to resemble a legitimate or authentic cheque. Altered - An unauthorized change to an original and legitimate cheque, such as the payee, sum payable, and date or cheque number. The alterations are made prior to being presented for negotiation.Forged Drawer/Maker– The payer signature on the front of the cheque is not the legitimate signature (forged) of the account owner/signing officer.
Fraud on the backForged Endorsement - A forged payee signature on the reverse of the item (person cashing the cheque)
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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The Eighties• Fraud threat technically
unsophisticated, unorganized and locally focused
• Fraud threat limited to credit cards and “bad” cheques
• Limited use of technology to detect and prevent fraud
• Limited budgets applied to fraud effort
2000…• Fraudulent activity is controlled
by organized criminal groups using highly sophisticated technology
• Fraud goes global
• All delivery channels and products subject to fraud
• The full fraud value chain is managed under the direction of a single executive
• Prevention/detection centralized
• Technology spend is culturally ingrained
• Benchmarking with leading US financial institutions
• Development of fraud detection model to target high risk transactions
• State of the art technology to detect fraud is deployed
The Nineties• Fraud threat becoming
more sophisticated and organized criminal groups emerging in Canada
• Debit cards and ATMs become increasingly vulnerable
• Prevention and detection effort is regionalized in business silos with increased technology
Evolution of Fraud
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Cheque Fraud Evolution
Stolen cheque stock with forged signaturesCounterfeit cheques Altered amounts/payeesForged and improper endorsements
How cheques are compromised?Theft from the mail and couriersInternal employee theft or selling of account informationDumpster diving
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Responsibility for Prevention
The Issuer
The Receiver
The Bank
Cheque Fraud Detection Partnership
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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The Numbers
Individual items can be small to multi million.Growth rate is believed to be over 40% year over year.62% of 1000 Canadian Corporations surveyed have experienced cheque fraud. *Cost to Canadian business is between $1B and $2B annually. *Per capita fraud in the GTA is approximately $41.00 per person – equivalent to US ratios. *One US study – company employees commit 82% of all fraud – 1/3 by management and 3 of 4 go undetected.
* 1997 Nielsen Report
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Impact of Cheque Fraud in Canada
5,000 cheque fraud attempts annually totalling $300MM*Some frauds are over $1 millionOne RBC client had 10 incidents totalling >$2 million in 6 monthsBusiness cheques are a favourite target – acceptability As senior clients implement protective procedures, fraudsters move down marketNorthbound migration of cheque fraud techniques
* Extrapolated from RBC experience
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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What does cheque fraud mean to business clients?
Time/expense of investigations and risk mitigationRepeated reconciliation, Investigation, police report, tracing documentsCosts per occurrence can run to 4-figures before the write-off Affidavits; new accounts required, new cheques to be printed
Governance issues for larger clientsShareholder/board oversight for larger clientsExpanded audit scope = longer time = higher fees
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Cheques issuedReconciliation is complicatedComplicity investigation risks staff moraleRisk to Vendor relationship
Cheques deposited:Revenue risk: Reluctant to accept any chequeLoss risk: Bank may return cheque after fraudster obtains goods
What does cheque fraud mean to business clients?
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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How does Cheque Fraud work?
Pick a bank…some weakness shown in the past, does not pursue police action
Pick a company…good reputation = high acceptability
Test the waters…Try a small cheque
Full counterfeitRaise the amountAlter the payee
Try some big ones…or a really big one
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Impact of Technology
Scanner technology Excellent scanners at any computer store
Printer technology High quality laser and inkjet printers
Digital image enhancement softwarePhotoshop©
Barriers to entryHardly any… price for scanner, printer, software together <$2,000
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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CompaniesSegregated responsibilitiesRisk assessmentSecure cheque stock, unissued and paidSeparate accounts for high-valueMaximize use of bank’s verification toolsOtherwise, self-verify
BankMitigation tools
Positive Pay reconciliation toolPayee Name Match
Self-verification toolsExisting Web availability of both MICR-line and imagesHigh-volume MICR-line option
Cheque Fraud Image Partnership
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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National Fraud Detection Group (NFDG)
NFDG is located in Toronto and operates 24/7
They look after the prevention, detection, and investigation of fraud for client card, cheques, online banking, and branch transactions.
Look for unusual transaction activity on a client’s account.
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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NFDG ~ Cheque Fraud TeamWithin NFDG, there is a department that specializes in Cheque Fraud.The Cheque Fraud department has 4 teams: Kiting, Altered, Counterfeit and EndorsementsWith use of system technologies, fraud detection rules, and the experience of each team member, they are responsible to detect and prevent losses due to fraudulent US and CDN RBC cheques.Detection may occur at point of presentment or after in form of a post review.Important to remember, NFDG will only see select items after it has been presented for payment.
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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RBC Mitigating Risk Solutions Review
Positive Pay Cheque Matching
Payee Name Match
Cheque Imaging
Electronic Balance & Transaction Reporting
Electronic Payments
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Positive Pay Cheque Matching
Daily reconciliation of all cleared cheques is one of the best defences to protect against cheque fraud.Positive Pay is a reconciliation tool that shifts the onus for daily reconciliation to your financial institution. An input file of cheques needs to be sent to bank when cheques are issued.Any exception items need to be reviewed and decisioned on a daily basis. Some banks offer automatic returns on any exception items.
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Payee Name Match
Payee Name Match helps provides the best possible protection against 'fraud on the face’ of negotiated cheques.
Tighten Operational Risk ControlPayee Name Match helps clients meet more stringent control and governance requirements often required by regulators*, auditors, etc.
For US-owned firms, Sarbanes-Oxley is the regulatory driver. Similar Canadian legislation is expected in the near future.
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Payee Name Match
Protect Vendor/Supplier RelationshipWe have seen in cases where Payee Name Match had identified the payee name fraud, and replacement cheques issued before the beneficiaries knew that the cheques had been stolen
Save Time, Expense And AggravationHandling an altered cheque becomes routine. Saves the time, expense, and aggravation of investigating an item after the fraudster received value or funds.
Your current processes for MICR-line fraud detection (Positive Pay), in-house cheque reconciliation, and stop payments are unchanged.
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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How does Payee Match work?
Cheques must meet new CPA Guidelines and must be OCR-compliant.
Customer sends Issued Item information to bank at time of issuance
Payee Name and full Payee Address, as printed on the cheque
The image is captured when the cheque is delivered into bank clearing.
Optical Character Recognition (OCR) is used to digitize payee name and address
The cheque information is compared to issued item information
Exception cheques are presented for customer decisioning
Items are “paid” if not decisionedoption to “return” if not decisioned
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Payee Name Line Match
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Account Imaging Services
With the implementation of the new CPA Standards, banks can now provide access to high quality digital images of items processed through your accounts.
Access to images of cheques and deposits is convenient, saves time, allows you to provide better service to your customers, and can help minimize the risk associated with cheque fraud. Images also provides an economical option to long term cheque storage, and for business continuity purposes.
Account Images can be delivered in the following formats:Daily access via online reporting system.
Delivery via regularly scheduled CD Rom’s (monthly, bi-weekly, etc.).
Daily access via downloaded image file (must have an image archive system to manage images).
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Balance Reporting Services
Balance & Transactions Services can also be an effective way to help protect against cheque fraud.
Often these tools are delivered via an Internet channel, and provide ongoing access to all activity through your bank accounts.
Very often these tools have some type of built in export functionality to allow you to complete your own bank reconciliation on a daily basis.
This is often the most cost effective way to complete a bank reconciliation as long as it can be completed every business day.
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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FunctionalityStandard Internet
Banking
Dedicated Cash Management
Platform
Ability to assign user permissions
No Yes
Establish payment approval rules for multiple signing officers
No Yes
Export balance & transaction information to aid in automated reconciliation
Possibly, but often
very limited
functionality
Yes
Reporting for accounts held at different financial institutions.
No Yes
Ability to add other services into platform (such as Wire Payments, etc, ACH Direct Deposits or Direct Payments)
No Yes
Internet Banking vs. Cash Management Platform
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Electronic PaymentsThe best overall option available to protect yourself against cheque fraud is to move as many cheques to electronic payments as much as possible.
An electronic payment system:
Can be significantly more cost effective than cheque issuance.
Can save time, speed up reconciliation, and provide better control over outgoing cash flows.
We have seen some clients use an electronic payment system to negotiated better trade discounts with large suppliers because of their ability to pay on any specific date.
Types of electronic payments:
Financial EDI Payments (Corporate Payments)
ACH Direct Deposits (Primarily Retail Payments in Canada, but can also be used for Corporate/Retail Payments into the US.
Wire Payments
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Electronic Payment Solution
ROYAL BANK OF CANADA123 ANY TOWNANY CITY
Other Banks
Sin
gle Paym
ent F
ile
Remittance details
sent to Receiver
$$$$Payments$$$$
Trading Partners
Accounting System
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Considerations when Implementing Electronic Payments Strategy
Set Clear Goals about where you want to be with electronic payments in 6 months, 12 months, etc.
Review existing controls/processes for cheque issuance and ensure they are replicated or enhanced with electronic payments.
Develop marketing tools to gain buy-in from vendors, and determine who the tools will be sent to.
Consider setting specific transaction limits on an individual vendor basis for added controls.
Lock down access to fields of vendor database that hold bank account information, or segregate information for added controls.
Convert cheques written to suppliers out of Province and to US destinations first.
CAUBO 2007 - Fraud Prevention and Risk Management
June 23rd, 2007
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Questions?
