Check tampering is a type of fraudulent disbursement that occurs when an employee converts an organization’s funds by either:
1. fraudulently preparing a check drawn on the organization’s account for his own benefit, or
2. intercepting a check drawn on the organization’s account that is intended for a third party and converting that check for his own benefit.
Here the fraudster diverts or alters checks written by the organization. The Association of Certified Fraud Examiners breaks check tampering into five categories:
1. Forged maker
2. Forged endorsement
3. Altered payee
4. Concealed check
5. Authorized maker
The fraudster then might try to conceal the check-tampering scheme by doing a “forced” reconciliation. In this fraud, the bank reconciliation is manipulated to make the bank balance and the book balance match.
Forgery occurs when someone signs another person’s name to a document or alters an original document. I admit to signing my husband’s name on credit card bills at restaurants and stores when he is otherwise engaged. In this case, I am the “maker”; I am the person who forges the document.
In a forged maker scheme, an employee misappropriates a check and fraudulently affixes the signature of an authorized maker on the check.
Have you ever seen that fascinating Leonardo DeCaprio movie “Catch Me If You Can” based on the real life story of Frank Abagnale? If you have, you will remember Leonardo in a dark European barracks forging checks. Abagnale passed over $4.5 million in forged checks in the 60s. He was not the authorized maker!
We are not even safe from moms on the PTA!
The 37-year-old former treasurer of the Cold Spring School PTA was charged with possessing and cashing two forged checks from the PTA account. A recent audit of the PTA’s books showed several checks written to cash with no receipts. Also, two checks were determined to have forged signatures.
Twenty thousand dollars won’t even pay the rent in Chicago! She was probably just getting started…
The forged endorsement scheme is a check tampering scheme in which an employee intercepts a company check intended for a third party and converts the check by signing the third party’s name on the endorsement line of the check.
The biggest drawback to the scheme is that once it is uncovered, the documentation (the endorsement on the check) reveals who committed the fraud.
In City Of Anadarko Caddo County Special Audit July 2003 Through May 2007, the State Auditor of Oklahoma tells of a very busy and very creative city employee. She had her hands in everything!
The State Auditor and Inspector conducted a special audit of the records of the City of Anadarko, primarily those records relating to the request of the District Attorney. To read a full summary of the report, click here.
Here, the fraudster changes the payee on the check so that he can deposit the check into his own account. An employee intercepts a company check intended for a third party and alters the payee designation so he or an accomplice can convert the check.
Using a pencil is an option!
Over seven years, Gayle Tatman stole over $200,000 from the Grove City food pantry for which she was treasurer. The food pantry helps the needy by providing food and paying bills.
Tatman wrote checks, in pencil, to fake individuals whose financial-aid worksheets she created. Once other volunteers at the organization approved the checks, she erased the pencil marks and wrote out the check to her creditors. When the organization began restructuring its finance operations in 2009, the board discovered falsified checks.
She also deposited pantry donations into four separate bank accounts, at least one of which was previously a legitimate account that the food pantry believed was closed.
Personal credit cards, house and car payments, as well as other personal expenses were paid for using the stolen money.
Or you can wash the ink off with water
Greed prompts fraudsters to take risks that get them caught.
A 31 year-old Oregon man stole two checks from a residential mailbox, washed the checks, and made himself the payee. He rewrote one check, originally made out for $24.56, for $500. Then, on the memo line, he wrote “landscaping.”
When the man tried cashing the check, the bank employees recognized the fraudster and the scam. Earlier that day, the same man using the same technique had cashed a check at the bank. He made one too many appearances at the bank! The fraudster ran away when police arrived, but they caught him as he was scaling a fence.
Don’t use acronyms
Ever notice that the IRS wants you to write checks to the US Treasury and not the IRS? That is because an employee was caught changing checks written to the IRS to I.R. Smith and depositing them to his own account! When I hand write a check I make sure to fill up the entire payee line with something – even if it is a horizontal line.
This is when an authorized signer is tricked into signing a check that she really doesn’t see or scrutinize. Imagine a secretary stacking checks for her boss and the boss signing everything in turn without looking at it. It could happen!
The authorized maker scheme is a check-tampering scheme in which an employee with signature authority on a company account writes fraudulent checks for his own benefit.
Although this doesn’t relate directly to checks, the authorized maker scheme reminds me of the vulnerability of my bank account from those corporations who are authorized to automatically withdraw funds from my account. My mortgage company and my insurance company always ask me to pay them directly and give them a voided check with all of my account information to set up the withdrawals. They may have all of this information without me sharing it with them intentionally, but I would much rather make the payment myself. I would never want to give a mortgage company this ability – especially given how many times my mortgage has been sold and reassigned over the years. Who are these people, and will they really protect my data?
Leita Hart-Fanta, CPA, CGAP, CGFM, converts the complex topics of accounting, finance, auditing, and strategic planning into information that professionals can absorb and use. She’s the author of Accounting Demystified, 2nd Edition; The Four Principles of Happy Cash Flow; and STEP-by-STEP: Building a Persuasive Audit Report. Check out Hart-Fanta's Western CPE Courses.