Fraudulent Activity

Securing Blank Checks is Important Internal Control
Bank Reconciliation can be a preventative factor for employee theft.

One of my clients, a CPA, experienced a check tampering employee theft. He could not believe that he received a call from the bank officer who told him that his account is overdrawn because he usually kept at least $5,000 in his account.

After the call, he started an investigation. He checked the most recent bank statement and the cancelled checks for the past six months. He noticed that the bank balance was close to zero and found a cancelled check with a big amount $7,000 from six months ago. The check number was not sequential, indicating that the check was pulled out from a new check book which has never been used before. He concluded that the authorization signature was forged. The signature was similar to his, but it was not the correct one.

Check tampering fraud with a forged signature like this case was possible due to weak internal control. Blank checks were not secured. They were in the unlocked drawer at his desk -- easy access. When blank checks are not stored in a secure place, fraudulent disbursement tends to happen more frequently. Securing blank checks is a very important and internal control needs to be implemented and continuously monitored.

One way to catch fraudulent disbursement is to do bank reconciliation in a every month . Bank statement shows out-of sequence or duplicate check numbers, which is often an indication of stolen or counterfeit checks. Doing bank reconciliation can work as a countermeasure to employee theft, and it should not be ignored.