Trends in Financial Fraud and Fraud Prevention

Financial fraud is a multi-million dollar problem for Canadian businesses, and the risk of falling victim to it is growing. According to results from a Chartered Professional Accountants of Canada (CPA Canada) survey, almost a third (32 per cent) of participants was a victim of financial fraud at some point in their life.

So why is this happening? And how can you prevent it?

Online Payment and Wire Transfer Fraud

CPA Canada noted a 10 per cent jump in the number of victims referencing online fraud from 2013 to 2014. One specific area of growth involves criminals hacking into businesses’ email applications. For example:

A CFO received an email that appears to be from the organization’s president. The email instructed the CFO to immediately arrange a transfer of company funds to a third party for a new project. Generally, this type of fraudulent email contains specific instructions on wiring the funds and banking details. At first glance, the email appeared to be legitimate. However, the CFO took the extra step to contact the president by phone. This conversation confirmed no such instructions were sent, thus preventing the fraud.

This case is more common than you think. The lesson here is to make sure all email payment instructions are directly verified with the source. It is a simple practice that can protect you from fraudulent activities.

Counterfeit or Altered Cheques

The key to counterfeiting and altering cheques is the fraudster’s ability to obtain cheques and banking information from a variety of sources. Of these, traditional mail is one of the most susceptible to theft. For example:

A fraudster followed a postal employee who was delivering a company’s mail. After the postal worker dropped off the mail with a receptionist, the fraudster engaged the receptionist in conversation and quietly picked up the bundle of delivered mail and walked off.

To reduce the risk of falling victim to mail theft, it is important to secure incoming and outgoing mail. This simple and effective strategy can significantly minimize your vulnerability to this type of fraud.

Combating Fraud

While financial fraud is becoming more prevalent, there are a number of ways to protect yourself and your business.

  1. Secure Your Deposits
    Deposit receivables into a local account or lock box and use endorsement stamps to ensure returned items are correctly charged back.
  2. Protect Your Cheques
    Maintain strong internal controls over the mailing of cheques, as well as the handling of cheques and cheque stock.
  3. Safeguard Your Online Identity
    Keep your login IDs and passwords secret. All large payments should also require fixed templates and multiple electronic signatures.
  4. Reconcile Your Account Transactions
    Review account balances and reconcile account transactions frequently and review issued and paid cheques regularly.
  5. Train Your Staff
    Ensure staff members are aware of the possibilities for fraud in your organization’s operations.

Fraud Prevention Resources

This article was contributed by David Olson, CPA, CMA, a commercial banker in Vancouver.