Loss Prevention Tip #21: Banking Issues

Law societies across Canada have noticed an uptick in banking fraud activities as a result of more relaxed banking methods. With mobile banking, for example, a cheque deposited by photograph or scan remains physically in the hands of the depositor who can then go to a bank and deposit it again, perhaps to a different account, or request cash. For this reason, members should implement careful controls to ensure cheques issued by the firm have not been altered or negotiated more than once and have controls on deposits by staff and, if electronic deposits, should have rules about the circumstances under which such deposits are permitted – if at all permitted – and about deposit receipts and cheque retention.

Below you will first find a Summary of Noted Problem Areas as determined from the experiences of law societies across Canada. Not all of these problem areas are related to mobile or electronic banking. After that, you will find some Suggestions for Safeguards against problem areas.

Summary of Noted Problem Areas

– cheques altered after printing and issuing. In these instances the name of the payee is whited-out or the amount to be paid is whited-out in favour of another person or amount. In a variation on these alterations, the cheque number at the top of the cheque can be whited-out and altered and the bank coding at the bottom can be and altered and thereby create a new cheque in the bank’s system
– cheques entered on the firm’s accounting system with information that is different from the information on the face of the cheque; these changes can be made before the cheque even leaves the firm
-emails containing emailed funds can be received by anybody and deposited in any bank account

Most of the problems noted above have not been discovered by the banks. Instead, it is the issuer of the cheques who usually makes the discovery during reconciliation or when examining cheques returned by the bank. Banks will not necessarily take responsibility for errors or frauds of the types mentioned, or if they do, then their responsibility may be time-limited. Because the bank may resist liability, you should consider speaking to your bank about its policy regarding these problems.

Suggestions for Safeguards

-ensure that all bank reconciliations, both general and trust, are completed in a timely manner
-ensure that all errors noted are followed up immediately, the error found, and the correction made
-a lawyer should examine all general and trust cheques and cancelled cheque copies to ensure that all pages are present with the bank statement, that all transactions are reasonable with regard to the payee and the amounts paid, and there are no alterations to the cheques
-ask your bank about the appropriate procedure to void a cheque once it has been deposited electronically to your account. The objective here is to prevent the electronic cheque from being deposited twice, being altered, or ending up in the wrong hands.