ADVANCES IN TECHNOLOGY ARE MAKING FRAUD EASIER TO COMMIT, EASIER TO DISCOVER
Los Angeles Daily News
As the business manager of an independent pharmacy in the Santa Clarita Valley, Tracy Dos Santos never thought criminal activity would come her way.
The pharmacy she works for had been a trusted purveyor of prescriptions for 30 years. The closest encounter she ever had with illicit behavior was the occasional check that bounced.
But such a seemingly benign problem became a befuddling mess when a customer paid for a narcotics prescription with a phony check. Though Santos called the Sheriff’s Department, the money was never recovered and the harmacy factored the loss into its annual bad debt load of about $4,000.
Merchants and even larger businesses are becoming all too familiar with this kind of scenario. Advances in technology and a mixed bag of economic news are contributing to a rise in check fraud. Banking executives estimate that more than $1 billion is lost annually as result of bad checks. With that figure expected to rise, banks are now investing in educational programs taught by those who know best: former white collar criminals.
Union Bank of California sponsored several seminars earlier this summer with Frank Abagnale, who made a name for himself more than three decades ago when he cashed $2.5 million in phony checks in every state and 26 countries. His cunning ways inspired the movie “Catch Me If You Can” with Tom Hanks and Leonardo De Caprio last summer. Though Abagnale’s assistant in his Washington, D.C., office said he only speaks when hired, Union Bank executives shed a little light on what they learned from this chieftain of check fraud.
“We hired Abagnale because access to fake checks has really never been easier,” said JoAnn Bourne, an executive vice president who oversees commercial deposit and treasury management at Union Bank. “It’s widespread across industries and across different-sized companies.”
To stop the siphoning here’s what Abagnale suggests:
Ask the bank about positive pay, an automated check-matching service that can detect fraudulent checks.
Use gel pens instead of ink so a forger cannot wash a check and cash it for a greater amount.
Do not use generic check stock as others could be using the same check stock and cause a mix-up when deposited.
Use a criss-cross shredder when disposing of important documents.
Keep track of deposit slips as many carry bank routing and account numbers.
The federal government also has plans to curb check fraud. Beginning in October, the Check Clearing for the 21st Century Act will go into effect. Signed by President George W. Bush in October 2003, Check 21 allows banks to convert original paper checks into electronic images which can then be used for proof of payment.
Currently, most checks must be physically transported before they can be cleared. The new law will allow banks to exchange electronic check images, ultimately reducing overhead costs. John Hall, spokesman for the American Bankers Association, said the more efficient processing will also help increase fraud prevention.
“Faster detection will mean faster resolution for the consumer,” he said.
Not so, according to the Foundation for Taxpayer and Consumer Rights. Jerry Flanagan, a lead advocate at the Santa Monica-based organization, said people will likely find a way to intercept the electronic images. “And all Check 21 does is eliminate a paper trail. What’s so good about that? Sounds like the law just saves banks a bunch of money.”
Though many consumers and small businesses can easily take advantage of other preventive measures, check fraud is also surfacing among once trusted employees. In 2002, the former business manager of Valley Presbyterian was charged after embezzling $748,564 over a two-year period.
The employee was responsible for handling $90 million in annual billings for the San Fernando Valley’s largest community-owned hospital. Authorities say the business manager took funds designated for refund checks and deposited the money into accounts that were maintained at several credit unions.
As embezzlement continues to rank highest among financial crimes that continually hurt businesses, Bourne said, a company can avoid such incidents by creating two separate accounting jobs: one for reconciling checks and the other for writing checks. Stringent hiring practices can also help prevent embezzlement. Confirming employment dates and detecting time gaps on a resume should be complemented by hiring bonded temporary workers who fill financially oriented positions.
“Small businesses seem to be especially naive when it comes to this,” Bourne said. “It’s important that businesses have appropriate controls so their own people aren’t committing these crimes.”
For Valley Presbyterian and other businesses that have been foiled by employees, sometimes it’s virtually impossible to foresee a potential problem. Hospital employees who worked with the business manager said she was friendly and received a great deal of respect from her colleagues. But Santos, who still works for the pharmacy in Valencia, said she’s now wise enough to know that a pleasant demeanor and professional titles should not instill trust.
For example, a local doctor who had been a customer of the pharmacy for several years wrote a bad check for about $200 and would not respond to several letters from the pharmacy requesting payment. “I made every effort to contact the doctor, even more so because he was a doctor. But he never responded,” Santos said.
When all else failed, she contacted the Los Angeles County District Attorney Bad Check Restitution Program. Instead of dealing with hardened criminals, the program recoups money from people who write checks that eventually bounce. Cheryl Thomason, a spokeswoman for the program, said funds from two out of three checks are usually recoverable. From department stores to pizza deliverers, the bad check restitution program is free for victims and has recovered more than $13.5 million since 1999. At the same time, the program has diverted approximately 47,000 bad check writers from further participation in the criminal justice system.
That’s good news to Detective Frank Alvarez, who is with an economic crimes unit of the San Bernardino City Police Department. “But those who have insufficient funds are completely different from the people who commit acts like forgery,” he said.
A fake signature is considered a felony when it comes to check fraud. If convicted, forgers can face four years in prison. “And these people usually have a narcotics history as well,” Alvarez said.
Drug use doesn’t always increase the instances of check fraud, though. “Technology is not helping the problem either. It has eased the making of checks,” Alvarez said. “I suppose in many way it has helped us, too. During our search warrants computers and scanners can be used to recover information about check fraud.”
Looking ahead, Alvarez believes the frequency of check fraud and other financial crimes will increase. And while some believe these criminal offenses don’t deserve severe punishment, “prison should be prison when it comes to these crimes,” he said.
Contact the author Evan Pondel at (818) 713-3662 or [email protected]