2011 Property Management Check Fraud Survey Conclusions and Highlights

Many reports by Banker trade groups have written about check fraud over the years. Check fraud is blight to the banking system and a threat to corporations. Specifically, 2011 check fraud statistics show how vulnerable Property Management Companies are to check forgers. With this wide security hole, it is no wonder that check forgers continue their criminal activities.

“Despite law enforcement’s very necessary focus on combating serious and organized financial crime, including terrorist-related activities that remain an ongoing threat – one of the simplest and most prevalent ways to commit a financial crime, to steal money, is to commit some form of check fraud.” –James H. Freis, Jr., Director, Financial Crimes Enforcement Network (FinCEN), US Department of the Treasury, October 2, 2010.

Motivating Factors

Why is there so much check fraud? Is it the economy we are in now…..or, is it just too easy to pull off check fraud with a laser printer and software? Every time forgers are caught and punished, more forgers enter the scene. Many check forgery rings are well managed, often from overseas. The masterminds of these groups are well insulated from prosecution. Those at risk of getting caught are usually the “runners” entering banks to cash forged checks. In many cases, these groups try and get “ordinary” people involved in their schemes to even further isolate themselves from discovery and prosecution.

The Findings

In 2011 the average Property Management Accounting Software A/P check had 4.51 security features which on average grades a C-.The range of these security features is between zero all the way up to 22 different security features on some checks received. Those checks which have four or less security features are pretty much defenseless against today’s intelligent and cunning forger.

Check Security By Accounting Software package used:

                                Average # of                                         Average

Software                Security Features                               LaserCheckGRADER.com grade           

MRI                                        6.4                                          C+          

QuickBooks                         6.1                                          C

Skyline Software                 3.5                                          D+ 

AMSI Software                     3.4                                          D+
Yardi Systems                     3.5                                          C-

The total checks received and graded at LaserCheckGRADER.com have a combined average C- grade.

As you see in the chart above, MRI Software and QuickBooks checks are fairly respectable with an average of 6 security features on their checks but only grade a C or C+. Unfortunately, Skyline Software, AMSI Software and Yardi Systems checks all are far below average with only 3.5 security features per check on average and grade rather poorly between D+ and C- at LaserCheckGRADER.com. All three of these accounting software packages with low grades have numerous vendor choices when purchasing checks. This shows that the users are not aware of the lack of security on their check stock. It is also likely that many users have not ever really even thought about the security of their checks.

Which check security feature is used the most?

The following list shows security features that Property Management Accounting Software users are implementing against check fraud.

By Security Feature:

Micro print                                             73%
Chemical paper                                  62%
Security Screen                                   60%
Void Pantograph                                 52%
Warning band                                     47%
Watermark                                           29%
Ultraviolet Fibers                                29%
Laid Lines                                            24%
Thermo ink                                           22%
Prismatic                                              14%
Toner grip                                             9%
Eraser Protection                                8%
High Resolution Border                     4%

In Summary…..The best Check Security is Not Often Used!   

This study has identified that some of the best check security features are seldom used. Property Management Accounting Software users have significant gaps with these key security features.

What really stands out on this chart is that Toner Grip is only used on 9% of the checks received. Toner Grip is such an important security feature to use against forgers. It is a special coating that allows laser toner to adhere to the paper more effectively. When counterfeiters try to lift off type with tape or a dental pick, the check paper comes with it, destroying the check and any hope of changing information on it. Toner Grip does raise production costs for the check vendor but it is a key deterrent that should be used much more often regardless of cost. Using this feature on a more widespread basis would severely limit the instances of check fraud.

Another excellent security feature with limited use is Thermochromatic Ink. This is used on only 22% of the checks received. This ink is sensitive to heat and disappears when rubbing warms the surface of the check. Thermochromatic Ink cannot be duplicated on a copy machine. The image can be captured but it will not be sensitive to the heat generated by rubbing the surface. In other words, a duplicated image loses the thermochromatic properties of the ink.  

Void Pantographs were present on 52% of the checks received. This is a better showing, but only half of the checks received are using this important security feature. Many more companies could benefit from protection against their checks being scanned or photocopied.  

A High Resolution Border was used on just 4% of checks received. Holograms and Foil Bars were used on a single check, well below 1%. Prismatic Printing was used on just 14% of checks received. Use of these features would significantly increase security on Property Management laser checks.

How Do Your A/P Checks Compare to this Industry Peer Group?

Your final step is to compare your company checks to your peers. Here are four easy steps for comparing various check and accounting software vendors based on their security features.

How to Compare Check Security FeaturesFrom Several Check Vendors

1) Perform a Google search for your Accounting Software name. Choose 3 to 5 vendors that provide checks for your accounting software in an appropriate check style.

2) Print out a list of check security features offered by each vendor.

3) Grade each vendor’s level of check security at LaserCheckGRADER.com to get a letter grade of A, B, C or D.

4) Once you have a grade for each vendor, then you can compare prices and delivery time to make a selection that is best for your company.

It really is that easy! Do this at least once every two years to stay on top of check fraud trends.


Recap

Using simple internet searches for your accounting software checks, you can often double the amount of check security without any additional cost. Once you improve your check security level, you will not need to do a threat assessment for a couple of years. This is one of the best investments of time you can make in your business this year.

This report exposes certain software packages which tend to offer less security features on their checks. This shows that the problem is not confined to a single vendor, and that we should evaluate our check software much more carefully. So it appears that there are numerous vendors which offer a low number of security features.

As a result, the best security features to protect you from check forgers are not being used nearly enough. This is true across the board.

Most companies need to focus on some basic internet research to secure their bank accounts and close the check fraud hole in their system. Starting today, it is easy to manage your check fraud risk level with some basic proactive measures.

This survey was conducted from June 1, 2011 to Dec 31, 2011. Results were compiled from actual A/P checks received from various property management companies. Every effort was made to determine which accounting software package generated the checks received. If an accounting package could not be determined, then the check was not included in the overall results and statistics. Checks that could be traced to a particular software package were used in the overall results in addition to the results for that specific software.

Property Management Accounting Software users need to be prudent and search for the highest level of check security features that their budget will allow. Shop around and do not rely on the original check source that was given at the time of your software installation. From the results above, it appears that a fraud threat assessment has never been performed at most companies. This is imperative in order to review their check quality. With an annual or semi-annual review of check security, many Property Management Companies would quickly discover that their checks are severely lacking in fraud protection and seek more secure options.

3 Lessons Learned from the Houston Check Fraud Bust

A recent bust of a check forgery ring led to the arrest of 40 people in Houston. News reports from the Houston Chronicle describe the operation:

“An elaborate check fraud scheme headed by a Nigerian criminal operation in the Houston area employed street gang members to steal rent checks from apartment buildings, counterfeit them, and then paid scores of homeless people to cash the checks, according to court documents.

The checks and money orders were chemically washed, then counterfeited and either cashed locally or deposited into bank accounts set up by the criminal organization.

Leaders of the check fraud ring allegedly recruited members of several Houston street gangs who would steal checks and money orders from apartment complex drop boxes.

The gang members recruited homeless people from one downtown Houston homeless center and paid them $50 to cash checks up to $500, and $100 for cashing checks up to $1,000, records show.”

Lesson One would be that check fraud has become very international. This Nigerian operation in Houston, along with other Russian and Chinese criminal operations in the past show this trend by international gangs.

Lesson Two - from the large number of checks stolen, to the chemical washing, to the elaborate distribution and cashing of forged checks show just how organized they are.

Lesson Three in this operation shows that they are not just going after large check amounts. Now they are going for volumes of checks. These small forgeries take just as much of your time to close your bank account and open a new one, along with clearing your good name.

What has your experience been with check fraud?

Property Management Bookkeeper accused of $1.49M embezzlement

A 64-year-old La Jolla woman was arrested Thursday amid allegations that she embezzled $1.49 million from the Solana Beach firm where she once had worked, a San Diego County sheriff's detective said.

Financial crimes detective Sgt. Mark Varnau said Jennifer Davey "took significant funds over a long period of time."

Varnau said that while working for Beckman Properties as a bookkeeper and operations manager, Davey made up a fake company ---- dubbed Professional Advisors Unlimited ---- and then wrote checks to her "company" from Beckman's funds.

He said Davey altered or forged 332 of Beckman's checks. 

Davey worked for Beckman from 2000 until she was fired nearly seven years later, Varnau said. The embezzlement wasn't uncovered until a new bookkeeper came in, he said.

Varnau said Davey used money from the Beckman accounts to pay off her credit cards. He said that Davey also created counterfeit credit card statements to cover up the theft, and that those statements were superior in quality and design to the actual credit card bills.


Read article here.

Embezzlement Report for 2011

The 2011 Marquet Report on Embezzlement

2011 was another banner year for employee theft in the United States, continuing the frenetic pace set in 2010. In this report, we identified, researched and analyzed the details of 473 major embezzlement cases in the US active in 2011, a slight 2% decrease in the number of cases from 2010.

Over 5% of the reported cases were against Real Estate Companies with the average loss totaling over $180,000 per occurrence.

The average loss for 2011 was about $750,000; the median loss was $340,000.

Nearly three-quarters of the incidents (72.3%) were committed by employees who held

finance/ bookkeeping & accounting positions.

The average scheme lasted nearly 5 years.

The most common embezzlement scheme involved the issuance of forged or unauthorized company checks.

9 Ways to Prevent Check Fraud

The threat of stolen identities and bank account fraud is indisputable, but very few of us actually do anything to prevent it from happening. Here are 9 very simple steps that any business can take to reduce their risk of becoming victimized.

1. Secure Mailing- Instead of using a normal mailbox at your office, mail any outgoing checks in a secured postal box at the Post Office. This eliminates the risk of a “Mail Harvester” stealing your checks and selling them to a check forging ring who will then duplicate counterfeit checks with your account information.
2. Positive Pay- Banks offer a service called Positive Pay that allows them to catch fraudulent checks when they are presented for payment. They compare the presented check information (check number, amount, and payee) against a file they receive from you with information on all of the checks that you issued. If the information doesn’t match, it sends up a red flag. This service usually has a fee associated with it but in this case, the fee could be worth it in the long run. It also helps establish a fraud prevention partnership between you and your bank.
3. Check Security- Take time to compare which check stock actually has the most security features. The average check has only three or four security features but there are some that have eight or more. Using the correct stock will ensure that you are raising enough barriers to discourage a forger.
4. Toner Grip- Toner Grip is a special chemical applied to paper that chemically bonds the laser toner to it. When attempting to lift a printed character off of the sheet with tape, the actual paper fibers will rip away. This is an add-on for many check suppliers, but well worth the cost. However, there are some check suppliers who provide Toner Grip as a standard security feature and do not charge extra for it. Do some research into your vendors to find out who offers this product and at what expense.
5. Track Check Numbers- If using preprinted checks; assign a range of numbers to the users of your check stock. Make this person accountable for any lost checks and if you discover one is missing, issue a Stop Payment on that check number immediately.
6. Secure Your Check Stock- When your checks are not in use, it is imperative that you lock up your check stock, especially if they are preprinted with the check number and account information. Check stock can be easily stolen and passed off as an authentic check. Even if your check stock is blank, it is still good practice to guard your checks. Why expose your company to Attorney fees that would result in disputing a fraudulent check claim.
7. Secure Your Signature Plate- You would never sign your name to just any document but if your signature plate is stolen, your name can be attached to anything. Take measures to protect your signature plate because essentially it is just as important as your handwritten signature.
8. Reconcile Your Bank Account- The sooner that any fraudulent activity is reported to your bank or law enforcement, the better chance you will have in court. There is also the Repeater Rule to watch out for. This is when a forged signature is used repeatedly by the same offender and goes unreported for over 30 days after the bank statement was mailed out, the bank may not be liable for the losses. Be sure to reconcile your check distributions and deposits within 10 to 20 days after receipt of your bank statements.
9. Phishing Scams- Most banks tell you that they will never call you or send a letter or email asking for your account information. Be very suspicious of any correspondence you receive that asks for your account number or personal information. If there is any question in your mind, hang up and call your bank. If it is a website that you are questioning, look at the URL. If it is a secure site the web address will begin with https:// instead of the normal http://.

Notify your bank immediately if your business or company becomes a victim of check fraud. You will then need to close the account, destroy any old checks, and notify outstanding payees. If the perpetrator is an employee, additional measures will need to be taken such as filing a 1099 against them.