fraud detection
Guard against electronic funds transfer fraud
Monday, November 8th, 2010 | consulting | 1 Comment
Your business, like many others, may receive and pay out funds through electronic funds transfer (EFT) and automated clearing house (ACH) transactions. Such transactions include converting paper checks to electronic payments, wiring funds, and paying taxes electronically. The frequency of EFT fraud and the size of losses have increased as cybercriminals are targeting small and medium-size businesses who have inadequate protection.
Unlike consumers, who are well-protected against ACH fraud, businesses must notify their banks within two days of a fraudulent ACH transaction or the business may be liable for the loss. Wire transfer fraud demands detection within hours. So discovering and responding to unauthorized EFT is time-critical.
Typically, a business establishes the means to conduct online EFT transactions with a financial institution. The bank has controls in place that authenticate the computer being used to initiate the process. If the computer is not recognized, another layer of security is activated, such as a security question. Once the authentication process is completed, the bank assumes that the transaction is legitimate because it originates from the authenticated computer.
The cybercriminal subverts the authentication process by installing malicious software hidden in an email attachment, web browser download, or file transfer. This malware captures keystrokes to log bank account information, credentials, and online activity such as EFT transactions. The user is usually unaware that the computer has been compromised. Then the criminal hijacks the victim’s computer to conduct the fraudulent EFT transaction, which the bank’s system sees as legitimate because it recognizes the computer. The criminal transfers most or all of the funds in the account by wire transfers under $10,000 each to avoid currency transaction reports that would detect the activity.
The bank is required to make its best effort to recover the funds, hopefully by reversing the transfer. The business often has no recourse against the bank because the bank’s security system authenticated the victim’s computer. Thus the payment order appears to be legitimate, and the bank is protected by the Uniform Commercial Code, especially if the fraud can be traced to a security breach in the victim’s computer (the malware or hijacking program). Wire transfers are difficult to recover because they are instantaneous. ACH transactions usually take longer because of the intermediary clearinghouse used to complete the transaction, thus increasing the possibility of intervention.
You can take a number of steps to minimize your risk of EFT fraud:
- Install firewall, antivirus, and malware protection on all computer systems, especially those used for online banking.
- Dedicate a computer for online banking with robust authentication features.
- Reconcile EFT transactions daily.
- Use a dedicated bank account and make sufficient “just-in-time” deposits into that account before a transfer occurs.
Contact us to learn more about these and other internal controls to safeguard your business against various forms of fraud, from within or outside your company.
Better Property Settlement in Divorce
Friday, August 20th, 2010 | litigation, tax | No Comments
We’ve heard it said that the second most contentious issue in a divorce (after the children) is the property settlement. One side may resort to unusual measures to reduce the property settlement, while the other side may be seeking revenge or punishment through the property settlement. The intense emotions complicate the process of determining an equitable settlement.
We provide services to attorneys in all types of cases with financial issues. They may involve valuation of a family business, forensic accounting to aid in the process of ascertaining what assets are available for the settlement, and calculation of the needs of the spouse and children for maintenance and support. We also advise about the tax implications of various settlement options. Answers to all of these questions are vital in coming to an equitable settlement.
Our role varies with each case. For example, in a recent case, we assisted with discovery by ascertaining the true value of some marital assets and performing due diligence on the couple’s finances. With this improved information, the attorney was able to negotiate a significantly better settlement for his client than the initial offer. This is just one of the many ways we help improve results for our clients.
C.S.I. - Accounting
Tuesday, June 29th, 2010 | litigation | No Comments
I don’t know that I see a TV show in our future, but forensic accountants follow the money trail in the same way crime scene investigators follow the trail of the murder suspect to build a case. This area of our practice has received more press recently as the Ponzi schemes of Bernard Madoff and others were exposed during the recession. Karen Hellmund and Van Elkins are certified in financial forensics (CFF) by the American Institute of CPAs, and Van has provided expert witness testimony in several cases that necessitated forensics to uncover financial facts and evidence for the court.
We are told in this blog that Ponzi schemes happen more often in financial bubbles as investors abandon healthy skepticism to chase higher returns. When the bubble bursts, the investors discover that their investments have disappeared when they try to withdraw their funds, exposing the fraud. The FBI, SEC, and Commodity Futures Trading Commission are investigating many more securities fraud cases and filing more complaints than they did before the recession as various schemes come to light.
Although the investigations are most often led by law enforcement officials, forensic accountants handle the highly technical task of following the money. Through banking records and other documents, they build a case against the perpetrator and calculate the amounts of money involved through cash flow analysis and other techniques. Their work is essential to building a concrete case against the scammer and in determining how much was lost by each victim.
Fraud protection resource
Monday, June 21st, 2010 | consulting | 1 Comment
When times get tough, more people try imaginative (and illegal) ways to outsmart the system or take advantage of others. We’ve seen it during this recession in Ponzi schemes (e.g., Madoff and Bolze), unemployment insurance fraud, bank fraud, mortgage fraud, and more. Recently, the Federal government set up the interagency Financial Fraud Enforcement Tax Force to improve enforcement actions and to help us protect ourselves from fraud. They launched the website StopFraud.gov as a central point for news and information on financial fraud.
As consumers and as business owners, we need protective measures to reduce our risk of becoming fraud victims. You may find some useful information on this website. For more specific help in boosting your fraud protection, please feel free to contact us.
Fraud and Embezzlement
Tuesday, May 25th, 2010 | consulting | No Comments
Workplace fraud is an age-old problem in all types of businesses. Whether it takes the form of financial statement fraud, corruption, or misappropriation of company assets, the cost to businesses is estimated at seven percent of annual revenues, according to the Association of Certified Fraud Examiners (ACFE). Their new report, to be released June 2, indicates that almost 90% of workplace fraud consists of misappropriation of assets. This may range from pilfering office supplies to complicated large scale schemes. Frauds may continue for years before they are detected. In forty percent of cases, the fraud is revealed by a tip. This report shows a snapshot of workplace fraud and how it is detected.
Small businesses are especially vulnerable to occupational fraud because internal controls often are not robust enough and because various duties must be combined and carried out by the smaller staff.
We are presenting at a small business seminar in Morristown, TN on June 8 sponsored by First Tennessee Bank. We will show how workplace fraud and embezzlement can happen right under the owner’s nose. We will also give attendees some practical ways to improve their companies’ internal controls.
In another presentation that day, we will talk about the increase in IRS audits and what business owners can do to make sure their books and records will withstand IRS scrutiny.