Forged Endorsement Schemes

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Forged Endorsement Schemes

• By Kyle McConnell

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Components of an FE Scheme

• Steal a check intended for a third party.
• Convert it by forging their signature, and
  sometimes dual endorsing it with their own.
• Attempt to conceal it from the employer and the
  intended third party.

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Theft of Outgoing Checks

• Anywhere between the signing of checks and their
  proper delivery
• Checks left on the signer's desk
• Mailroom employees
• Secretaries charged with mailing the checks
• Theft of returned checks
• Re-routing delivery of checks

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Conversion

• Perp cashes the check by forging the endorsement
  of intended payee
• Two types
• Forged endorsement
• Dual-endorsement
• Frequently cashed where check cashing controls
  are weak

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Concealment

• Difficultneed to hide it from two parties
• Employer
• Vendor

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How to Conceal from the...
Employer
Vendor

• Reissue lost checks
• Write out manual check
• Alter and resubmit vendor invoice

• Remove dual endorsed checks
• Erase dual endorsements
• Destroy or falsify check delivery forms

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Red Flags of Scheme

• Vendor complaints
• Higher than normal incidence of reissued checks
• Dual endorsements, especially when the second is
  an employee's
• Handwritten endorsements

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Investigation

• Identify affected vendors
• Identify the missing payments
• Find and examine these checks
• Identify possible suspects

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Case Sneaky CSR

• Customer service rep in mortgage company
• Changing addresses
• Promotion! To new department!
• Now may issue checks to customers

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Sneaky two

• Discovers old password/login not canceled
• Her scheme is...
• Requests customer check
• Logs in with old login, changes customer address
  to her own
• Next day, change address to original customer's
• 250,000 stolen
• Wells, 171

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Prevention

• Proper separation of duties
• Accounts payable records and addresses secure
  from tampering, changes should be verified
• Mail checks immediately after signing or shorten
  the chain of custody
• Hire good employees

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• Questions,
• Anyone?

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Sources

• Wells, Joseph T. Occupational Fraud and Abuse.
  Obsidian Publishing Company, Inc. 1997.
• Association of Certified Fraud Examiners. Fraud
  Examiners Manual, Third Edition. Austin, TX. 1998.