More Automated Check Payments = More Scams

In what has been termed “the e-commerce equivalent of mugging,” scammers are targeting checking accounts as an easy access point for fraud.

The huge number of automatic checking account withdrawals and deposits is opening the door to the increase in fraud. According to the Washington Post, the automated check-clearing system handles 10 billion electronic transactions a year, prompting regulators at the Federal Reserve to warn banks that "dishonest persons are using the automated clearinghouse to originate unauthorized debits."

Consumers are happy to give up paper checks for the convenience of payroll checks being directly deposited or mortgage payments being debited automatically from their checking accounts. However, scammers are using cheap but sophisticated tools to print checks and exploit the system that allows companies to write unsigned paper checks for a consumer who wants to pay a bill at the last minute or buy from a telemarketer.

The combination of unsigned checks and the automated check-clearing process creates a ripe environment for fraud. Thieves can make thousands of fake payment requests and potentially walk away with millions.

Shereen Greene, an Atlanta paralegal, was one victim. She found a $139 charge from, a company she had never heard of. The canceled check was a fake. It listed an old address and her maiden name, which she hadn’t used in seven years. Her signature was missing, but since the account number was correct, the transaction was approved.

Consumer advocates say there are too few protections in place for people like Greene. There are no federal rules instructing banks what to do when a depositor challenges an unsigned paper check. Banks point to the correct account number as proof that the withdrawal was authorized, so it can be difficult to convince banks that the charge is fraudulent.

Banks have traditionally been held to tight standards for managing sensitive customer information, but merchants that have access to account numbers don’t follow the same rules, the Post reported. The third-party processing firms often handle the transactions for merchants, by depositing customer checks into banks or processing the electronic account information.

Elliott C. McEntee, president and chief executive of NACHA, the electronic payments association, said, "When a bank permits a third party to process transactions on behalf of a merchant, it's putting a lot of confidence in the third party" to make sure that the merchant is legitimate. "Unfortunately in a few cases," he added, "banks have not exercised their fiduciary responsibilities and they have allowed third parties to enter payments" that are not valid.

In Greene’s case, she was able to recover the $139 taken from her account, but not before she made many phone calls over a few weeks and paid $70 for a new account number and new checks.

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Is it time to consider a value added tax?Forbes contributor Joseph Thorndike wrote yesterday that he believes the tax reform proposal by House Ways and Means Committee Chairman Dave Camp (R-MI) was dead on arrival. But he...
Read more from Larry Perry here and in the Today's World of Audits archive.The planning phase of an audit engagement of an entity using US GAAP or a special purpose framework will, with minor differences, include similar...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.