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Cheque fraud hits Hamilton firm

|Written By By Kirsten McMahon

Fraud is alive and well in Ontario, but you don't quite realize the extent until it hits close to home, says Hamilton lawyer Gerald Swaye.
Swaye recently received a phone call from his bank inquiring whether his firm had written a cheque in the amount of $174,740 from the firm's trust account.

"Apparently the bank, prior to calling us, may well have looked up the name of the company on the computer to see if it actually existed because the bank was tweaked to this cheque because the signature didn't look like my signature," says Swaye.
The bank faxed a copy of the fraudulent cheque to him and he was surprised to see that the transit and account numbers on the bottom of the cheque were correct.
There were some subtle differences, however. The cheques were a different colour, some fonts were a little larger, and cheque was spelled "check."
"We called the gal at the bank and indicated that it was a forgery as far as we were concerned and was the person still there? We were advised she was; she was there to get it certified. The police were called and she was arrested by the Hamilton police department and was taken into custody."
Two days later, Swaye received another call from the firm's bank in Quebec where someone was attempting to pass off a similar fraudulent cheque for $181,000, with features that suggested it was counterfeited by the same person or persons responsible for the first one.
Another warning flag was that the series numbers on both cheques were much higher than the numbers the firm's cheques were currently running at. Changing cheque series numbers is a very common fraudster trick, says Chas Somers, a senior investigator with Navigant Consulting who worked with the RCMP for 20 years.
"They will guess how many numbers or what cheque numbers they will use because they don't want to use a cheque that has the same number as a cheque that's already cleared the account for fear of it getting picked up that way," he says.
Somers says this type of cheque fraud is fairly prevalent across the province because all it takes is for a real cheque to go sideways and end up in the hands of the wrong person.
Fraudsters will either make a counterfeit cheque using a computer and a colour copier and put in their own payee and amount — which happened in Swaye's case — or they will take the stolen cheque and alter it a bit and try to run it through.
Somers says Swaye was fortunate to have an astute teller recognize the inconsistencies in the cheque because "nine times out of 10 it will get through the bank simply because the forgeries are so good."
He says there are numerous ways a cheque could go sideways, including: inside jobs from postal workers, bank employees, or the original payees; cancelled cheques that are discarded improperly; cheques that fall out of a pile at clearing houses; or fraudsters who follow postal workers at various times of the months when they know cheques are delivered.
"There are various ways that it can happen but it normally means that a valid cheque or even a cancelled cheque would end up in the hands of a fraudster."
While a situation like Swaye's might not have been avoidable, lawyers, especially sole practitioners or small firms, can protect themselves by taking several security measures, says Somers.
First, they can take advantage of Positive Pay cheque reconciliations offered by some major banks. Basically, an individual can verify online each day to see what cheques have been cashed, the amount, and the payee. Scotiabank, for example, offers a Positive Pay service for a $100 set-up fee and $200 a month for the first 500 cheques.
Somers says it's key to make sure whatever Positive Pay program you choose provides the payee's name as well as the cheque number and amount, because fraudsters have figured out in the past that if the number and amount match, then they are home free.
He says that all live, cancelled, and reconciled cheques should be treated as cash and kept under lock and key.
Payables should never be sent out in windowed envelopes, Somers says, even though they cut down on processing time and costs.
"That's an open invitation to have that piece of mail go sideways on you," he says. "When you get one in the mail, you know it's a cheque and so does the bad guy."
Swaye says while the bank would have been on the hook for the phony cheques if they were cashed, it causes all kinds of internal problems.
"We'd have to advise the law society, they'd send their inspectors in immediately for that kind of dough. The minute you get a debit in trust, all kinds of bells and whistles go off for the regulator," he says.
Swaye, a law society bencher, says he was relieved he was alerted to the suspicious cheque by the teller and says he sent her a bouquet of flowers in appreciation. While he's fortunate for having a good working relationship with his bank, he stresses that lawyers need to be vigilant in alerting their banks to this type of fraud.
"Don't take anything for granted, because we read about these things in the paper until it actually happens to you, and then it's scary as hell," he says.

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