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February202014

Internal Fraud: Six Ways Your Bank Can Help Reduce Risk

internal fraud

This is the third in a series of articles examining fraud.

As we have been discussing in this series of articles, no business is immune from the risk of internal fraud. About two-thirds of businesses that responded to the 2014 survey conducted by the Association for Financial Professionals (AFP) said that payments fraud had been attempted in their organization, with 20 percent of fraud attempts originating from within the organization.

There are many potential reasons why businesses today may be especially susceptible to fraud, according to Debbie Innes, executive vice president, Treasury Management, for Cadence Bank. "These include sophisticated database technology, online information exchange and mobile access devices." In addition, some experts attribute high rates of fraud to the ongoing sluggish economy, as some otherwise honest employees might consider committing fraud if they are facing extreme financial pressures.

According to the Association of Certified Fraud Examiners (ACFE), the best way to guard your company against fraud is to implement sound internal controls. "One of the most important internal controls is to talk to your bank about how they can help," says Innes. "In particular, banks offer a number of different fraud-prevention products and services." Here are six anti-fraud tools to ask your bank about:

1. Positive Pay — This service helps combat check fraud and forgery by comparing checks presented to the bank for payment against your company's accounts to a list of checks your company has actually issued. Only checks with an exact match to the check-issued file are paid — all others are flagged as an exception and reported to you (via the Internet or mobile) for a pay or no-pay decision.

2. ACH Block — This service is similar to Positive Pay but works with electronic payments. Your business sets up a list of approved vendors who are paid automatically along with filters that you establish, such as a cap on the amount of money that can be paid to a vendor. Any electronic transaction that occurs outside of these boundaries generates an alert so you can decide whether it is legitimate and approve or deny the transaction.

3. Receivables Lockbox — With this service, your customers' payments are sent directly to a unique post office box that is monitored throughout the day by the bank, which immediately processes and deposits the checks. Not only does this reduce opportunities for employees to commit check fraud, as duties are segregated, it also reduces check float and improves funds availability, thus boosting your cash flow.

4. Payables Lockbox — This is the reverse of receivables lockbox. Here, your customers send their invoices directly to your bank, which digitizes and forwards them to your accounts payable department through an online interface. Accounts payable then flags the approval status of invoices for the bank, which pays them when they are due, sending payment information back to accounts payable.

5. Account Reconciliation — With this service, the bank assists in reconciliation of your company's checking account, which includes providing you with check-paid information electronically. Account reconciliation usually works in conjunction with Positive Pay. Choose between full, partial and deposit reconciliation, depending on your check volume and your company's needs.

6. Malware and antivirus monitoring software — Many banks offer applications that provide an additional layer of malware and antivirus protection between your business computers and the bank. These applications can detect Trojan viruses and Man-in-the-Browser malware that has been inadvertently downloaded by computers on your business network. When it does, both your business and the bank are notified, and the bank can immediately disable the user login and stop the online banking transaction.

Please contact your Cadence Bank Treasury Management representative if you would like to discuss these fraud-prevention tools in more detail.

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Occupational Fraud: Five Internal Controls That Can Reduce Your Risk