Home Our Firm Client Services Industries Contact Us Events Protecting Wire Transfers
If your company uses wire transfers, you've solved some of the headaches involved with
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paper checks. With wire transfers, you know that a payment arrived and isn't "lost in the mail."
You also avoid some of the risks of forgery and other check fraud schemes.
However, wire transfers have their own
Wire Transfer Fraud Prevention Tips
pitfalls. If you don't have the proper
controls in place, there's little to prevent a
Review the written policies and procedures
controller or someone else with wire
transfer authority from fraudulently wiring established by management for accepting or
initiating wire transfers, Automated Clearing
funds from your company to a non-U.S.
House (ACH)
account. That person may then
activity and
disappear, leaving you with little ability to
monitor his or her actions. And since wire bank drafts.
Maintain
transfers often involve large dollar
accurate lists of
transactions, this type of crime can be
devastating to your company's fiscal well- employees
authorized to
being.
initiate fund
transfers. Have
Remember: Management is responsible
someone other
for assessing the inherent risks in the
than the person
wire transfer system you use,
making the
establishing procedures and controls to
request verify
protect the firm against unreasonable
all wire
exposures and monitoring the
transfers.
effectiveness of such safeguards.
Document the
nature and
Here are some recommendations to help
cause of any
you avoid becoming the victim of wire
exceptions.
transfer fraud:
Make sure the wire transfer system not only
First, management should
validates authorized users, but also specifies the
realistically evaluate the risks and
transfers they are allowed to make. (For
provide for adequate accounting
example, a manager might be authorized to wire
records and internal controls to
$1,000, while a CFO might be allowed
keep the exposure within
$100,000).
acceptable limits.
Record all authorized and unauthorized
attempts. Management must scrutinize these
Effective risk management requires records.
that an adequate accounting
Make staff aware of the importance of keeping
system be in place to determine
passwords confidential and secure.
the extent of any intraday
overdrafts and potential overnight
How One Firm Became a Target overdrafts before releasing
payments.
A California communications company was the
Wire transfer payments must be
victim of internal fraud after one of its employees
used wire transfers to divert corporate funds,
within established credit limits and
amounts in excess of such limits
(involving significant credit risk)
must be properly approved by the
appropriate lending authorities.
according to the FBI.
The employee, a senior treasury analyst in his
thirties, began transferring money from the
accounts of SureWest Communications to the
accounts of a venture capital firm owned by his
father. The purpose of the transfers, according to
Your company's policies should
the FBI, was so the venture capital firm "could
establish the types of allowable
demonstrate to potential investors that it had
transfers, especially on
transactions involving a third party. sufficient funds on deposit . . . and thereby attract
new investors."
In order to cover up the scheme, the venture
Job descriptions should be well
defined, providing for a logical flow capital firm periodically returned the
misappropriated funds to SureWest so that its
of work and an adequate
auditors would not discover the missing money.
segregation of duties. No one
person in a wire transfer operation However, only $23 million of the $25 million
transferred was returned at the time the fraud
should be responsible for the
was discovered. The employee, his father and
origination, testing, processing
another business associate were indicted by a
and balancing of a request. The
federal grand jury on charges of mail fraud,
daily balancing process should
include a reconciliation of both the conspiracy and money laundering. SureWest
reported that its insurers paid the remaining $2
number and dollar amount of
million.
messages transmitted.
Wire transfer personnel should promptly inform other departments or personnel affected
by a transfer of funds so that the accounts involved can be updated. All adjustments
required in the processing of a transfer request should be approved by supervisory
personnel and the reasons for adjustment should be adequately documented. Transfer
requests as of a past or future date should require supervisory approval with the reasons
for those requests well defined.
Internal controls must be sufficient to determine the authenticity of the transferor of funds.
Telephone transfer controls might include a callback procedure, whereby an employee
calls a prearranged telephone number to verify the identity of the transferor.
Another possible control: A unique code provided by the originator and verified by the
receiver. Transfer requests are normally documented by the receiver on pre-printed
forms, which serve as the initial record for audit activities.
Considerable documentation is necessary to maintain adequate accounting records and
auditing control. Many financial institutions retain logs that record transfer request
information, assign sequence numbers to incoming and outgoing messages and keep an
unbroken copy of all messages received on wire transfer equipment. Use of prenumbered forms is also common. At the end of each business day, an employee should
compare request forms to the actual transactions to ensure that all transfers were
properly recorded.
Even one incident of wire transfer fraud can cause serious damage to the financial security of
your business. Consult a professional to be sure proper controls are in place.
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