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How to Protect your Organization & Funds from Fraud

May 19, 2014
By Michael Fina,
Vice President / Institutional Banking, First Trade Union Bank

A slow economy like we’ve experienced in recent years can have many repercussions on a business. One negative impact that owners often don’t think about is a possible increase in fraud and embezzlement.

Fraud does not always come from outside an organization – it can happen internally as well.  This may occur when employees facing severe financial stress commit fraud against their employer in order to deal with a personal financial crisis. Often, these are employees who would never consider fraud under normal circumstances — and whom you would never suspect of perpetrating fraud against your business.
Sound Internal Controls

There’s not a whole lot you can do about the personal financial pressures your employees may be dealing with or their ability to rationalize fraud. But there are steps you can take to minimize the opportunities presented to employees, vendors or partners to steal or embezzle funds from your company. The most important step is to implement sound internal controls in your business.

These controls start with making sure there is an adequate level of management oversight of your business finances. Unfortunately, some small and mid-sized organizations take more of a hands-off approach to financial management by delegating these tasks to their accounting staff. This is an open invitation to your less-than-honest employees to commit fraud.

Two best practices to follow are closely examining the business bank statements each month and to personally sign all checks, instead of using a check stamp. Neither of these tasks will take much time, and they could go a long way toward eliminating opportunities for fraud and embezzlement.

Another vital internal control is a concept known as segregation of financial duties. In other words, at least two different employees should handle financial and accounting tasks like filling out deposit slips and entering cash receipts. This will help limit opportunities for employees to commit fraud and cover their tracks.

Also make sure that separate employees initiate and approve all payments, and that financial and accounting staff take at least one uninterrupted week of vacation each year. Employees who are committing ongoing fraud usually don’t want to be out of the office for a full week at a time because they’re afraid someone might discover their scheme while they’re gone.

Fraud Prevention Tools

First Trade can help in your fraud prevention efforts by providing a wide range of cash management tools designed to help deter and detect both internal and external fraud. These tools include:

• Positive Pay — This compares checks presented to the bank for payment to a check-issued file you provide. Only checks that are an exact match to the file are paid — all others are flagged and reported to you as suspect items so you can decide whether to pay them or not.

• ACH Filter — This is like Positive Pay but it applies to electronic, rather than paper, payments. The bank sets up filters that cap how much money can be transferred to any of your venders who are paid electronically. If an EFT occurs outside of these parameters, you are alerted so you can decide whether to approve or deny the payment.

• ACH Block – This service allows your organization to make a decision to prevent an item from being paid from your account. With a block in place, no ACH debit (even one that is authorized) will be able to get through on a given account.

• Account Reconciliation — This service (which usually works together with Positive Pay) helps you reconcile your company’s checking account electronically. Depending on your check volume and needs, you can choose from several different levels of account reconciliation, including full, partial and deposit reconciliation.

• Security Token Service – To help protect against identity theft, security tokens may be provided to designated Online Banking users at your organization and provide an extra level of assurance through a method known as two-factor authentication. In addition to a username and password, the user must enter a self-created personal identification number (PIN), which identifies them as the owner of that particular token device, and a random set of identification numbers displayed on the token in order to log into their Business Online Banking account.

• Trusteer Rapport – Rapport is lightweight security software that protects your Online Banking information from being stolen by criminals. Banks provide this as an additional layer of security to any anti-virus or security software you already use. It's usually available free of charge, downloads in seconds and instantly begins protecting your account.

To learn more about steps you can take to prevent fraud, including how these and other cash management services can help, contact Michael Fina, Vice President / Institutional Banking for First Trade.  

First Trade is a union-owned community bank serving labor organizations and its members for more than 25 years. The Bank’s New York offices are located in New Hyde Park and Hauppauge.  Michael Fina, Vice President / Institutional Banking for First Trade, is responsible for generating new relationships with public and private sector unions throughout New York State and can be reached at 516.874.9601 or

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