It’s an amazing thing the way things can change overnight. Late one Friday afternoon in early December I received a startling phone call from our banking representative. The bank suspected some fraudulent checks had been cashed on our company account. While I looked at the online bank account and compared the checks in question to our Quick Books File, the bank representative remained on the line. The checks cleared were indeed fraudulent!

Eleven checks were cashed at various bank branches in the Dayton area and totaled almost $5,000. All the checks were made out the to same person who was unrelated to our company. All were in varying amounts. The checks contained our payroll check numbering sequence, but they were not our checks. After the bank rep assured me that the bank would cover our loss on the checks, I could breathe a little easier, but little did I know the nightmare was just beginning.

How could this happen?
Many questions raced through my mind: How could this happen? Could a staff member be involved? Who could I trust? Was it going to happen again? How quickly would the bank replace the cash?

The next week involved a series of phone conversations and meetings with the bank representative including my signature on numerous forms. The existing account, which had been compromised, was closed and a new was account opened.

Business practices must continue however, and invoices were scheduled to be paid. The printer of the checks informed me they needed at least two weeks to produce new checks. Our bank representative prepared temporary checks for our use in the meanwhile. With the help of Murphy’s law, the temporary checks were given the old account number by mistake and they all bounced!

The outstanding checks written on the closed account were supposed to be cleared through special handling, according to instructions left by our bank representative before leaving for the Christmas Holiday. In her absence, the bank staff who received the instructions, did not follow them and all the outstanding checks bounced! We now had egg on our face with vendors, and a staff of wondering employees asking “What is going on?”

What the bank lacks in vigor for customer service is more than made up for by their collections department. Two of the checks that bounced were loan payments to the bank. When the collection calls began, I simply gave the caller the name of our bank representative. Erroneously, I thought a direct communication with that person could resolve the problem by simply either transferring the funds from the new account or allowing the checks to clear in the closed account which still contained the funds. Apparently this procedure is not in the collection department manual and that call was never made. I was soon receiving daily harassment calls, sometimes as late as 8 p.m. demanding immediate payment. I explained over and over again that the funds were in their bank, but they simply would not listen and their tone became quite aggressive. The daily harassment calls continued until our Business Operations Manager visited with our customer service rep at the bank and begged her to call off the dogs! The transfer was made and the matter was settled--temporarily.

A New Year begins new frustrations!
In mid-January as life was getting back to normal, I decided to reconcile the December bank statement using the online account late one Saturday evening. It seemed a perfect time to prepare for year-end accounting entries. I cannot describe my shock in finding several more fraudulent checks now hitting our new bank account! These totaled another $5,000!

Frantic, I tried to reach our bank representative. I was unable to get her home phone number, which is unlisted, so I did the next best thing: I left a voice mail message on her work number. But now I was really worried. Was this a case of inside fraud?

Monday began a familiar process of signing forms listing all the fraudulent checks. This time however the bank was becoming a little more reluctant to cover the bad checks. I insisted on speaking directly with the bank security officer who was investigating the account. After speaking with him, I began my own investigation and discovered a very significant pattern. The second group of checks did not follow the same (payroll numbering) series. I also discovered that the imitation checks began hitting the bank the day after one of our staff members cashed a check at a local check cashing service.

We were able to follow the trail on the second group due to the numbering sequence from a hand-generated paycheck. The counterfeit checks being presented followed this series. Once the pattern was discovered, I noticed the bad checks hit the bank the day after they were cashed at the check cashing service. The exact precedent was verified with the original group of fraudulent checks. An individual not connected with our company, simply created the fake checks used in this theft. The original group included a scanned signature from a legitimate check. A bogus signature was used on the second group.

Once all the documentation was presented to the bank and they were convinced this was not an “inside job” they agreed to replace the funds. However, on Friday afternoon of the same week, I was called into the bank and presented a “hold harmless agreement” to sign which would make our company responsible for any future fraudulent checks hitting the account. The alternative presented to this was a system costing the company over $500 each month that included viewing checks on line daily before they were accepted. Since neither of these solutions was acceptable, the bank representative informed me that no more checks would be paid on the account by the bank. I explained to her that I had payroll checks scheduled to be mailed (since it was now late Friday afternoon). She simply informed me that the bank would not honor any more checks on the account. Now we are the criminals?

Another Bank and Our Payroll Service Come To The Rescue
A branch manager for a local US Bank office is a fellow Rotary member. Luckily, he was still at work late on that Friday when I called. After I explained the situation, he suggested that he set up an account for us at his bank first thing Saturday morning. Don Kathman owner of Time Plus told me to call him the minute I had the new bank account and he would make a special trip to his office on Saturday to re-run our paychecks. A new bank account was opened Saturday morning at US Bank, the paychecks were re-run by Don and then placed in the mail early Saturday afternoon. Now that’s customer service!

We now use direct deposit for all our staff checks. As far as I know the bad guy is still walking the streets so watch your bank account!

Jim Mullaney is President/CEO of EDOCService, Inc. He can be contacted at
(513) 829-7101 or jim@edocservice.com.