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An escrow settlement and title company issued checks at closing for a home warranty policy in the amount of $550 and the franchise tax board for state withholding in the amount of $5,833. Another branch office issued a check for termite work in the amount of $2,115 on a separate closing.

Weeks later both offices received calls looking for the payments. The checks were sent regular mail, except the check to the franchise tax board which was sent certified mail. None of the checks arrived at their intended destinations.

The escrow officers at their respective branches contacted the accounting center to void the lost checks, so they could be reissued. They were shocked to discover all three checks had actually cleared the bank. The accounting manager requested copies of cashed items to prove to the home warranty company, franchise tax board and termite company, that they had received payment in full.

The manager accessed a copy of the home warranty check online. The payee name on the check had been changed to an individual's name; the check had been endorsed and cashed! Next she pulled a copy of the check to the franchise tax board. The payee name had been changed to another individual's name and the check had been endorsed and cashed. She accessed a copy of the termite company's check and discovered the payee name had been changed to yet another individual's name. It too was endorsed and cashed!

The accounting center manager informed the escrow officers that they could not void and reissue the lost checks, since the checks were not lost – they were stolen. The manager then reported the three incidents to the bank. It opened fraud claims and began investigating the cashed items.

In the meantime, the bank informed the accounting manager the Positive Pay security features on the account only included a positive match of the check number and check amount, not the payee name.

The office delivers an electronic file containing the check numbers and amounts of each check disbursement created in their system every business banking day. Any check presented to the bank for payment must match by check number and amount in order for the check to pay at the bank.

The accounting manager quickly added Payee Positive Pay to the attributes checked by the banking system, before a check can be paid to prohibit any further incidents like the three they just experienced. Now the electronic file contains the check number, check amount and check payee name. Then the accounting manager filed losses for $500, $5,833 and $2,115 to replace the funds in the trust account, so the checks could be reissued.

After reissuing the checks, the offices started their own investigation to see how the checks could have ended up in the hands of fraudsters. Both offices take extraordinary measures to ensure their mail is delivered to the post office via special messenger service every day. They have not yet discovered how the checks were stolen during delivery to their intended destination, but for now they know if they are stolen again and altered, they cannot be cashed at the bank.

 

 
 

MORAL OF THE STORY

Since we now know that outgoing mail is a target of theft, make sure your office is doing all it can to secure the mail that leaves the office.

  • Make sure an employee or special courier is delivering the mail to a locked box.
  • The mail should never be overflowing out of the locked mail box where it could be taken from the box by anyone other than a postal worker.
  • Ensure your trust accounts have not only Positive Pay, but Payee Positive Pay to ensure stolen, altered checks cannot be cashed.
  • If a check is stolen and cannot be cashed it will likely be thrown in the trash. Follow up on all outstanding checks from the outstanding checks report generated by the escrow production system. Checks with a payee name of an insurance company, taxing authority or payoff lender deserve immediate attention to ensure the check was received by the intended payee. All other outstanding checks should be reviewed, investigated and reissued if they are older than 90 days.
 
 

 

 
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