Pub. 4 2014-2015 Issue 2

10 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S I n an industry heavily dependent on technology, many financial institutions are investing sig- nificant dollars in systems and control struc- tures—working to keep pace with increasingly sophisticated fraudsters. However, recent press re- leases and internal investigations indicate that sev- eral less-sophisticated fraud schemes are making comebacks at small and large financial institutions. Check kiting has long been a popular fraud scheme. In its simplest form, a check is written for an amount greater than the balance available in one account, with a second check being written froma second account at a separate institution to cover the nonexistent balance in the first account. This formof kiting can become increasingly com- plex and evolve into circular kiting, retail-based kiting or corporate kiting. Many core processing systems produce a daily kiting report for oper- ations or management to review periodically. However, BKD’s internal audit testing of these report parameters for several clients has indi- cated they can be unreliable and, in some cases, unusable. In these circumstances, clients went back to their core processing systemproviders to further develop the report parameters in an effort to make internal controls surrounding check kiting identification more useful and effective. In recent years, we have seen an uptick in official check fraud. There has been a lot of publicity surrounding the fraud perpetrated by Rita Crundwell, former Dixon, Illinois, city comptroller. In November 2012, Rita pled guilty to stealing more than $53 million from the city during 20-plus years. This unprecedented exam- ple occurred in a town of approximately 16,000 people where there were very few secrets. While the Crundwell case serves as an ex- treme example of official check fraud, internal FEATURE ARTICLE “A large quantity of core deposits allows banks to hold higher-yielding, longer-term assets without incurring undue interest rate risk.” BROK LAHRMAN BKD LLP Old Fraud Schemes Make a Comeback  Make a Comeback  continued on page 12