I am Robert Edmund, CEO of Edmund Scientific Company of Barrington, NJ. ES is a family owned $37 million Optical and Scientific supply catalog company with customers all over the world. A description of our firm is available with this report.
In 1997 ES was the victim of a $750,000 check fraud scheme. While the financial loss was actually suffered by our bank, PNC, it was a traumatic experience for us and we suffered considerable anxiety and loss of staff time.
Check fraud/counterfeiting has been made considerably easier to accomplish because of the sophistication and easy access to PC based graphic design programs. Original documents such as a legitimate check can be easily scanned into the computer and then altered for fraudulent purposes. Bank security staffs are scrambling to meet this challenge but many counter-measures are simply out maneuvered by the fraud artists.
Our experience should probably have been avoided by normal bank security, but another factor came into play that is rather common these days. At the time of the fraud, our bank was in the process of being acquired/merged by a larger banking institution. Inevitably in such processes there will be lapses of security and staff confusion.
In July of 1996 the ES International Department staff issued a refund check for $14.64 to a seemingly normal and legitimate customer from Nigeria. In international transactions it would not be unusual for such a check to remain uncashed for many months.
On February 10, 1997 our controller, Susan Aguila, was advised by the PNC Bank representative that our account was $750,000 overdrawn. Our response was to protest that this was impossible and in conflict with our accounting data. The bank representatives reaction was skeptical, but they promised to investigate the problem. Our staff thought that it was probably a systems conversion (Midlantic to PNC) problem since we had experienced several more minor such problems.
In the days that followed, the bank called to advise us that we were wrong and that there were indeed two checks each for $375,000 that had been presented by Bank One, Denver, Colorado against our separate refund account, a zero-sum account funded from our main account. The checks had been deposited by a Colorado construction company in Montrose, Colorado.
This situation alone should have triggered precautionary security since monthly activity in this refund account historically had never exceeded $12,000 and was (basically) limited to checks under $1,000 in value. We can only assume that merger confusion had failed to bring historical account data to reference. We were then presented with faxed copies of the fraudulent checks for review.
We were quickly able to identify the checks as fraudulent because the check numbers used were still unissued and hard copy in our safe. Also, the construction company was neither a customer nor a supplier on our database.
We were then asked to assist PNC Security by providing extensive documents and data regarding the account and issued checks. PNC Security quickly focused on the uncashed refund check to our Nigerian customer and requested detailed records of this transaction. We were later advised that the Nigerian check was the basis for the fraudulent checks deposited by the Colorado company.
Having established that it was indeed fraud and given PNCs failure to implement security we were assured that our account would be covered during the investigation. In reality the $750,000 was not officially restored to our account until February 25, 1997. In the interim period we operated under a cloud of uncertainty and concern. ES staff and management were interrogated regarding possible complicity and obliged to sign statements. Besides lost work time, our legal bills were in excess of $5,000. While we were made whole for the fraudulent checks, it was nevertheless an expensive and traumatic experience.
Net of the experience we have strengthened our own security processors and presume PNC has
acted to this same end.
Home | Menu | Links | Info | Chairman's Page