Wire Transfer Theft: How to Prevent It

How to steal $6.9 million in less than an hour

In one of the easiest thefts I’ve read about, a nonprofit administrative officer wired $6.9 million from an Ohio bank account to another account in Austria. The wire transfer originated with the fax of a letter (which took less than an hour to create). Since the officer was authorized to make wire transfers, no one at the bank questioned the transaction–until it was too late. The fraudster landed in Austria, called his wife and said, “I’m not coming home.” Interestingly, the wife called the police and turned her husband in; he later came back to the states of his own volition (after his wife gave him an earful). He went to jail. I guess, after a few boat rides down the Danube, he missed his family.

Preventing wire transfer theft

Picture from AdobeStock.com

Wire Transfer Theft is Easy

It’s easy for an accounting clerk (or other authorized company official) to wire funds and to cover their tracks with a journal entry – too easy in many cases. If a company  accountant or official has the ability to (1) wire funds by himself and (2) make journal entries without a second-person review, then the organization has left the fraud door wide open. Such a situation is not uncommon in small businesses, nonprofits and governments.

As you think about wire transfers, consider that they can be originated with a fax, a phone call, a personal visit to the bank, or a computer. Determine how your bank handles wire transfers and craft your internal controls based on those dynamics.

Wire Transfer Internal Controls

Organizations should do the following to mitigate wire transfer fraud:

  1. Require the bank to limit daily wire transfer amounts (e.g., $25,000 per day for each employee)
  2. Require two persons to consummate all wire transfers to external parties (the most important control in my opinion)
  3. If the wire transfer request is by phone or by fax, require the bank to call your organization back before the wire transfer is consummated
  4. The bank should require the use of unique passwords to access wire-transfer software; consider using a bank that provides bank token keys (small hand-held devices that generate unique identification numbers; these numbers are keyed into the bank software as a part of the transfer request)
  5. Restrict the bank accounts from which a wire transfer can be made (the organization may want to limit external wire transfers to just one bank account)
  6. Restrict certain bank accounts so that wire transfers can only be made to other bank accounts of the organization (e.g., transfer from operating bank account to payroll bank account)
  7. Have someone peruse the daily bank account activity (using online access); at a minimum, reconcile bank statements in a timely fashion (large organizations should consider reconciling bank accounts more frequently than once a month; some reconcile daily)
  8. Require sufficient documentation for all wire transfer journal entries; require a second-person review of these journal entries
  9. Consider using a dedicated computer for all wire transfers; do not use this computer for any other purpose (malware is often picked up by computers as they visit Internet websites)
  10. Use all bank-provided wire transfer controls
  11. Any transactions over a certain high dollar amount (e.g., $50,000) must have the approval of the business owner/CEO

Use Fraud Prevention Controls Offered by Banks

Not using controls offered by banks may make your organization liable should funds be stolen by hackers. One company sued its bank when hackers took $440,000 from its bank account with a wire transfer; the judge ruled against the company because it had opted out of control procedures offered by the bank. Also make sure your company uses appropriate firewall and antivirus protection.

Closing Words

If one person can make external wire transfers and journal entries to record those transactions, you have the makings of wire fraud–soon you may see that employee on Facebook, riding down the old Danube.

Video from Gary Zeune

You can see a news video about the nonprofit fraud mentioned above at Gary Zeune’s website: The Pros and The Cons. (If you have not heard Gary speak about fraud, you should do so. He does a great job.)

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7 thoughts on “Wire Transfer Theft: How to Prevent It

  1. Add the following:

    Excellent advice!!! I suggest adding:

    Require the bank to email an individual at the organization (who is not authorized to wire funds) for each and every wire that is initiated.

    For wires related to third party payroll processors, obtain a fidelity bond for the processor, do NOT change the organization’s address with federal and state tax departments to that of the payroll processors and periodically check with the IRS and state agencies that payroll taxes have been deposited (employees will notified you immediately if the payroll is not paid).

  2. I have heard of fraud by wire transfers; however, this is the most Interesting case. CPA-Scribo and Craig suggested internal controls should be implemented without any hesitation, a must do.

  3. Gary Zuene tells me that the nonprofit administrator actually used his wire transfer password along with the CEO’s and that the administrator answered the bank’s callback pretending to be the CEO.

  4. Charles,

    I have been very impressed with your blogs for quite a while and enjoy reading them. As evidenced by your writing, your continued passion to our profession comes through loud and clear.

    I have been teaching accounting courses for over 30 years and continue to do so. At age 75, I am ‘semi-retired’ and teach a corporate accounting course at a law school here in St.Paul, MN.

    Like you, I love my profession and want continue to contribute what I can an d want to do.

    Thank you for your contribution to this wonderful profession that we both love.

    • Thanks much Richard. Glad to see you are still contributing to the profession at 75. Commendable. I have thoughts about teaching once I retire from public. I think I would enjoy it.