Stolen Cheques and Risk Prevention

Here’s a true story that makes you think about the way you do business.

Our firm recently was on the periphery of a fraud involving the theft of some cheques. 

One of my partners practices real estate.  He was acting for a seller in a normal real estate transaction.  After the transaction had closed, we personally delivered the two certified cheques and one of our trust cheques to a branch of our client’s bank.  We make it our practice to have the teller stamp a copy of the cheques and our letter to the bank.  The bank would then send the cheques to their central processing centre, which would then discharge the paid-off mortgage from title.

Well, the cheques never made it to the processing centre.  That’s a problem.  Our clients’ bank tried to withdraw another mortgage payment and our clients’ credit still showed them as owing the mortgages. 

It happens occasionally that cheques are lost in transit or misplaced by the bank.  Not this time.  One cheque showed up about three weeks later at a branch of another bank, with the payee changed by hand to someone other than our client’s bank.

We were dealing with theft and fraud.  About three weeks later, we discovered another cheque was part of the missing batch.  Now we had two clients whose mortgages had not been paid off because of stolen cheques. 

Ultimately, it can’t be a problem for our clients.  The money was delivered to the bank and they are responsible for what happens to it after that point.  However, we had to get a little argumentative to get our clients’ discharges. 

Can you imagine how different it would have been for us if we did not have the bank stamp a copy of the cheques?  We would have been one of the suspects.  The investigation would have started with us, not with the Bank. 

No-one forces us to make copies of the cheques.  No-one advises us to do it as a best practice.  We’re just lucky that my partner practices defensively.

What can we learn from this?  If you have not done so, step back and look at the way you do business.  What part of the way you do business could expose you to risk?  Are there little things that you can do to minimize that risk?

Here are a few examples:

If you are a contractor, you should have all changes to the original contract done in writing to prevent arguments over whether the extras were authorized.

If you are a consultant, put the terms of your retainer in writing, in a manner that limits your engagement to the specific items that you set out.

If you are making a custom product for your customer according to their specifications, have them approve the draft design in writing. 

There are many little things that you can do to prevent or reduce your risk of being involved in unpleasant legal matters. 

Think of it as spring cleaning for your business.