By TERRY PUGH
A routine monthly bank reconciliation review by the City of Warman Finance Officer in April, 2024 prevented the municipality from losing $23,000 to a fraudulent cheque scam.
It was a very rare occurrence, but it revealed the vulnerability of the city’s reliance on cheques to pay vendors and service providers; and was one of the reasons behind Warman City Council’s recent decision to switch to a secure, encrypted Electronic Funds Transfer (EFT) system. (A motion to approve the switch to the EFT system was passed at a Warman City Council meeting on October 27.)
The fraudulent cheque incident was outlined in a city administration report to the November 17 Warman City Council committee of the whole meeting.
“In April, 2024, during the City’s routine monthly bank reconciliation, the Finance Officer discovered a cheque that had cleared the municipal bank account without any record of issuance,” stated the report to council. “Upon further investigation, it was confirmed that the cheque was fraudulent and had been created externally using a replicated version of the City’s official cheque template.
“Immediate action was taken, including notifying the financial institution and filing a report with the RCMP. Fortunately, the funds were recovered through insurance, as the incident was caught within the 30-day fraud reporting window. Had it not been detected promptly, the City could have faced a financial loss of roughly $13,000 as well as the additional risk of more cheques being processed during that time.”
The report noted that financial institutions “generally lack mechanisms to verify cheque signatures or identify fraudulent alterations,” so responsibility for detection falls entirely on the issuing organization. As a result, the City was instructed to change its bank account, update payment security protocols, and initiate a review of payment procedures.
“The incident underscores the urgent need to eliminate cheque-based payments,” stated the report. “EFT platforms provide secure, encrypted payment channels and integrated audit trails that minimize human error and eliminate the vulnerabilities of paper-based systems.”
As part of the implementation of the EFT payment system, the City is instituting a series of measures to prevent fraud. These include:
* Segregation of duties so payments are double-checked by a different authorized staff member at each step, with final approval authority resting with the Director of Finance;
* Vendor authentication controls to ensure vendor banking details are confirmed directly, and not through third parties;
* Encryption of all financial data, with access restricted to authorized staff only;
* Monthly ledger audits and bank reconciliations by authorized staff; and
* An independent audit of the EFT process during the city’s annual audit to confirm compliance with best practices.
The report concluded that the switch to an EFT payment system will also result in some cost savings for the city.