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Investigation of Fraud Cheques

1.   Introduction
Cheque fraud is categorized as a criminal act involve making unlawful use of financial cheques to access illegally or borrow money that does not exist in the bank account balance. Cheque fraud is among the major challenges that plague financial and banking institutions (Newman, 2003). There are various types of cheque frauds that include; Cheque kiting, is where a float is used to delay the notification of non-existence of funds in the specific account, Embezzlement involves withdrawal or transfer of all money in the target account by a fraudster, Forgery is the commonest method used to defraud a bank. Forgery entails the use of a target victim’s original cheques, which are stolen then cashed, also refers to altering a genuinely written cheque to the payee to inflate the amount. Cheque washing entails the stealing of a cheque in transit between the writer and recipient, followed by certain chemical usage to erase the ink representing details of that cheque other than the signature. The fraudster then fills details to his favor.
As Morley, et. al., (2006) note, the advent and increased use of technology have made it easy for criminals to execute violent acts such as defrauding individuals as well as financial institutions. The extent to which the issue of fraud cheques has become prevalent could be explained using the data printed by the Department of the Treasury Financial Crimes Enforcement Network of the US, in 2007. According to these statistics, financial and banking institutions lost, at least, $ Ibn between 1996 and 1997, to cheque fraud-related schemes. These statistics depict a considerable increase in the number of fraud cases involving cheques in the course of one decade. This can be associated with the lack of adequate knowledge about fraud cheques, and ways to combat their prevalence. This research, therefore, seeks to bridge the existing research gap regarding cheque frauds. Since the study will use a sample in the generation of data, the researcher will specifically investigate fraud cheques in the US financial industry.
2.   Research Questions
The main aim of the research is to “compare the cheque frauds in a developing country UAE with a developed country the United States of America”. Therefore, the following are the main research questions of the study
1)   What is the impact of cheque fraud on both the UAE and the USA financial industry?
2)   What are the examples of cheque fraud schemes?
3)   Why do cheque frauds occur?
4)   Are there ways through which cheque fraud could be prevented?
3.   Literature Review
This section introduces the theories and concepts related to fraud cheques. What is Cheque Fraud? There are three main types of cheque fraud: Counterfeit – duplicate cheques printed by different methods on non-bank paper to appear precisely resembling real cheques and drawn by a defrauder on authentic accounts. Forgery – an authentic cheque that has been stolen from an immaculate purchaser and used by a defrauder with a counterfeit signature. Fraudulently geld – an authentic cheque that has been made out by the authentic customer, but a defrauder has gelded the cheque in some way before it is compensated in, e.g.by altering the prebendary’s name or the amount. The literature reviewed is useful in shaping or directing the other parts of the research and also in generating additional information about the topic under investigation. Also, the literature is significant in providing answers to some of the research questions formulated.
3.1.   Defining Cheque Fraud
Morley, Ball, and Ormerod (2006) defined fraud as an illegal activity that involves the acquirement of a valuable item, through wilful misrepresentation. From this definition, cheque fraud can be described as an illegal activity that entails the acquirement of a cheque through deliberate falsification. According to Newman (2003), cheque fraud includes a variety of illegal acts and irregularities, which are characterized by deliberate deception. Cheque fraud has also been defined as illegitimate activities, which entail the illegal use of cheques to borrow or acquire money that does not exist (Levi and Burrows, 2008).
The elements of cheque fraud include a representation about a cheque, which is false, believed, damaging to the victim, acted upon by the victim, and which is made recklessly or intentionally. According to McDougal (2011), similar to any other form of crime, cheque fraud can be described using three factors: the lack of effective control systems, the availability of suitable targets, and the increase in motivated offenders. However, the occurrence of fraud as noted by Cappelli, Moore, and Trzeciak (2012), is triggered by elements such as opportunity, justification, rationalization from fraudsters, and the low chance of being discovered. The types of cheque frauds that occur include embezzlement, forgery, cheque kitting, abandonment, and bad cheque writing.Critical analysis of a cheque fraud details the main types; An original cheque which is stolen from a customer and used by the con man with a forged signature without the customers knowledge is known as Forgery, Counterfeit cheques where a non-bank paper is printed just similar to the genuine copy to draw money from customer’s accounts, and cases where a genuine cheque is altered before it is paid to inflate the amount is referred to as Fraudulent altered.
3.2.     Cheque Fraud Schemes
Cheque fraudsters use several methods to commit illegal activities. According to Becker (2009), these fraudsters can execute cheque fraud by stealing cheques and statements from financial institutions or even by collaborating with dishonest employees or insiders in a financial institution. Examples of cheque fraud schemes as identified by Cappelli, et. al., (2012) include altered, identity assumption, forged, and counterfeited cheques. Withdrawal from closed accounts is also an example of a cheque fraud scheme. Altered cheques occur when a criminal erases the name of a payee or amount indicated in a legitimate cheque. Identity assumption is another example of cheque fraud scheme. It occurs when a fraudster learns the personal information of the legitimate owner of a cheque holder. Such a fraudster uses this information to represent them falsely to the authentic customer of a financial institution. On the contrary, fraud cases on closed accounts occur when cheques are written against accounts that have been closed; such fraud schemes rely on float time. According to Levi (2008), cheque fraud schemes may also be executed by bank insiders and also by gangs.

3.3.   Reasons why Cheque Frauds Occur
A study by Khanna and Arora (2009) established that the major reason cheque frauds occur, especially in a financial institution is the lack of effective internal controls. Other reasons why cheque fraud may occur include the lack of harmony between employees, override of internal controls of a financial system, the lack of cohesion between customers and financial institutions about the status of their accounts, and the misplacement of sensitive or personal information. As Becker (2009), most of these reasons can be controlled effectively, of the appropriate and adequate information about ways to prevent cheque fraud. It is possible to open several bank accounts and deposit some money in the different accounts. Fraudster such as cheque kiters utilize this loophole and write cheques for large sums of money on these accounts withdrawing money after each false deposit.
As a cover up the kiter writes to NSF Cheque for the withdrawal that are made. Due to the technicality in the most financial institution, this can go for up to a week when the accounts go to an overdraft. Kiters will open several chequing accounts at various banks and deposit minimal bankrolls in each one. They then begin the kiting action by writing cheques for huge amounts on each of the acquired accounts, all the while withdrawing money after each fake deposit, and they continue to write NSF cheques to cover the withdrawals that are made. The kite can go on for weeks before one of the accounts goes into overdraft when the cheques are sent back to NSF. Despite that most financial organization holds money for a minimum of five days to allow the cheque to complete the clearing process, cheque kiters utilize employee errors thus becoming a nut to the financial institutions. Through fraudulent altering fake cheques are made similar to authentic company cheques and drawn into accounts of genuine companies. In most scenarios these fake cheques originate from planned crimes and specific naïve participants are trained to deposit the cheques into their account for a fee. These participants are mostly drug addicts and greedy people thinking it is an easy way to make money.

3.4.   Preventing Cheque Fraud
According to Newman (2003), the outcome of a situation involving cheque fraud is unpleasant and disruptive. As such, preventive measures should be instituted to prevent the occurrence of cheque frauds. The aim of cheque fraud preventive measures is to prevent further loss, establish a basis for disciplinary action, establish lines of communication with the authorities, and to assign responsibility for investigating such incidents by (Khanna and Arora, 2009). One way through which financial institutions could prevent cheque fraud is conducting regular and thorough reviews of the identities of their customers. Also, financial institutions could combat cheque frauds by warning their clients about such acts and the need to safeguard their banking information. Moreover, financial institutions should maintain separation of functions to prevent the occurrence of fraud cheques through insiders. Other ways through which banking institutions can prevent cheque fraud include mounting of security cameras, training personnel about cheque frauds and ways of recognizing such incidences, conducting internal controls, and limiting the size of cash transaction at remote locations (McDougal, 2011). Customers also have a paramount role to play in preventing cheque fraud; they should always recognize the need to protect their personal information (Becker, 2009).
In addition, banking clients should always destroy cheques from closed accounts, to prevent the occurrence of the closed account fraud scheme. Customers should also close dormant accounts instead of abandoning them, to prevent the occurrence of cheque fraud schemes that are orchestrated by insiders. Other measures can be taken in addition to those mentioned earlier to evade cheque fraud; Ensure that any void spaces on your cheque are stricken through, that is after the payee name and also after writing the amount in words. Always consummate all of the details on your bank credit slip. Do not leave capacious spaces between words. Always use a dark or blue ball pens or use a pen with permanent ink so that your engrossment cannot be effaced or geld. If you are sending a cheque in the post, make infallible that it cannot be recognized as a cheque through the encasement. You may desire to weigh disjunctive methods of chastisement for high-value transactions. Provide sufficient details about the payee when making a cheque payable to a bank to clear a credit bill. Maintain a regular check on your personal account statement to track your cheque payments.
When expecting a new cheque book and it fails to arrive on time notify your bank immediately for necessary action to be taken. Supply your bank with updated contact details so that they can get in touch, in case, they suspect a problem or malfunction with your financial account. Banks should view all cases of cheque fraud on a case-by-case basis and take appropriate measures in ensuring that the deposited cheques are legitimate before they are cashed out. Genuine innocent victims of cheque frauds are compensated by their Bank, but, this is not the case for customers who accepts a cheque or banker’s draft that later is realized to be fraudulent. Be on the alert that building society cheque and a banker’s draft safety from fraud is not guaranteed. In case you are selling goods, don’t dispatch them until the end of the 6th working day for the cheque to mature and funds are reflected in your account. The introduction of the 2-4-6 rules enhances safety for the customers; this is because at the end of the 6th working day the cheque is deposited and honored into your account, the money is yours and there is no possibility that the money can be reclaimed even if the cheque turns out to be fraudulent.
3.5.   Impacts of Fraud Cheques on a Financial Industry
The major impact of fraud cheques is it results in significant cash losses (Levi and Burrows, 2008). As mentioned, statistics showed that entities in the US alone lost $652 billion in 2006 alone, to cheque fraud. Many youths who need money for a party and can’t borrow from the a parent will make a deposit to their account through the ATM that allows them to obtain urgent cash up to a set limit or the amount of the deposit. Most financial institutions report this criminal activity to the Credit Bureaus when it becomes a frequent part of a fraudster’s credit history. The most bank may not keep up with such individuals and may end closing his or her account. Such kind of activities may have far-reaching impacts and may affect an individual’s dreams of being successful. In many jurisdictions, there is always Police involvement in the investigation resulting in criminal charges and appearance in court. Cheque fraud being a criminal offense can lead one the court of law risking imprisonment when found guilty. Fake cheques are becoming a big problem for many Banking institutions; this is because of the huge numbers that are deposited into the bank accounts.
This is possible because most customers holding genuine bank accounts are greedy and naïve, wanting to be rich easily by engaging to malpractices unknowingly. Most counterfeit scams are conducted by a planned Crime, and that manage to convince naïve individuals of huge commission. The trapped individual is not even aware that he or she is being drawn to commit a crime, and will be responsible in case the scam is noticed. These individuals are blackmailed to deposit amounts in their accounts. Whatever the scenario, fake cheques are greatly affecting most financial institutions because a single cheque can lead to a write-off worth hundreds of thousands of dollars. There are many counterfeit cheques approximately in a tune of thousands that are deposited into genuine Customers’ accounts at financial institutions every single day resulting in huge losses when the affected Customer is not able to make follow up when the funds have already been withdrawn. Fraudsters obtain personal information, Company cheques, credit card applications and many other items which are used to commit fraud from remote mailboxes and apartment mailboxes each day.
The payee name is changed to fit fraudster needs on the cheque, and the dollar amount is elevated substantially. These cheques are then deposited through a bank machine, and a bank client is not able to fully inspect them. Also, when these cheques are deposited over the counter, the bank client might be too busy to realize that anything that is absurd with the cheque. Most of these con men use their true credentials, with cheques the funds are already withdrawn before even the bank being notified of the cheques being altered. The lost money has to be compensated for by either the bank or the fraudster but in most cases the bank ends up accumulating the loss since the fraudster is either bankrupt or anonymous.The most affected are the naïve or greedy Individuals who are recruited to deposit these items into their personal account with promises of huge returns. There are major consequences, even though the individual may plead to be innocence it has far impacts. Being aware and educated are the key elements to the prevention of cheque frauds. Having a criminal history and credit record may affect your family life, bank loans, career opportunities among other many impacts. Another impact of fraud cheques is that the occurrence of these acts results in a decline in the use of cheques as a method of payment. For example, Figure 1 below shows that there was a substantial decline in the use of cheques in the US financial system between 2000 and 2012. According to Phillips (2014), the Federal Reserve Cash Products Office in the US reported in 2014 that the use of cheques has declined by half between 2000 and 2012. Other impacts of fraud cheques include mistrust in a banking system and a decline in customer satisfaction. Fraud prompt and credit record freezes only execute a part when someone applies for modern credit, which concludes in your credit article being accessed. The firm will get an alert with the credit report, or in the case of a frigid file will be alerted that the credit file must be un-frigid before a report can be handed over. The first thing to do when attacked by a fraudster is filing a police report so that you have an official document and record that you are a fraud victim. In most cases most banks will close your current account that is open to attacks and open a new one. In a case of fraud occurring the bank lose funds, too, so they act quickly to their best interest to close the affected accounts to stop the activity. However, many banks will even refund money taken from a debit card if it is proven that it was used fraudulently.
Source: Phillips (2014)
4.   Research Methodology
This section gives a description of the suggested strategies that will be incorporated in the collection of the relevant evidence about cheque frauds.
4.1.     Research Method and Design
This research will apply a qualitative analysis method to investigate cheque fraud. According to Flick (2014), qualitative research relies on explanations and narrations, in the generation of answers to questions such as ‘why’ and ‘how’. Also, qualitative research as asserted by Kumar (2011), seeks to generate an in-depth understanding of a process or event that is poorly understood. Qualitative research is enhancing interactions between an inquirer and the subjects, thereby giving the researcher a holistic view of the phenomenon under investigation. The rationale for selecting the qualitative research design in this study is aligned with the nature of the research questions; they focus on the ‘why’ and ‘how’. As such, these questions can only be adequately answered by narrations and explanations. The quantitative method of inquiry is not considered since the research will not focus on figures and statistics about cheque fraud, but rather on narrations about how it occurs and how it can be prevented in both countries. The mixed methods approach is also not considered because it is resource-extensive (Creswell and Plano, 2011). The phenomenology qualitative research design will be used to gather the experiences of subjects who have been affected by cheque fraud.
4.2.   Sampling Approach
The purposive sampling approach will be used to select a sample of 20 subjects for this study. Purposive sampling is a non-probabilistic approach that is based on the judgment of a researcher, about the subjects who would generate relevant information about a given topic (Ardilly and Tillé, 2006). The sample for this study will be comprised of both US and UAE customers who have been affected by any cheque fraud scheme. A small sample size is chosen due to the nature of the research; qualitative research uses small portion sizes because the data collection methods associated with this methodology are time-intensive (Bryman and Bell, 2011).
4.3.   Data Collection and Analysis
Interviews are the selected instrument for data collection. Interviews are chosen over other tools because they enhance understanding from a participant’s perspective. Through interviews, an inquirer can gain a holistic feel about a concept. Interviews also give the researcher the room to probe, thereby facilitating the collection of a variety of information (Salkind, 2012). The interviews will be semi-structured using simple words. Each interview is scheduled to last 30 minutes. Reliability of the instrument for data collection will be enhanced by pilot testing. The data collected will be summarized in preparation for analysis. The thematic and content analyzes techniques will be utilized for analysis. The interviews will be conducted in both countries (UAE and the USA) through phone interviews wherein the researcher has the access to the data in the two countries.
4.4.   Ethical Considerations
This research will adhere to the norms of social research. The principles of confidentiality, informed consent, and anonymity will be upheld. Before conducting the study, the researcher will seek permission in the form of informed consent forms for all the subjects. The informed consent forms will stipulate the purpose of the study and that no one will be coerced to participate. The participants will be asked to show their agreement to participate by signing the forms. Interviews will only be conducted on participants who have signed these forms. The data collected will be used for this study, to uphold anonymity and confidentiality. Also, the identities of the participants will not be revealed at any stage of the research. The data collected on certain individuals was done with their consent.
However, since not all types of research require client’s permission, for instance when analyzing something that is available publicly. During interviews avoid things that would cause emotional or physical harm to the individual. This could be something simple like being cautious on how you use a sensitive word or hard questions during the interviews. Objectivity vs. Subjectivity during your research is a crucial consideration for the success of the research. Ensure personal opinions and biases don’t hinder original objectives of the research, be spatial and give both sides affair stance and consideration. This is to ensure that bias or self-deception is avoided or mitigated. Strive to avoid bias in data analysis, experimental design, peer review, data interpretation, personnel decisions, grant writing, expert testimony and other relevant areas where objectivity of the research is required.
Disclose any useful personal details or financial interests affecting the research presently or in future. During the research obvious errors in numerical data and negligence will be avoided. This will be done by keeping up to date records of the research activities, such as data collection and research design. Patent rights, copyrights and other forms of intellectual property will be honored. Use unpublished data, results or methods without permission will be evaded. Also, will ensure proper acknowledgement and credit is given for all contributions to research. Ethical Considerations might be very specified as a crucial integral of the major parts of the research. Dissertations of ethics may do the research to be doomed. According to Bryman and Bell (2007) the below are the basics principles of ethical considerations for a successful research that has been critically analyzed from many professional social sciences associations; Any form of affiliations that may cause conflict have to be declared in advance, the sources of funding for the research must be genuine, any possibility of conflicts of interests have to be stated, Any form of communication in relation to the ongoing research should be done with transparency and honesty.
5.   Conclusion
In summary, the dissertation is aiming to investigate and compare cheque fraud in the UAE system with the USA to investigate the impact of cheque fraud on the financial industry of both countries, giving examples of different cheque fraud schemes and the reasons of cheque fraud. The proposal is aiming to be accomplished within three months.
6.   Time scale of the dissertation


Develop literature review

Develop methodology

Design questionnaire

Testing questionnaire

Amend questionnaire

Conducting questionnaire

Analyse primary data

Writing up

Submit thesis

7. References
Ardilly, P., and Tillé, Y. (2006), “Sampling Methods”, Springer Science and Business Media, Inc., New York
Becker, R. F. (2009), “Criminal investigation”, Jones and Bartlett Publishers, Sudbury, Mass
Bryman, A. &  Bell, E. (2007), “Business Research Methods”, 2nd ed., Oxford University Press, Oxford
Bryman, A., and Bell, E. (2011), “Business Research Methods”, 3rd ed., Oxford university press, Oxford
Cappelli, D., Moore, A., and Trzeciak, R. (2012), “The CERT guide to insider threats: How to prevent, detect, and respond to information technology crimes (theft, sabotage, fraud), Upper Saddle River”, Addison-Wesley, New Jersey
Creswell, J., and Plano, C. (2011), “Designing and conducting mixed methods research”, Sage Publications, Inc., Thousand Oaks, California
Experian website, (2015), “The impact of fraud alerts when checks and debit cards or stolen”, {Online} Available at: https://www.experian.com/ask-experian/20080109-the-impact-of-fraud-alerts-when-checks-and-debit-cards-or-stolen.html, {Accessed on 10/12/2015}.
Flick, U. (2014), “An introduction to qualitative research”, Sage, London
Khanna, A., and Arora, B. (2009), “A study to investigate the reasons for bank frauds and the implementation of preventive security controls in Indian banking industry”, Journal of Business Science and Applied Management, Vol. 4, No.3, pp. 1-21
Kumar, C.R. (2011), “Research Methodology”, 3rd ed., APH publishing, New Delhi
Levi, M. (2008), “Organized fraud and organizing frauds Unpacking research on networks and organization”, Criminology and Criminal Justice, Vol. 8, No. 4, pp. 389-419
Levi, M., (2000), “The Prevention of Plastic and Cheque Fraud: A Briefing Paper”, Home Office, London
Levi, M., and Burrows, J. (2008), “Measuring the Impact of Fraud in the UK: A Conceptual and mpirical Journey”, British Journal of Criminology, Vol.48, no. 3, pp. 293-318
Levi, M., Bissell, P. and Richardson, T., (1991), “The prevention of cheque and credit card fraud”, Home Office, London
McDougal, J. G. (2011), “Financial crimes: Fraud, theft and embezzlement, Nova Science Publishers, New York
Morley, N. J., Ball, L. J., and Ormerod, T. C., (2006), “How the detection of insurance fraud succeeds and fails”, Psychology, Crime and Law, Vol. 12, No. 2, pp. 163-180
Newman, G. R. (2003), “Cheque and card fraud. US”, Office of Community Oriented Policing Services, US Department of Justice
Phillips, M. (2014), “The spectacular decline of cheques”, The Atlantic, [Online] Available at: http://www.theatlantic.com/business/archive/2014/06/the-rise-and-fall-of-cheques/372217/, {Accessed 23 Oct 2015}.
Salkind, N. J. (2012), “100 questions (and answers) about research methods”, Sage Publications, Inc., California
Tremblay, P., (1986), “Designing Crime The Short Life Expectancy and the Workings of a Recent Wave of Credit Card Bank Frauds”, British journal of criminology, Vol. 26, No. 3, pp.234-253

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