Too Easy For Bank Accounts To Spring a Leak 208
The NYTimes has a cautionary tale of automated clearing house fraud. Parties unknown siphoned money from an individual's bank account. Nothing too unusual there, except that it was an elite private banking account at JPMorgan Chase, and the account holder is out $250K — the bank will only cover $50K of his loss. The $300K came out of the account in small transactions over 15 months. The bank offered no recourse except to open a new account, a large hassle given that the account is more than 20 years old and its holder writes a thousand checks a month. The article details how the spread of electronic settlements between banks has given rise to growing automated clearing house fraud — if anyone gets hold of the magic combination of account number and bank routing number, and once has permission to withdraw funds, all bets are off. Banks are unlikely to question future withdrawal orders. Moral of the story: go over your bank statements line-by-line every month, and question anything that looks funny.
Re:My bank sends daily alerts for large transactio (Score:3, Interesting)
I use Quicken to take care of my finances. Every day, I enter in every check or debit transaction I made that day. Then, I download transactions from my bank online, usually every morning. If there's a transaction that doesn't match up to something I've already entered, I can see it immediately. This allows me to not only easily spot fraudulent transactions, but also allows me to keep an eye on how much money I really have available, regardless of what the bank says.
Now granted, I only have a couple of accounts and I'm not writing thousands of checks a month, but it seems like this method is easily doable for most people. It's a lot easier to spot fraud if you have a good handle on what's supposed to be there and what isn't.
Also, I'm not really shilling for Quicken or anything...there are plenty of other products that will allow you to manage your money in basically the same way, including the online update component (which is the big key for me).
Re:Magic numbers on every check.... (Score:2, Interesting)
Re:Well... Why? (Score:4, Interesting)
He really just complained that he couldn't balance his checkbook, though. If the difference was so large, he should have tracked it down line by line until the discrepancy was resolved, or fraud discovered.
And I don't understand how a statement can be "complicated". For each transaction, there is a line. There is an amount, and a name of some kind that tells you what it was for. You compare this with your records. If you have a match, then you're good, move to the next one. If nothing in your records matches that line, then you have an error, red alert, call your bank and tell them you've found an important mistake or fraud.
Sounds to me like he found a discrepancy but never went through the work of tracking it down. And as a result this theft went undetected for far too long.
Re:Well... Why? (Score:1, Interesting)
RTFA...he did complain.
Second the fact that you can't understand how an account statement can be complicated shows that you've never seen a large private banking portfolio. This guy probably has 5-10 different accounts all for different purposes with different rules, fees, pay-ins, and pay-outs. Additionally some of these will be investment accounts, some cash accounts, come money market, etc.
On top of that he may get a combined statement with various accounts listed.
It's completely reasonable for him to not be able to figure it out. It's also stupid for the bank to take the position they did if he's that wealthy because when he moves all his funds and loans to his new private banker it will cost much more. The bank if they were smart would have insurance to manage the risk and would make sure the customer got his cash back.
Re:Indeed. (Score:3, Interesting)
A bank account is a loan to the bank in exchange for money or services. If the bank is defrauded out of some money, why is it the account holder who loses out?
Sadly, it's because the bank has much more resources than the individual. Sure, the individual could hire lawyers and mount an attack, but the bank is big enough, has enough political ties, and has so many more resources that they're probably able to just weather the attack until the individual is spent. Even worse, the bank probably has the laws on its side in these instances.
It's certainly not right in any moral way but it's simply the facts as they are.
That said, he should have swallowed some of his wall street pride and hired an accountant to manage his bank accounts and make sure this kind of thing wasn't happening. I have virtually no money but I check my account activity and balances on my checking account almost daily and with my other accounts at least once a week. But then again, I can't afford to have $2000 (let alone $20,000) disappear in a month.
Re:Well... Why? (Score:4, Interesting)
I do not believe he's telling the truth, and if he really is that stupid, and e.g. totally unable to hire a CPA for a few days of low impact forensic accounting, he deserves exactly what he got.
My parents are millionaires. They also did a lot of bookkeeping to get there (I can remember a number of nights when they were looking for the wrong transaction(s) that caused a balance mismatch). Nowadays they're retired and still check all their statements each month and reconcile those against their records.
I repeat: being rich does not absolve you of the duty to balance your checkbook.
Re:Well... Why? (Score:5, Interesting)
Not quite. It's more that any transaction which is printed in your statement and which is not challenged by you within a certain period of time (typically two months) is considered to be authorized.
If your financials are so complex that you are unable to audit them for evidence of fraud then you need to hire professional help.
And there's some easy ways to help simplify them (Score:3, Interesting)
Credit cards can help a lot. You don't use your bank account to make purchases, you use your credit cards to make purchases, and your bank account to pay your creditors. This does a couple things:
1) It reduces the amount of transactions to and from your bank account to just a few, rather than everything you do. Things like your mortgage payment(s), car payment(s), and of course payments come from your bank account. Just about everything else is on a credit card. Thus fraudulent bank transactions are much easier to notice.
2) It allows you to group transactions, if you wish. You can have multiple cards and use them for only certain things. For example you could have a "bills" credit card that is only used for paying recurring monthly bills. Again, can help make tracking fraudulent charges easier since you know what kind of activity to expect on the cards.
3) Credit cards change the problem of possession in the case of fraud. With a bank account, you have had the money taken away from you, and are asking the bank to give it back. If they don't, your only recourse is to haul them to court. With a credit card, nothing has been taking from you. The bank is saying you owe a certain amount, and you are contesting that. If you refuse pay, they have to take you to court.
Seriously with a bit of work it shouldn't be hard to keep track of your financials these days, especially with instant access via the Internet. Now I can understand that some people do a whole lot of stuff and thus have more complex financials but that's fine. As you say, if they've gotten to the point where you can't handle them yourself, you need to hire a professional to do so. Just as corporations have accountants to do that, so do individuals with complex financials. However for 99.99% of people, that's not necessary. If you use the tools available to you (such as online access to your statements) it shouldn't be a problem to manage your money.
Re:Retail vs. Private banking (Score:4, Interesting)
Personally I don't even know what the difference is between retail banking and "private" banking, much less what a private banking statement actually looks like.
Wikipedia [wikipedia.org].
I just don't understand how it can be so complex. I mean, any statement should have a list of transactions, and that transaction should have a date, an amount, and a description. If the transaction is a check then it will list the check number. If it's an ACH transfer, then the description will be something about the nature of the other end. I simply don't see how you can make a list of transactions so complex that it becomes infeasible to check them. If you could provide some enlightenment on this then it would be much appreciated.
No problem. I just pulled out my unopened July statement. The entire statement is structured so that you never get past the first page, if you look at it at all.
To give you an idea of how needlessly complex these statements are, consider this: My portfolio manager manages, for my wife and myself, nothing more than our taxable investments, and one nondeductible IRA for each of us. That's it. So what do you think our statement looks like?
For one thing, it is 40 pages long, and the front page gives your portfolio's total value and change since the previous month (what you really care about, anyway). Oh, did I mention that it's printed in such a way that you need to put it into a binder to even read it. The whole thing just screams, "DO NOT ATTEMPT TO READ ME".
There is a ton of information in there, and it's all in abbreviations and shorthand. It's organized funny, and the actual transactions are difficult to pick out in between all of the dividends and reinvestments. The bottom line is once you are taught how to read the thing, you can understand it if you want to, but ... let's face it... if I really wanted to be on top of these things, I wouldn't be paying someone to do it for me.
I actually do, at one point or another, read all of our statements and make sure there isn't anything grossly wrong with them. But I can't imagine just how long our statement would be if we used the private bank for our transactional accounts. They want us to, of course, but it will never happen.
The real moron in the story is the guy in TFA's bookkeeper (he must have one, because I don't believe that the guy personally writes 1000 checks per month (33 checks per day!)). The bookkeeper should have recognized those unauthorized transactions and handled it. Surely the bookkeeper didn't believe that his employer ordered $300,000.00 worth of Dell laptops via ACH debits out of his personal checking account.
Happened to me too. (Score:2, Interesting)