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Too Easy For Bank Accounts To Spring a Leak
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.
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.
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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.
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.
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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.
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.
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