Banks don't look at names, signatures on cheques

A group of B.C. condominium owners is upset Canada's largest credit union allowed the treasurer of their complex to cash about $50,000 in cheques that were payable to others.

"It just upsets me that this much money could be taken … that one person could do this over the years and get away with it," said Don Wright, the current treasurer of the strata, or condo association.

Records suggest Vancity credit union allowed the treasurer to deposit numerous cheques into his personal account.

Some of the cheques were written to the Maple Ridge, B.C., association. Some were written to other parties, on the association's chequing account.

None of the cheques was payable to the treasurer, but all were deposited into his account over a 10-year period.

"He endorsed them as if they were written to him — and put his own bank account number on the back," Wright said. "The longer he got away with it, the larger the amounts of money that he stole."

Standard practice

The deposits were made at Vancity automated bank machines. Vancity told CBC News it is standard practice for Canadian banks and credit unions not to verify or even look at payee names, signatures or endorsements on cheques deposited through ABMs.

"We are processing hundreds of thousands of cheques on a daily basis," said Mohamed Ladak, the Vancity business banking account manager.

"That process isn't meant to look at the name on the cheque. The name on the cheque — when it doesn't match the name on the account — could be a legitimate transaction …payable to a third party."

When asked if Vancity looks to see whether those third-party cheques are properly endorsed, Ladak said: "It goes back again when you are processing hundreds of thousands of cheques on a daily basis. The system isn't meant to check that."

Ladak confirmed Vancity staff who count and bundle cheques from ABMs only look at the amounts payable. The cheques are then couriered to central clearing centres, where the amounts are transferred between banks electronically.

"Every single financial institution uses the same system," Ladak said.

Cheque fraud 'huge'

Ladak said cheque fraud is a huge problem, which financial institutions encounter daily.

For example, 3,277 mailbox thefts were reported to Canada Post in 2010 — and cheques are one thing thieves look for. In Ontario, members of an alleged theft ring were convicted recently after stealing $1 million worth of cheques from mailboxes.

They deposited the cheques — tax returns, for example, written to other parties — into personal bank accounts set up by members of the ring, the OPP said. The people involved eventually were sentenced to six months of house arrest.

CBC News did its own test by depositing a bogus $100 cheque, written to "Richard Smith," into a female staffer's personal account at TD Canada Trust through an ABM. The cheque cleared in two days, with no questions asked by the bank.

"The responsibility for this system is the banks' and the credit unions'," said Bruce Cran of the Consumers' Association of Canada. "They do this because it's less expensive for them than checking all the signatures on cheques."

"Something should be done to correct this, because who knows how many people are being robbed," Wright said.

The cheque ordeal for the condo owners began when a resident called the current president, Keith Henrey, to ask about a move-in fee she had paid to the association. Henrey said he told her the strata didn't have such a fee. 

When the group discovered her "move-in fee" cheque had been deposited into the treasurer's personal account, the owners started digging through records and found 10 years worth of cheques they say were cashed fraudulently.

Wright said the condo association is small and self-managed, and the owners trusted that the resident treasurer was handling the money properly.

"This is a seniors complex," Wright said. "Everyone here is limited in their funds."

Henrey said the group went to the RCMP but was told charges might not be laid for months, if at all. The police and a lawyer suggested the group confront the treasurer directly, Henrey said, and ask him to pay back the money voluntarily.

Half the money recovered

The treasurer paid back $25,000 and moved out of the complex. The association dropped plans to pursue charges, Henrey said, but the owners are still not pleased with Vancity.

"How can this person get away with this for 10 years?" Wright asked. "We can't understand how they can let that many cheques go through that didn't belong to that person."

"None of this would have happened if it had have been tellers and not ATM machines," Henrey said. "You know, they call this progress."

The Canadian Payments Association, which sets cheque-clearing rules for all financial institutions, told CBC News the depositor's bank is financially responsible for reimbursing funds paid out, if that institution fails to verify a cheque's authenticity.

"Essentially, the bank (credit union) that accepts a cheque on deposit (the collecting FI) is responsible for ensuring that the depositor has the "authority" to deposit the cheque," spokesperson Geoffroi Montpetit wrote by email.

"It is a business decision (risk assessment) on the part of each collecting financial institution to determine what effort it will undertake to do "checks" on deposited items."

Henrey said Vancity did little to help, though, when the group complained to a manager at the treasurer's branch. He refused to tell the association whose account the cheques had gone into, citing privacy, Henrey said.

"They were not helpful at all," he said. "They said 'you have to go to your own credit union.'

"I said to them, 'This has nothing to do with our credit union whatsoever. You people are accepting cheques in our name and putting them in a private account. How wrong can you be?'"

CPA rules indicate it would be up to the strata's credit union to initiate an investigation and then go after Vancity for reimbursement. Henrey said the group was told it would need signed affidavits for every cheque, stating it was cashed improperly. That would involve tracking down several people, named as payees.

"If we retrieved $4,000, it would cost $5,000 for the lawyer to do the affidavits," Henrey said.

Vancity expresses sympathy

He said the group dropped plans for legal action when it discovered how complicated it would be, and it has since had to raise condo fees.

"Why can't [Vancity] hire somebody who is going to look after situations like this?" Henrey asked. "I think the whole system is wrong — that the banks allow situations like this to happen."

The credit union told CBC News it will now take another look at the condo association's case.

"We need to investigate the matter," Ladak said. "Obviously, this is a really unfortunate situation. We sympathize with the situation, and we will do our utmost to do the right thing."

The Canadian Banker's Association told CBC News that consumers should choose electronic banking over cheques whenever possible.

"Unfortunately, there have always been, and always will be, individuals who attempt to perpetrate criminal activities such as fraud, and we understand the difficulties that this can cause for victims," wrote CBA spokesperson Andrew Addison.

"We also strongly encourage clients to use electronic payment options wherever possible. They are faster and more secure than paper-based payment products."