Note: We have recently had several check fraud claims. We asked our partners at The National Bank of Indianapolis to write the following article to help you protect yourself from check fraud. See also our previous article on the subject.

Financial losses due to fraud are increasing every year. According to the FCC, losses due to fraud were up by more than 30% in 2022 compared to 2021. Nonprofit organizations tend to be particularly at risk due to 990s and other information useful to fraudsters being publicly available.

Particularly alarming is the rise in check fraud. FinCEN released a recent report indicating that check fraud occurrences reported by banks increased to 680,000 in 2022 from 350,000 in 2021.  
It is often recommended that we minimize the use of paper checks as much as possible.  Electronic credit card and ACH payments (with verified and secure payment portals), while not perfect, are much more secure. Credit cards also tend to have the most generous reimbursement terms if fraud does occur.

While this is sound advice, it is sometimes simply unavoidable to use paper checks as a form of payment.  Here is some general information and steps you can take to help protect your organization:

Check Processing and Check Fraud Trends:
Today, the processing of checks by banks is nearly all automated.  Gone are the days of banks examining individual checks and matching to signature cards.  Anyone with your account and routing number can easily create fake checks. On the bright side, bank processing software has become more sophisticated in detecting anomalies in check style and out of sequence check numbers.  

In response, the criminals are now trending back to intercepting real checks and changing the payee information.  This way, an altered check can be paid, and possibly go unnoticed for a much longer period of time.  Unless cancelled checks are examined closely, they can reconcile correctly, and not be noticed until the intended payee calls.  Depending on the payee’s accounts receivable systems, this is sometimes months later.

How to Protect Your Organization:

1. Positive Pay:  Most banks offer this service for a fee, and there is no better defense against check fraud.  It works by matching all checks that are drawn on your account to a file you send to the bank at the time you issue them.  If any information does not match, you are notified and have the opportunity to deny payment.

Some banks have different versions of Positive Pay, so make sure that your service is verifying the payee name as well as the other information on the check.

There is a similar “ACH Debit Filter” product which protects against unauthorized ACH debits which is also highly recommended.

Should you reject this optional risk management too, it will be incumbent upon you to manage your financial transactions in a more timely and more thorough manner.

2. Outsourced Payables Processing: Many organizations hire third parties to manage the processing of payables. The processors generally prefer to send payments via ACH, and only use paper checks when necessary. Usually, they will debit your account once and pull the funds into their bank account, and then make payments to your vendors from there. They should all have Positive Pay, but sometimes fraud still occurs. It is important to review their contracts and disclosures carefully to understand how fraud is handled and who is liable. Some of them have time limits after which they will not reimburse for fraud losses.

3. Reconcile and review account activity frequently: Identifying fraud as soon as possible is critical as the chances of recovering the funds diminish quickly with time. If a fraudulent check is reported within 24 hours, it can usually be returned before funds ever leave your account. Organizations that choose to not incur the expense of Positive Pay must be particularly vigilant.

4. Report fraud to your bank no later than 30 days from the incident. Regulation CC (the Federal regulation governing check processing and liability) requires the bank of first deposit to conduct specific actions if it is notified within 30 days. After that, the opportunity for recourse is greatly reduced.

5. Secure Check Stock: Protecting both unused check stock, and outgoing checks is another critical aspect of protection. Many of the intercepted checks are stolen from the mail. Unsecured mailboxes should be avoided.

What To Do if Fraud Occurs:

1. Notify Your Bank Immediately: The sooner the bank is notified the better the chances of recovering the funds. Your bank should also guide you through the process and advise on next steps.

2. File a Police Report: In addition to getting the police involved, this is a very important step to document the occurrence for potential insurance claims, and disputes down the road with intended payees.

3. Contact the Postal Inspector’s Office – If a check was stolen in the mail, be sure to file a report with this office. They also tend to be more proactive about pursuing fraudsters than the police.

4. Contact MJ Sorority to alert them to the incident and determine any additional action that needs to be taken.

In Summary:

As the threat of check fraud continues to evolve, we all must remain vigilant and proactive in educating ourselves and our employees . Staying informed about emerging trends, leveraging advanced banking technologies, and adopting best practices will help fortify our defenses. It is important to have a good relationship with a knowledgeable and responsive banking partner who can help develop and continuously improve your defenses against losses due to fraud.

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We have seen a recent uptick in phishing scams among MJ Sorority clients. In today’s digital age, the threat of phishing is more prevalent than ever before. Did you know that over 90% of successful hacks and data breaches start with phishing scams? It’s a sobering statistic that underscores the importance of staying vigilant against this pervasive threat.

But what exactly is phishing? Simply put, it’s the process of attempting to acquire sensitive information, such as usernames, passwords, and credit card or bank account details, by masquerading as a trustworthy entity. Phishers often use bulk emails that try to evade spam filters, claiming to be from popular social websites, banks, auction sites, or IT administrators. It’s a form of criminally fraudulent social engineering that preys on unsuspecting individuals.

Understanding the Techniques

Phishing techniques have evolved over the years, becoming increasingly sophisticated and diverse. From traditional email and spam campaigns to more targeted approaches like spear phishing and session hijacking, cybercriminals employ a wide array of tactics to deceive their victims. They manipulate links, inject malicious content, and even resort to voice calls and SMS messages in their quest to obtain personal information.

Stay Vigilant

So, how can you protect yourself against phishing attacks? Awareness is key. Familiarize yourself with the common techniques used by cybercriminals, and adopt anti-phishing strategies to safeguard your information. Be cautious when clicking on links or downloading attachments from unknown sources, and always verify the authenticity of requests for personal or financial information.

At MJ, we utilize KnowBe4, a firm that provides security awareness training to members of your organization. Each quarter, they produce an infographic with the top types of phishing attacks, as excerpted above. For the full infographic and associated data, click here. KnowBe4 also offers a free phishing security test that you can utilize to see if your employees are susceptible to phishing attacks – learn more here.

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The past year saw a surge in severe convective storms, particularly hailstorms, causing billions in insured losses across the US. This trend is likely to continue in 2024 and beyond, impacting insurance premiums and available coverages, especially for properties like sorority chapter houses.

The graphic above shows the increase in the number of hail storms and the severity of the damage associated with them over the last twenty years. To zoom in and read the entire report, which we found very informative, click here.

These storms, packing powerful winds, hail, and heavy rain, pose a significant threat. In 2024 and beyond, the risk of severe convective storms looms large, driven by a combination of factors such as warmer atmospheric temperatures, higher moisture content, and shifting wind patterns. These storms can unleash destructive winds, large hailstones, torrential rainfall, and even tornadoes, causing extensive damage to buildings and infrastructure in their path.

Sorority chapter houses, often located in areas prone to severe weather, often face heightened exposure to convective storms. Their typically large, historic structures may be more susceptible to damage from high winds and hail, leading to costly repairs or even total reconstruction. Furthermore, the social nature of sorority houses means that they are frequently occupied, putting members at risk during severe weather events. 

Insurance companies take these risks into account when setting premiums for property coverage. As the frequency and severity of convective storms increase, insurers may adjust their pricing models to reflect the heightened risk. Other options for insurers in this new environment include: stricter requirements for risk mitigation measures, such as installing impact-resistant roofing materials or reinforcing windows and doors against high winds. 

In response to these challenges, sorority chapters must prioritize proactive risk management strategies. These strategies include the following recommendations and resources:

By staying informed and taking proactive steps, sorority houses can weather the storm – both literally and figuratively.

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In this issue of our monthly newsletter, we cover the increasing likelihood of convective storms, share updates to the Important Terms for Housing Agreements, the recent increase in risky activities, an FAQ about money transfer apps like Venmo and Zelle, managing the risk of phishing scams, and more.

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An annual risk management bulletin from MJ Sorority about how best to prepare for tornado season.

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In this issue of our monthly newsletter, we cover risky activity reminders for spring events, concerns about vacant properties, some risk management concerns about ChatGPT to be aware of, and we shared a bunch of new resources to prevent water damage at the chapter house.

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The MJ Sorority Insurance Program is designed to provide comprehensive coverage to owned property that is currently housing chapter members. Any leased properties must be assessed on a case by case basis to determine coverage eligibility. 

Our current policies presume third party tenants have their own property insurance coverage, which should be recorded in conjunction with the executed lease agreement.  

To assess continued coverage eligibility under the your insurance policy, MJ Sorority needs to have a copy of the current lease agreement attached to the property in question. Reviewing your lease agreement will provide us with the necessary information to determine continued eligibility under the current insurance program. 

In addition to a copy of the Lease Agreement, we will need to determine if the following risk management guidelines are in place: 

Tenant is a single sex organization: ___ Yes ___ No 

Adult employee/supervisor is living on the premises: ___ Yes ___ No 

Open Flames are prohibited ___ Yes ___ No 

Alcohol is prohibited ___ Yes ___ No 

Property Manager hired to oversee property ___ Yes ___ No 

Also, please provide the following information: 

  • How long has this location been rented to a third party?  
  • When does the lease term end? 
  • What are the future plans for this property and when? (e.g. sell, demolish, rent, house chapter members) 

If you have a leased property, please provide your Client Executive with the information requested above.

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Water damage poses a significant threat to sorority chapter houses, often resulting in costly repairs, business interruptions, and reputation damage. In this resource, we share tips and strategies to effectively prevent water damage and safeguard the integrity of sorority chapter houses. For a shorter, visual resource, click here.

Prevent sewer and wastewater system backups

  • Pay special attention during times of heavy rain, as sewers can get overwhelmed, becoming blocked, resulting in a back-up causing polluted water to flow directly into the chapter house.
  • Have an emergency plan for shutting down inflow systems.
  • Install water detection sensors behind these systems.

Prevent Water Heater Issues

  • The typical lifespan of a water heater is 8-10 years so have a replacement program in place.
  • Routinely look for signs of rust and corrosion.
  • Keep water pressure no higher than 80 psi / 552 kFa
  • Install a catch pan (drip pan) under the heater to catch small leaks
  • Install water detection sensors behind these systems

Keep HVAC Equipment Working Well

  • Look for clogged drains, frozen evaporator coils, and pipes not properly connected, which are primary culprits of HVAC leaks.
  • Change filters regularly to keep unit from overworking.
  • Make sure condensation drain line is clear on a monthly basis.
  • Install water detection sensors especially in unheated spaces that have piping concealed.

Pay Attention to the Plumbing

Domestic plumbing is the primary culprit of water damage. Most claims involve leaking pipes caused by corrosion, pipe burst, or failure. Failure to prevent and control corrosion is the root cause. Unfortunately, most corrosion is internal and is not easily identified. Galvanic corrosion is one of the most common types of corrosion.

  • Look for visible corrosion
  • Listen and watch for rattling, shock or vibration when water is turned on or off, which might indicate a piping support issue
  • Replace piping that is over forty years old
  • Look for blue or green staining on sinks or taps, which indicates high concentrations of carbon dioxide.
  • Check for acidic water and treat hard water.

Plumbing in Bathrooms and Kitchens

  • Keep an eye on toilets, sinks, and other common bathroom fixtures, especially in multi-story houses with stacked plumbing. Make sure resident members bring all leaks to the attention of either the House Director or the Collegiate House Officer.
  • Inspect all plumbing hoses periodically, especially their coupling connections.
  • Replace hoses that show signs of imminent failure. Most manufacturers recommend hoses to be replaced every 3-5 years.
  • Install water detection sensors under sinks, dishwashers, ice makers, laundry washing machines and other appliances.

To Keep Roofs from Leaking

  • Conduct routine inspection and maintenance
  • Repair all conditions that affect the viability of the roof
  • Unclog roof drains and gutters
  • Safely remove excess snow and ice from the roof
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Water is invasive and there are some things even the very best insurance coverage can’t replace. When it comes to water, the best protection is risk prevention and it’s more critical than ever. 55% of property claims in the MJ Sorority program are due to water-related issues, from burst water pipes to sewer and drain backups. Given the age of many of our properties, these occurrences are not unexpected. For more information on how and why to install leak protection systems, including a 5% premium credit, please refer to our paper on leak protection.

Therefore, proactive risk prevention measures are paramount, especially in the face of these challenges. Adopting technological solutions can greatly enhance a chapter house’s water protection system. Here are four key types of technology solutions that can be employed:

  1. Smart Leak Detectors / Sensors: These devices serve as the frontline defense against water damage by detecting moisture and leaks throughout the property. Strategically placed sensors can promptly alert housing corporations and property managers via mobile notifications upon detecting any signs of leakage.
  2. Smart Water Monitors: By monitoring water flow within the chapter house, these devices can identify abnormal patterns indicative of leaks. They can be integrated with plumbing systems to provide real-time alerts in case of leaks, and some models offer insights into water usage for efficient conservation.
  3. Smart Water Shut-Off Valves: These valves provide a proactive approach to mitigating water damage by automatically shutting off the water supply in the event of a detected leak. Remote activation capabilities enable housing corporation personnel and property managers to control the valve even when away from the property.
  4. Freeze Sensors: Designed to prevent frozen pipes, these sensors detect temperature drops within the property and trigger alerts or notifications when temperatures reach critical levels, typically around 45°F (7°C).

In addition to technological solutions, implementing a comprehensive preventative maintenance program is essential. Regular inspections by professionals can identify vulnerable areas and minimize downtime, enhancing overall reliability.

Given the persistent challenges posed by water damage, the MJ Sorority Program strongly recommends the adoption of these advanced technologies. Because of the potential damage caused by water leaks in the chapter house, we have negotiated with the property insurance carrier to offer our clients who install leak detection systems with the applicable monitoring functionality a five percent credit to their property premium.

Consider using one of these best-in-class leak detection technology companies:

Other leak detection companies that we have researched include the following:

Failure to address water damage proactively may lead to increased insurance deductibles and further financial strain. As such, property managers are urged to explore and implement these solutions to safeguard their chapter houses effectively.

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Winter weather risk management reminders and resources in our winter weather risk management bulletin, including: frozen pipes review and mitigation, webinar with Ryan Protection and Salamander, and other important weather-related information.

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Help us welcome our new Director of Risk Management Education and learn more about Kit Moorman. Learn more and read our press release.

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