Altered checks. Thieves steal a legitimate, signed check and alter the payee and/or amount. The check is then cashed, and funds are gone from your account before you realize the check didn't make it to its intended recipient.
Counterfeit checks. Criminals steal basic account information and use it to create doctored business checks. Within a matter of hours, they can produce hundreds of realistic-looking checks and clean out your checking account.
If your business falls victim to check fraud, you've not only lost money, but you'll lose time and productivity to closing accounts, issuing stop payments on outstanding checks, and reissuing payments. Here are six ways to avoid losing money to altered, forged, and counterfeit checks.
1. Order checks from a reputable source
Banks and other reputable check-printing businesses typically include security features on checks that help combat counterfeiting and alteration, such as:
Watermarks that are hard for fraudsters to duplicate.
Reactive paper and ink that alert the bank the check has been tampered with.
Some checks printed by online retailers don't include these security features and may be rejected by your bank, even if the account holder legitimately bought them.
2. Fill out checks properly
Use the entire name of the company when writing or printing checks. For example, if the payee is the Internal Revenue Service, don't abbreviate “IRS."
Indicate the amount of the check with both numbers and words, and spell out the amount completely. For example, on a check for $2,255.00, write out "Two thousand two hundred fifty-five dollars and 00/100." This makes it harder for fraudsters to tamper with the amount.
Take care to fill in all available space on every box and line. If your entry doesn't take up the full box or line, draw a line to the end of the space to prevent criminals from making alterations, such as adding an extra zero or adding an alternative payee. Filling out the check properly helps to ensure it is endorsed and cashed correctly.
Did you know? Some discount check retailers don't include many of the security features that make checks harder to alter or reproduce.
3. Safeguard checks and account information
Keep reserve supplies of checks, statements, and other documentation in a secured and locked facility. Limit the number of employees allowed to have access to these documents and train responsible staff never to leave blank checks or bank statements unattended.
Deface and keep voided checks to ensure they don't fall into the wrong hands. If you want to shred voided checks, check with your accountant first. Some accounting firms prefer you to retain voided checks until after the annual financial statement audit is completed.
4. Segregate duties
Assign responsibilities for accounts payable to more than one person, with each responsible for different areas. For example:
The person who issues checks should not also sign checks and reconcile the bank account.
Authorized check signers should not have access to blank checks or the ability to enter transactions into the accounting system.
Segregation of duties makes it more difficult for employees to tamper with checks and payments.
If you use a signature stamp, implement proper controls to ensure the stamp is not readily available for just anyone in the office to use.
5. Reconcile accounts promptly
Quick fraud detection tends to limit loss exposure, so balance accounts monthly to identify discrepancies. The reconciliation should also include a review of the bank statement and check images to ensure vendors are recognized, expenditures are related to company business, signatures come from authorized signers, and endorsements are appropriate.
6. Use a positive pay service
Possibly the best strategy for protecting company funds is to use a positive pay service available through the Treasury Management department of most banks. With positive pay, before releasing checks to payees, you send your bank an issue file of those checks. Your bank then compares checks received each day to that issue file and singles out unmatched items for your review. Positive pay is an incredibly valuable tool to help you proactively prevent check fraud. Ask your bank about it today.
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Board of Governors of the Federal Reserve System, “The Federal Reserve Payments Study: 2018 Annual Supplement," 2018, https://www.federalreserve.gov/paymentsystems/2018-December-The-Federal-Reserve-Payments-Study.htm, accessed July 28, 2019.
Better Business Bureau, “Scams and Your Small Business Research Report," 2018, https://www.bbb.org/globalassets/local-bbbs/council-113/media/small-business-research/bbb_smallbizscamsreport-final-06-18.pdf, accessed July 28, 2019.
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