Check fraud is still prevalent in businesses, despite the advances in technology that have allowed contactless payments to become safer, faster, and more accessible.
In 2019, the total amount of attempted check fraud was $15.1 billion. While banks managed to stop the majority of this becoming actual losses, it is a sobering statistic.
In 2020, 74% of companies who were the victim of attempted or actual payment fraud suffered from check fraud – but the same study revealed that 42% of companies use checks for business to business payments as well as accepting checks as a payment method from customers.
Types of Check Fraud
There are different ways that fraudsters can use checks to steal money from your business, and these include:
- Fake checks – checks that are created or altered without the owner’s permission.
- Check washing – removing the payee or amount details (sometimes using chemicals) to put in new details.
- Check counterfeiting – duplication of checks through photocopying or forgery.
- Paperhanging – making checks that cannot be cashed because there are insufficient funds in the account, or the account is no longer active.
How to Prevent Check Fraud
When it comes to business checks, there are several ways a company can protect themselves if they are using checks to pay suppliers or to receive payments from customers.
Around half of all large fraud cases involved someone with ‘inside information,’ and this should tell you that the most important variable in your security is the people you employ. While we like to think that all staff should be trustworthy, there are no guarantees.
Your company should have a clear policy around who has access to checks, who can create and authorize them, and set dollar limits on how much each person can authorize. For large amounts, you should instigate a dual signatory policy.
Blank checks should be stored securely, and access should be limited to those who are authorized only.
For staff at the point of sale working with customers who are paying by check, extra training should be arranged so that they can learn how to spot a forged check, and what an altered or counterfeit check might look like.
The checks can have a big impact in fraud prevention, and there are different security features that you should look out for when choosing the manufacturer of the checks you use.
- Paper – look out for premium-grade security paper with watermarks, areas that are designed to be tamper resistant, with both visible and invisible fibers. Paper might also be chemically reactive to demonstrate when there has been tampering
- Ink – fraud sensitive ink as well as a security coating (to prevent washing)
- Printing – microprinting that is difficult to forge, multi-colored background, thermochromic icons and passport-level holograms, as well as print that is erasure evident.
Checks might be considered rather old-fashioned, but with technological innovation it can be easier to spot frauds before they happen.
Performing a daily bank reconciliation and confirming all transactions every day will help to highlight any problems quickly. Once a scammer knows that their fraud has worked once, they are likely to exploit that weakness again and again – but if you spot it quickly, they can’t continue.
Banks are also a great help in this, specifically through a policy known as Positive Pay. Companies can submit a list of the checks that they have created each day, and when the checks are presented for payment, they are matched to this list. Anything that doesn’t match can be highlighted, and then it is up to the company to specifically authorize the check.
Even if checks are the main method of payment for suppliers in your business, you will find that many companies are moving to Automatic Clearing House (ACH) payments, which are much more secure – and these accounts can have a marker on them, so they don’t receive checks from you.
Simple steps that you take now will help protect your business in the future – not only from the immediate loss of the check fraud, but also from having to change bank details if you do become a victim.