How to Win the Corporate Check Fraud Game

Helping You Protect Your Company from Check Fraud

 

Check fraud is a problem that will cost American businesses and banks approximately $50 billion this year alone. These days anyone with access to a personal computer, a scanner and off-the-shelf software can create doctored corporate checks that even a seasoned CFO would have trouble spotting. Technology-savvy criminals can reproduce hundreds of realistic counterfeit or forged checks in a matter of hours or days if they can access basic corporate account information.

The concept is therefore simple and straightforward: U.S. companies need to take basic steps to protect themselves against the possibility of check fraud. This can be accomplished by instituting a combination of deterrents that significantly lower the risk of becoming a corporate check fraud victim.

Banking and security experts recommend a variety of measures to combat check fraud. The establishment of internal controls that minimize human error and opportunity are suggested, as is the daily review of all check-related activities. Also part of the multi-faceted strategy is the use of secure disbursement systems such as "Positive Pay" and the utilization of paper-based safety measures such as copy/alteration resistant inks and papers with anti-tampering features.

Internal Controls

Before a company goes searching for the latest in check fraud solutions, it pays to examine what's happening inside the company itself.

  • - Do the departments that receive or disburse money compare notes? If not, incidents of fraud may remain localized. That makes it difficult to appreciate the size of the problem and to do any analysis of potential solutions.
  • - Has your company been through a downsizing? Sometimes, regardless of the magnitude of the fraud problem, no one is left who can manage a long-term view and consider major remedies.
  • - How many people have the authority to write corporate checks? A company with check writing operations distributed throughout the company, or country, may have difficulty keeping track of check issuance. To minimize the confusion and lack of control, consider centralizing the check writing function to the greatest extent possible, limiting the number of official signers. You can further minimize your exposure by using multiple signers on checks over a threshold amount and by notifying your bank immediately of any changes in signing authorization.
  • - Is your payables account used for more than just payables? One reason to have check writing authority spread throughout a corporation is to provide prompt payment for returns or for issuing claim checks to manage customer relations. But such payments should come from distinct accounts with maximum dollar limits.
  • - Does your company reconcile accounts on a timely basis? In the absence of any kind of "positive pay" arrangement with your bank, consistent and timely account reconciliation is at least an early warning system for check fraud. Your staff should be trained to spot suspect items and how to use stop payments and voids. As a further precaution, large-dollar items should be reconciled on a daily basis and whenever possible, the check writing and account reconciliation functions should be separated.
  • - Does your company properly secure check stock inventory? Companies using pre-printed check stock can benefit from regular inventory inspection to help detect check theft early. Access to check stock inventory should be limited for easier accountability. Finally, using check stock with fraud prevention security features can reduce the incidence of internal check theft and subsequent fraud.

Positive Pay

Positive Pay is an effective anti-fraud system with which a company provides check issuance information on a daily basis to the paying bank. The information includes the account number the checks are drawn on, the serial number of each check issued, the corresponding amount of each check and the issue date. Some services even include payee information.

The paying bank stores the information in its database and daily matches it against the checks presented for payment. Checks that don't match the database information are returned.

This service can significantly reduce the potential losses that a company might incur from fraudulent check activity, but it can add operating costs to the company's cost of issuing checks if not implemented correctly. When considering a positive pay system, management should look for a system that automatically links their company's accounting software to their bank's provided solution. That linking will eliminate costly monitoring and manual data entry that is required to match a company's "checks printed file" to the bank's "checks authorized file".

Paper-Based Security Measures

As technology becomes more sophisticated, checks are being altered, copied and forged with alarming frequency. A number of paper-based security features have been developed to combat this type of fraud. These features not only make it more difficult to alter or copy checks, but they also help company's prove due diligence that is necessary to avoid financial liability when instances of check fraud arise.

Newer versions of laser check stock include such advanced features such as watermarks, fluorescent fibers, void pantographs, border copy warning and color stain protection. These features help to prevent criminals from altering checks by chemical or other means and alert check cashiers of possible foul play.

Another key element integrated into better-quality papers is a toner-grip feature that creates a greater adhesion of toner on the surface of the check. This feature has the dual benefit of preventing alteration attempts by forgers while providing a document surface that improves and strengthens the adhesion and bonding of MICR ink on the check.

A Multiple Solution

There is no single sure-fire way to avoid check fraud, but a combination of internal controls, technology-based systems and paper-based measures provide the strongest deterrent available today. The best defense against the dangers of check fraud is a proactive approach that prevents, rather than detects the problem.

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