Check fraud costs individuals, businesses and financial institutions as much as $50 billion annually, according to one estimate.
Forged checks have always been a problem, but with inexpensive laser printers and easily accessible paper, check fraud is more prevalent than ever before. Victims include financial institutions, businesses that accept and issue checks, and of course consumers. In most cases, these crimes begin with the theft of a financial document — stealing a blank check from your business, home or vehicle during a burglary, searching for a canceled or old check in the trash, or removing a check from your mailbox.
If your business accepts checks, a little knowledge of the payment system and a good eye can help you distinguish bad from good.
Look for alterations
Checks contain a nine-digit routing number in the bottom left-hand corner. The first two digits indicate the Federal Reserve Bank that will handle the check. A favorite trick of forgers is to change the routing number.
By knowing the routing number of your closest Federal Reserve Bank, you can quickly tell if there’s a problem with the number on a “local” check. If the routing number appears to be altered, there’s a good chance the check is bad. A quick scan can also spot discoloration, which is an indication of check alteration.
Another sign of a potentially fraudulent check: No perforated edge on one side. Checks made on a home printer are typically smooth on all edges.
Sometimes the checks themselves are legitimate, but the person trying to use them isn’t. Payroll and other checks are routinely stolen. That’s one reason why the federal government started electronically depositing Social Security checks.
Inspect signatures
If you’re a retail-type business, consider implementing a policy of matching the check’s signature to a piece of ID like a driver’s license. Instruct employees to not to pay attention to the appearance of the check writer, but rather the appearance of the check itself.
Consider “checks and balances”
Companies issuing checks are at risk, as well. Company executives should examine check stock and account balances regularly to look for discrepancies. The right financial controls can also help deter internal fraud. For example, make sure the same person doesn’t write checks and reconcile bank accounts. Limiting the number of people authorized to write corporate checks reduces the chances of fraud.
Get professional help
An experienced accounting firm can perform an internal control study and recommend ways to minimize employee fraud and theft. In addition, your financial institution may offer fraud deterrent methods like watermarked check stock. Payroll cards, on which the company loads electronic payments, are also gaining in popularity.
Remember that the best defense against the danger of check fraud is a proactive approach that prevents — rather than detects — the crime.