Paper checks remain the most frequently used payment method for business-to-business transactions, ahead of ACH transactions and credit and debit cards. Although paper checks have been steadily declining, it remains the payment method most often exposed to fraud. A recent survey indicates checks were the payment method most impacted by fraud activity, at 66 percent. With fraud as a prevalent business threat, business owners must recognize common check fraud warning signs.
Criminals are opportunistic, and they may utilize a variety of schemes to perpetrate their fraud. Two of the most common check fraud instances include altered and counterfeit checks. Fraudsters do their best to seem legitimate, using technology so sophisticated it can make check fraud hard to detect.
Who is responsible for identifying check fraud warning signs?
Strong organizational controls can reduce the likelihood of check fraud, meaning it’s important for every employee involved in payment operations to be aware of the company’s processes and make sure there are controls in place to help identify and prevent check fraud.
How to Spot an Altered Check
An altered check is a form of check fraud that generally occurs when a fraudster has somehow gotten ahold of a physical check and changed some of the information on the check. Typically, an altered check will change the name or amount.
Altered checks are a common type of check fraud and occur after a person creates a valid check to make a payment.
A fraudster would gain access to the legitimate check and then use various means to erase information on the check, such as the amount or the payee’s name, so new information could be entered instead. The new information might be added with a laser printer, check imprinter, or even handwritten, whichever method would make it appear most authentic.
With altered checks, more often than not, the payment amount part of the check is fraudulently altered, as dollar amount changes are easier to make than changes made to names. Businesses should check the payment amount closely to see if it looks like an extra zero was added at the end, or another number was changed.
For example, the dollar amount of a check could be changed from $100 to $1,000. Businesses should look for inconsistent handwriting and check for visible signs of alteration and/or erasure to help spot altered checks.
How to Detect a Counterfeit Check
With counterfeit checks, criminals will attempt to create and use a check that appears to belong to a company or other organization. Technology has made it increasingly easy for criminals to develop realistic fictitious checks, making check fraud one of the businesses’ largest challenges. Counterfeit checks might try to make themselves appear like business or personal checks, cashier’s checks, or money orders.
Determining whether a check is legitimate just by physical inspection can be difficult. However, there are some things businesses can do to help identify a fake check:
- Feel the paper: Authentic checks are generally printed on thick, coated paper stock and have a matte finish. If a check feels thin and flimsy or looks like it was printed on shiny paper, it might be counterfeit.
- Check the bank logo: Look on the front of the check for the bank logo. If you don’t see a logo or the logo is faded or faint, it could be a sign the check is counterfeit. You can also check the validity of the bank address.
- Inspect the check and routing numbers: Check the check number against the number in the magnetic ink character recognition (MICR) line at the bottom of the check. From left to right, this long string of numbers contains the routing, account, and check numbers. Make sure the check numbers match. The first two digits of the routing number indicate in which of the 12 Federal Reserve Districts the bank is located. This can be used to compare the listed location of the bank. Finally, if the check number is low, this may also signal the check is counterfeit, as most fake checks are written from new accounts.
5 Check Fraud Warning Signs to Protect Your Business
Unfortunately, fraudsters often look for companies that lack processes and technology to prevent losses. If a company doesn’t have a solid strategy to detect check fraud, it may go on for a while. Thankfully, several effective ways to guard your business against check fraud exist.
A good first step is to review the checks you use and all processes related to check usage. Here are some best practices to consider implementing right away:
- Use high-security checks – High-security checks are the best way to deter and detect fraud.
- Store checks in a controlled environment – Always keep your checks in a safe, controlled environment, preferably under lock and key and away from signature stamps. Boost your security and efficiency with eChecks.
- Incorporate checks and balances – Centralize check writing. Make sure more than one person handles accounts payable. Reconcile bank statements daily. Investigate check numbers cashed out of sequence and checks made out to “cash.”
- Take advantage of Positive Pay services – These services are known as one of the most effective forms of defense against check fraud. Positive Pay is a service offered by many banks that use automation to detect check fraud by matching checks presented for payment with a list of checks issued by the company and then highlighting any exceptions.
- Stay one step ahead of thieves – Immediately notify your bank of changes in signing authorization. Require two signatures for large amounts. Set up a separate account for large dollar limits.
At Safeguard, we understand checks remain a top payment choice for many businesses. That’s why we offer state-of-the-art high-security checks that can increase efficiency and protection, helping you stay as secure from fraud as possible. From payroll to accounts payable, you can count on your Safeguard Advisor for checks and banking solutions to help you run your business smoothly and securely.
- A recent survey indicates checks were the payment method most impacted by fraud activity, at 66 percent.
- Paper checks remain the most frequently used payment method for business-to-business transactions, ahead of ACH transactions and credit and debit cards.
- Check fraud warning signs for altered checks include inconsistent handwriting and visible signs of alteration and/or erasure.
- Check fraud warning signs for counterfeit checks include thin or shiny paper, a missing or faded bank logo, and a missing or low check number.
- Businesses can combat check fraud by using high-security checks, storing checks in a controlled environment, incorporating checks and balances, and taking advantage of Positive Pay services.