It’s estimated that more than 1.2 million bad checks are presented for payment each day. The FBI estimates check fraud costs businesses in the United States about $15 billion a year. And the problem is growing.
But there are tools a business can use to protect itself from this common and costly crime. The financial services industry has developed powerful weapons such as positive pay, direct deposit of payroll checks and check security features that make replication and forgery of checks more difficult.
Direct deposit reduces the number of checks in circulation by automatically depositing employee pay into their checking accounts.
When it comes to security features on checks, positive pay is a powerful weapon in the war against check forgery and fraud. With positive pay, a business provides its bank with a list of checks it has written. When a check is presented to the bank for payment, the bank compares the check with the list — if it’s not on the list, the bank will ask for verification.
If your company isn’t using positive pay, now is the time to ask your banker for information about it, because improved technologies are available.
Previously, positive pay was available only to large commercial customers. New technologies now allow some banks to provide this service to small business customers — taking fraud prevention right to the teller window. Now, when an individual attempts to cash a check purportedly issued by a small business, the teller can verify it on the spot via a computerized list of authorized checks.
Image positive pay is another new service available to positive pay customers. When checks are processed for payment, those that don’t match a positive pay list automatically are kicked out and digitally scanned. The images are sent online to the business customer, who can determine if the check should be paid.
In addition to direct deposit and positive pay, your company also should examine its check design, document storage and security features. Businesses are responsible for ensuring their checks are secure.
Check design — A major reason for the increase in check forgery and fraud is the growing availability of high-quality color copiers, laser printers, scanners and desktop publishing. Today’s fraud artist is techno-savvy, able to perfect techniques using electronic imaging and production tools.
Ask your check provider about security features such as pantographs, prismatic printing, warning bands, secure number fonts and holograms. Special toners and imbedded features such as watermarks and colored fibers also can help prevent criminals from bleaching and erasing information on checks. Don’t purchase generic, blank check stock, which can easily be duplicated by fraudsters.
Storage — Check stock, deposit slips, bank statements and canceled checks should be carefully stored, with stringent controls over who has access to them. If you use electronic or mechanical signatures, the equipment for them should be stored separately, under lock and key and away from the check stock.
When you receive a check order, make sure all the checks are there. If you do not receive a new check order in a reasonable time, notify your supplier.
Destroy canceled checks you no longer need.
Security — Technology will help prevent check fraud, yet it also is essential for companies to establish and enforce good security practices. Here are some steps to improve security:
• Ask your banker about positive pay and account reconciliation products and services that can help you prevent fraud.
• Open bank statements promptly and personally reconcile them. Employees who know you are alert are less likely to cooperate with — or participate in — altering checks. It’s also a good idea to divide accounts payable responsibilities, and don’t let the same person who issues checks balance the bank statement. Rotate personnel in financially sensitive areas, conduct unannounced audits and enforce employee vacations — often a time when you can spot financial discrepancies.
• Watch for checks made out to cash and checks cashed out of sequence — a tip-off to renumbered or counterfeit checks.
• Set dollar limits on checks.
• Shred documents that may contain account numbers and other sensitive financial information.
Prevention and vigilance are a business owner’s best weapons against fraud. With positive pay and advances in check design and printing, you’ll have an even stronger arsenal in the war against crime.
Contact Kevin Heath, a business banking manager at Wells Fargo Tucson, at Kevin.firstname.lastname@example.org or (520) 792-5352.