How to Identify Check Fraud: A Guide for Business Owners and Entrepreneurs

Checks have long been a staple in business transactions, offering a tangible and widely accepted form of payment. However, with the rise of sophisticated fraud techniques, business owners and entrepreneurs must be vigilant in identifying and preventing check fraud. According to FinCEN data cases of fraud were up over 23% from 2020 to 2021. Here are some key strategies to help you recognize and combat check fraud in order to safeguard your business.

Understanding Check Fraud

Check fraud can take various forms, from counterfeit checks to altered payee information. Criminals often exploit vulnerabilities in the check issuance and processing systems to perpetrate their schemes. As a business owner or entrepreneur, being aware of common tactics used in check fraud is the first step in protecting your financial assets.

Key Signs of Check Fraud

1. Altered Checks: Check fraudsters may attempt to alter the payee name, the amount, or the date on a legitimate check. Regularly inspect your canceled checks for any signs of tampering. Monitoring of the actual check images can help you identify suspicious activity. 
2. Counterfeit Checks: Criminals may create convincing replicas of legitimate checks. Verify the authenticity of checks received by comparing them to known templates and utilizing security features, such as watermarks.
3. Unusual Signatures: Pay attention to the signatures on checks, especially if they appear inconsistent or markedly different from past transactions. Implement a dual-signature system for larger transactions to enhance security.
4. Missing Check Numbers: Discrepancies in the sequential numbering of your checks could indicate foul play. Regularly reconcile your checkbook and investigate any missing or out-of-sequence check numbers.
5. Unexpected Account Debits: Monitor your business accounts regularly for unauthorized activity. If you notice unfamiliar transactions, investigate immediately and report any discrepancies to your bank.
6. Unusual Delays in Check Clearance: Be wary of delays in check clearance, as fraudsters may intentionally create obstacles to buy time for their schemes. 

Protecting Your Business from Check Fraud:

1. Positive Pay Services: Broadway Bank offers a basic positive pay offering designed for clients with limited check activity. Our advanced solution includes the ability to match incoming check presentments against your check issue records, including an optional payee match. The bank will then verify incoming checks against this list, flagging any suspicious items or discrepancies for your review. Click here for more information. 
2. Watermark Checks: Use checks with embedded security features, such as watermarks, holograms, or heat-sensitive ink. These measures make it harder for counterfeiters to replicate legitimate checks. 
3. Regularly Reconcile Accounts: Promptly reconcile your business accounts to identify any discrepancies or unauthorized transactions. This practice helps you catch potential fraud early and take swift action.
4. Employee Training: Educate your staff about the importance of security measures when handling checks. Provide training on recognizing suspicious activity and emphasize the need for diligence in verifying transactions.
5. Secure Check Storage: Store your checks securely to prevent unauthorized access. Limit the number of individuals with access to check stock and ensure that unused checks are stored in a controlled environment. Also, consider using blank check stock with a MICR printer.

Check fraud is an ever-present threat that demands the attention of business owners and entrepreneurs. By staying informed about common signs of check fraud and implementing robust preventive measures, you can significantly reduce the risk of falling victim to these schemes. Broadway Bank is dedicated to supporting you in this effort, providing tailored solutions and expert guidance to keep your business secure in the face of evolving financial threats. Stay vigilant, protect your assets, and ensure the continued success of your business.