Is My Business Account Safe?

I could talk about check fraud all day long because it is so pervasive in my business.  Even though the annual number of checks paid in the U.S. continues to decrease, check fraud is increasing.  One of the biggest reasons for this is because paper check fraud is easy to commit.  It is not difficult to purchase everything you need at your local office supply store – (scanners, printers, desktop publishing programs) and at a low cost.

The 2010 AFP Payments Fraud and Control survey reports that the most widely used techniques to commit check fraud are:

  • Non-payroll counterfeit checks using the company’s MICR (the preprinted information at the bottom of a check containing account number, bank routing and transit number) line data (72%)

  • Payee name alteration on checks issued (58%)

  • Dollar amount alteration on issued checks (35%)

  • Loss, theft or counterfeit of employee pay checks (21%)

I would have thought that more employee pay checks would be involved because they have a greater risk of falling into the hands of the wrong people.  But if you consider the fact that payroll accounts are typically funded only for the amount of a firm’s net payroll for one particular payday, combined with the fact that these checks clear the account super fast, it does make sense for a thief to go after funds in a general operating account first where it could go undetected longer and the funds available are more than likely significantly higher than what is found in a payroll account.

JP Morgan recently issued a white paper titled “Payments Fraud. From Paper to Electronic: Fraudsters Follow the Money.”  In here they list Best Practices in Check Fraud Protection to include:

  • Using high-quality check stock with built-in security features including: fluorescent fibers, watermarks, chemical resistance, bleach-reactive stains, thermo-chromatic ink, endorsement backer, micro printing, and warning band border

  • Purchasing check stock from known and reputable vendors

  • Storing check stock, deposit slips, bank statements and canceled checks securely

  • Implementing secure financial document destruction processes

  • Establishing an employee order/re-order policy for check stock

  • Dual controls over check stock, check issuance and account reconciliation

I have mentioned some of the above in an earlier post but they are worth repeating.  Fortunately solutions exist to prevent check fraud including Positive Pay, Payee Verification/Payee Positive Pay, Reverse Positive Pay/Paid Check Review, Stale-Dating, and Debit Blocks.    Some of these solutions require you to become more technically involved than others.  A discussion on these methods will be the topic of my next post.


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