Check Fraud – Is It Happening to You and How to Prevent It

Check fraud is on the rise. The 2018 AFP Payments Fraud Survey, underwritten by J.P. Morgan, revealed that payments fraud reached a new high in 2017 after a downswing earlier in the decade. As business consultants, we have seen several of our clients fall victim to this type of fraud.

Here are a couple of real-world examples to show you the importance of protecting your accounts.

The Company: A distribution company with an annual revenue of $15 million.

The Event: While conducting their monthly reconciliation, the Bookkeeping Manager was stumped by the balance discrepancy. After further investigation and with the help of one of our consultants, they located four checks that cleared their account and appeared to be fraudulent due to check the numbers. It was determined that a company check was stolen in the mail and the account number was used to make duplicate checks on fake check stock.

Risk: The risk for more than $15,500.

What the Company Learned: This distribution company had to close their business account and opened a new one. They also learned that this could have been avoided if a weekly reconciliation was done as this discrepancy would have been caught sooner before some of the remainder fraudulent checks were processed.  

The Company: A manufacturing company with an annual revenue of $8 million.

The Event: Accounting was reviewing their ledger and notice a check written was not matching the amount issued, nor did the payee match. This company never writes checks to Cash. After further investigation and contact with their bank, they noticed that the check had been washed. The check was washed? What does that mean? Many types of inks are easy to remove from checks, which enables a thief to delete the name of the payee and the amount and write in a new name and a different amount.

Risk: The risk for more than $8,000.

What the Company Learned: This manufacturing company learned that paper checks are not secure. They also learned that if you can’t prove that you didn’t write the stolen check, you are held liable for it.

What is recommended?

We recommend implementing ACH payments or at the very least Positive Pay.

ACH stands for Automated Clearing House, which is an electronic network that allows people to directly transfer funds between two bank accounts. ACH volume grew to more than 25 billion payments and $43 trillion in value in 2016. Additionally, $43.7 trillion was transferred over the ACH Network last year — The Electronic Payments Association®. We recommend this as your best choice, as it is the most secure, saves time and is extremely efficient. We feel so strongly about ACH that we developed the Top 7 Benefits of ACH – click here.

Positive Pay is great if you still want to keep paper checks in motion. With Sage 100 Bank Reconciliation module, you can generate a file that lists all of the checks issued.  The file is uploaded to the bank.  The bank will validate the account number, check number, and dollar amount of each check submitted for payment against the list of checks submitted electronically by you. This is designed for businesses that want their bank to help monitor against any fraudulent check activity.

Contact us at 860.399.4215 for more details or for a demo.

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