Be Cautious When Accepting Checks
Check fraud costs individuals, businesses and financial institutions as much as $12 billion annually, according to some estimates. Forged checks have always been a problem. However, inexpensive laser printers and check quality paper that is easily accessible makes check fraud more of a problem today than ever before.
While debit cards and other forms of electronic transfers are the preferred way that consumers make payments today, checks are still used extensively at many businesses.
If your company accepts checks, a little knowledge of the payment system and a good eye can help you distinguish many of the good drafts from the bad ones.
Look for Alterations
Checks contain a nine digit routing number in the bottom right-hand corner. The first two digits indicate the Federal Reserve Bank that will handle the check. One favorite trick of forgers is to change the routing number, often substituting a West Coast Federal Reserve Bank number for an East Coast one. That way, the check needs additional time to cross the country before the crime is discovered. It also gives the forger time to flee.
By knowing the routing number of your closest Federal Reserve Bank, you can quickly tell if there’s a problem with the number on a “local” check.
If the routing number appears to be altered, there’s a good chance the check is bad. A quick scan can also tell if there is discoloration, which is also an indication of check alteration.
Another sign of a potentially fraudulent check: No perforated edge on one side. The perforation allows users to rip drafts out of their checkbooks. A check made on a home printer doesn’t have these edges. Of course, there are people who legitimately print checks themselves, but even those usually have one or more perforations.
Sometimes the checks themselves are legitimate, but the person trying to use them isn’t. Payroll and other checks are routinely stolen. That’s one reason why the federal government started electronically depositing Social Security checks.
Other forgers pilfer check stock directly from companies that write the drafts.
Your business should have a policy of looking at the signatures on checks, preferably matching them against the signatures on the check writers’ drivers licenses or other forms of identification.
Staff members should be instructed not to pay attention to the appearance of the check presenters. They should be concerned about the appearance of the checks.
Consider “Checks and Balances”
Companies issuing checks are at risk, as well. Company executives should examine check stock and account balances regularly to look for discrepancies. A system of checks and balances can also help deter internal fraud. For example, have different people write checks and reconcile bank accounts. Limiting the number of people authorized to write corporate checks reduces the chances of fraud.
Get professional help: Ask your law firm if it would be worthwhile to perform an internal control study and recommend ways to minimize employee fraud and reduce theft. Your financial institution probably offers fraud deterrent programs that include check stock with water marks and other security features. Payroll cards, on which the company loads electronic payments, are also gaining in popularity.
Remember that the best defense against the danger of check fraud is a proactive approach that prevents — rather than detects — the crime.
When a Check Bounces
If you receive a bad check, most states have a means to collect or a court action to force payment. The preferred course of action is to try to collect on the check first.
Ordinarily, to force payment, you must do two things:
1. Show the check was dishonored.
2. Show the provider gave notice of the dishonor to the writer of the check. (All states require that the person who wrote the check first be notified that it was rejected.) Some states require further action, so look into whether your state has a special collection statute and whether courts have set out criteria for collecting on bad checks.
- Place a notice at the receptionist’s desk, the cashier’s window, on invoices, or any other conspicuous place stating your policy on bad checks.
- State that you will charge a fee for all returned checks and that the customer will be responsible for all reasonable costs and expenses of collecting checks. (Reasonable costs vary from state to state.).
- Send the customer a notice outlining the penalty to be assessed and the charges to be brought if payment or arrangement for payment is not made within a reasonable time (10 to 21 days is considered a reasonable time). You don’t have to send the notice by certified or registered mail, but you should include an affidavit of mailing to prove that the notice was sent to the person’s last known address.
Remember: The laws for collecting checks vary from state to state, so check with your attorney for guidance.
This article appeared in Walz Group’s May 8, 2023 issue of The Bottom Line e-newsletter, produced by Checkpoint Marketing. This content is for informational purposes only.
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