Check fraud: A guide to prevent losses

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By BizBritain

20 days ago

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With 82 per cent of companies targeted by payment fraud in 2018, cybersecurity protocols and strict control governance are of critical importance, especially when it comes to payroll and voucher checks. After all, the AFP Payments Fraud and Control Survey revealed that 70 per cent of organisations have experienced check fraud.

"Checks are the most frequently used payment method for business-to-business transactions and are, therefore, common targets of fraudsters," noted the survey. "While technology advancements are making processes surrounding electronic payments easier, those same technologies are also helping perpetrators in their attempts to attack payment methods."

So how can your business prevent losses from check fraud? Here's a quick guide.

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Preventing losses from check fraud

In order to prevent losses from check fraud, businesses should look to adopt the following safeguards:

  • Positive pay - This allows a business and its bank to work together to detect check fraud by identifying items presented for payment that the company did not issue. The business tells the bank a list of all the checks it issued on a particular day, which the bank verifies against a list of trusted parties.
  • Reverse positive pay - This is effectively the same as positive pay, but the business not the bank maintains the list of checks issued.
  • Fingerprints - Certain banks and businesses fingerprint non-customers that want to cash checks. However, any business that introduces this security protocol should exercise caution to ensure that it is not applied on a selective basis.
  • Check 21 - Banks now exchange payment information electronically to make check processing more secure. Check 21 also speeds up processing, controls costs, and reduces fraud by providing early notification of return items.
  • Data sharing - The Bank Check Fraud Task Force, which examines solutions to check fraud problems, developed a data sharing program for closed accounts. This prevents people who have outstanding checks due to retailers from opening new accounts.

Check fraud prevention tips

Along with the aforementioned safeguards, businesses may also want to consider implementing the following procedures:

  • Audit and review processes - From performing surprise audits to scrutinising payment and hiring processes.
  • Know your employees - For example, making sure two people are responsible for accounts payable.
  • Secure your assets - Keep all check stock or cash equivalents in a secure and locked facility.
  • Understand fraud trends - Stay in touch with businesses in your area to remain on top of fraud occurrences.
  • Exercise caution with refund accounts - Things like rebates for subscriptions tend to be a target for fraud as these checks are relatively easy to obtain and can be used for counterfeits.
  • Use trustworthy vendors - Only purchase stock from well-established vendors and if accounts payables go through a service bureau, ask for a copy of its security procedures.
  • Close fraudulent accounts - If a payment account is fraudulently used, close it as soon as possible.
  • Two forms of ID - For all payments by check, request two forms of identification and list them on the back of the check.
  • Use electronic verification services - If you accept a large number of payments by check, consider the use of electronic verification services.

As cyber criminals become more sophisticated in their approach to check fraud, businesses must be more alert to the problem as well as the prevention tools available.

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