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In the fast-paced business world, relying on paper checks can feel like using a rotary phone in the age of smartphones. While transitioning to fast and flexible digital payments is the ideal solution, we understand it’s not always feasible for every business.
Unfortunately, check fraud incidents are on the rise. According to the Association for Accounting Professionals (AFP), 65% of organizations reported check fraud activity last year.
If your business still needs to send paper checks in the mail, here's how you can identify and prevent check fraud, ensuring the safety of both your business and your customers.
What is Check Fraud?
Check fraud is a crafty scam where fraudsters use paper or digital checks to steal money. Common tactics include forging signatures, altering legitimate checks, and creating counterfeit ones. Some even steal checks from the US Postal Service!
Despite the digital age, check fraud is rising. Without the robust protections of credit and debit cards, checks are especially vulnerable.
Businesses must stay vigilant. Ignoring check fraud can lead to financial losses and damage to your reputation.
Protect yourself by learning to spot and prevent these scams.
Common Types of Check Fraud
Fraudsters use various methods to commit check fraud. Here are some of the most prevalent examples today:
1. Paperhanging: Writing checks from a closed or overdrawn account, leaving businesses with bad checks.
2. Check-Kiting: Using two accounts to create fake balances. The scammer writes a check from Bank A, deposits it in Bank B, and then withdraws the money before Bank A realizes the fraud.
3. Check Alteration (Check-Washing): Thieves steal checks from mailboxes, erase the information with nail polish remover, and rewrite the checks to suit their needs.
4. Identity Theft: Fraudsters steal your identity to write checks from your account or open new accounts in your name and write bad checks.
5. First-Party Fraud: When a supplier poses as a legitimate vendor but never delivers the goods or services, often requesting checks be sent to a different address.
6. Check Counterfeiting: Creating fake checks with high-quality printers to purchase goods or withdraw money from someone else's account.
7. Money Order Scams: Scammers give victims fake money orders and ask for real checks in return, promising extra money. The fake money order bounces, and the victim loses the check amount.
8. Cash-Back Scams: Fraudulent customers send checks for more than the owed amount and request a refund for the surplus. The original check bounces, leaving businesses without payment and possibly inventory.
9. Stolen Checkbooks: If a checkbook is misplaced or stolen, scammers can write numerous fraudulent checks before it's detected.
10. Duplicate Deposits: Depositing the same check twice, once via digital deposit and again through an ATM or bank teller, doubling the intended payment.
Stay vigilant and protect your business from these crafty scams!
If Your Business Has Been Hit by Check Fraud,
Follow These Steps:
Getting duped by check fraud can feel like a punch in the gut, but fear not! Here’s your trusty guide to reporting it and keeping your business safe.
1. Contact Your Bank: Got hit by a bogus check? Call your bank ASAP! Reporting lost or stolen checks early can prevent future fraud and activate check fraud protection.
2. Contact the Issuing Bank: Received a bad check? Reach out to the bank that supposedly issued it. It’s standard practice if a customer’s check bounces and helps verify if it’s legit.
3. Contact the Authorities:
- Don’t delay—report suspected fraud immediately. Start with your local police and file a detailed report including check numbers and amounts.
- Report counterfeit checks to the FTC online or at 1-877-382-4357.
- If you suspect mail theft, report it to the US Postal Inspection Service (USPIS).
4. Notify Any Victims:
- Check fraud often affects more than just your business. Notify any customers or suppliers whose checks might have been compromised.
- Consider a general notification to all customers and stakeholders if the fraud might be widespread. This can actually enhance your reputation by showing transparency.
5. Maintain Clear Records:
- Keep any bounced checks, related correspondence, and documentation of losses. Once you file reports, retain any reference numbers.
- Fraud isn’t a deductible expense, but documenting security measures can protect you from liability.
Check fraud can land you in hot water, whether as a misdemeanor or a felony. The classification depends on the amount of money involved and other factors. Each state draws its own line between what constitutes a felony versus a misdemeanor, which in turn affects the penalties for these scams.
How to prevent check fraud
Guarding your business against check fraud isn’t just savvy—it’s essential. By mastering the art of fraud prevention, you can keep your finances intact and maintain a sterling reputation with your customers and stakeholders. Dive into these top-notch practices for keeping check fraud at bay.
Prevent Check-Washing and Alteration:
- Order Secure Checks: Get your checks from financial institutions that offer anti-alteration features.
- Use a Black Gel Pen: These are harder to wash and tamper with.
- Mail Safely: Drop your checks at the post office, not your own mailbox.
- Check Your Mail Often: Be vigilant and retrieve your mail promptly.
Banks and credit unions often include watermarks and other security features that make tampering difficult and deter scam artists.
Detect Fake Checks:
- Check the Bank: Verify if the check is from a legitimate bank.
- Spot Errors: Look for spelling mistakes or typos.
- Match Postmarks: Ensure the postmark matches the issuing bank’s address.
- Verify Amounts: Confirm the amount on the check matches what you expected.
- Look for Watermarks: Check for security features that prove authenticity.
Remember, scam artists can be highly sophisticated. If in doubt, contact the bank using contact details from their website, not from the check.
Avoid Cashing Suspicious Checks:
- Never cash a check until you verify its authenticity. Doing so without verification can be considered negligence. If in doubt, report it to the authorities.
Stay Wary of Third-Party Checks:
- Accepting third-party checks, like payroll or government checks, can be risky. Set a clear policy that prohibits accepting them to protect your business.
Require Two Forms of ID:
- For in-person transactions, requiring two forms of ID when accepting checks can make it harder for scammers to succeed. Train your staff to recognize fake IDs.
Take Advantage of Account Monitoring Services:
- Many banks offer fraud prevention services, such as continuous account monitoring and positive pay. These services can learn from your past activity and detect suspicious transactions in real-time.
By following these practices, you'll be well-equipped to prevent check fraud and protect your business.
Stay Protected with CashCloud
Shield your business from check fraud with CashCloud's cutting-edge fraud prevention features. Embrace secure payment methods like ACH to keep your finances and reputation safe.
Book a demo today!
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