Check Fraud Prevention

Below are several signs which may indicate a bad check. While one sign on its own does not guarantee a check to be counterfeit, the greater the number of signs, the greater the possibility that the check is bad.

1. The check lacks perforations.
2. The check number is either missing or does not change.
3. The check number is low (like 101 up to 400) on personal checks or (like 1001 up to 1500) on business checks. (90% of bad checks are written on accounts less than one year old.)
4. The type of font used to print the customer's name looks visibly different from the font used to print the address.
5. Additions to the check (i.e. phone numbers) have been written by hand.
6. The customer's address is missing.
7. The address of the bank is missing.
8. There are stains or discolorations on the check possibly caused by erasures or alterations.
9. The numbers printed along the bottoms of the check (called Magnetic Ink Character Recognition, or MICR, coding) is shiny. Real magnetic ink is dull and non glossy in appearance.
10. The MICR encoding at the bottom of the check does not match the check number.
11. The MICR numbers are missing.
12. The MICR coding does not match the bank district and the routing symbol in the upper right-hand corner of the check.
13. The name of the payee appears to have been printed by a typewriter. Most payroll, expenses, and dividend checks are printed via computer.
14. The word VOID appears across the check.
15. Notations appear in the memo section listing "load," "payroll," or "dividends." Most legitimate companies have separate accounts for these functions, eliminating a need for such notations.
16. The check lacks an authorized signature.

Fraud professionals have become increasingly skilled and sophisticated, thanks to advances in readily available technology such as personal computers, scanners and color photocopiers. Criminals today can defraud you and your financial institution quite easily with a blank check taken from your check book, a canceled check found in your garbage, or a check you mailed to pay a bill. Therefore, it is important to follow a common-sense, logical approach with the way you use and store your checks.

1. Make sure your checks are endorsed by your financial institution and incorporate security features that help combat counterfeiting and alteration.
2. Store your checks, deposit slips, bank statements and canceled checks in a secure and locked location. Never leave your checkbook in your vehicle or in the open.
3. Reconcile your bank statement within 30 days of receipt in order to detect any irregularities. Otherwise, you may become liable for any losses due to check fraud.
4. Never give your account number to people you do not know, especially over the telephone. Be particularly aware of unsolicited phone sales. Fraud artists can use your account without your authorization and you may end up being responsible.
5. Unless needed for tax purpose, destroy old canceled checks, account statements, deposit tickets, ATM receipts (they also frequently have your account number and worse yet, your account balance). The personal information on it may help someone impersonate you and take money from your account.
6. When you receive your check order, make sure all of the checks are there, and that none are missing. Report missing checks to your bank at once. Should you fail to receive your order by mail, alert your bank. Checks could have been stolen from mail box or lost in transient.
7. If your home is burglarized, check your supply of checks to determine if any have been stolen. Look closely, because thieves will sometimes take only one or two checks from the middle or back of the book. The longer it takes to detect any of your checks have been taken, the more time the criminal has to use them successfully.
8. If someone pays you with a cashier's check, have them accompany you to the bank to cash it. If at all possible, only accept a check during normal business hours so you can verify whether it is legitimate. Make sure you obtain identification information from the individual
9. Do not mail bills from your mailbox at night. It is a favorite location from which a criminal can gain possession of your check with the intent to defraud you. Criminals will remove a check from your mailbox and either endorse it using bogus identification, photocopy and cash it repeatedly, scan and alter the check, or chemically alter it. The Post Office is the best location from which to send your bill payment.
10. Limit the amount of personal information on your check. For example, do not include your Social Security, driver's license or telephone numbers on your check. A criminal can use this information to literally steal your identity by applying for a credit card or loan in your name, or even open a new checking account.
11. Don't leave blank spaces on the payee and amount lines.
12. The type of pen you use makes a difference. Most ballpoint and marker inks are dye based, meaning that the pigments are dissolved in the ink. But, based on ink security studies, gel pens, like the Uniball 207 uses gel ink that contains tiny particles of color that are trapped into the paper, making check washing a lot more difficult.
13. Don't write your credit card number on the check.
14. Use your own pre-printed deposit slips, and make sure the account number on your slip is correct. Thieves occasionally alter deposit slips in the hope you won't notice and the money goes into their account.
15. Don't make a check payable to cash. If lost or stolen, the check can be cashed by anyone.
16. Never endorse a check until you are ready to cash or deposit it. The information can be altered if it is lost or stolen.

Businesses as Check Fraud Victims

It is widely believed that businesses are the primary targets of check fraud professionals - especially by organized rings of criminals. As far as counterfeiting and alteration, payroll checks appear to be a favorite although all forms of business checks are targets from time to time and all forms of fraud techniques are practiced as well.

Uniform Commercial Code - Who is responsible?

It is clear now that businesses must play a role in ensuring their checks are secure. Recently revised UCC regulations add the onus of shared responsibility for check fraud on the business. For example, if a bank offers their customer check stock that containins security features that could have prevented a specific case of fraud, the bank can claim that the customer was negligent and therefore at least partially liable for the fraud loss.

Check Fraud Tips

A combination of precautions that a business might undertake could greatly reduce the likelihood of check fraud. Poor internal controls may lead to collusion between employees or third parties who copy, steal, alter and forge checks.

Order checks and deposit slips wisely

• Use an established, respectable source, especially those recommended by your bank, to ensure your checks will process easily through the bank’s clearing system.

• Make sure that your checks include Security Features that will help combat counterfeiting and alteration.

• Make sure you notify your check supplier (and financial institution, if necessary) if a new check order has not been received within a reasonable amount of time after you ordered them.

Maintain adequate physical security of your checks, deposit slips, etc.

• Secure all reserve supplies of checks, deposit slips and other banking documents in a locked facility. Keep blank checks locked up at all times and limit the number of people with access to your checks. If your checks fall into the possession of unscrupulous employees, you could be liable for substantial losses.

• Change the locks on your facility when an employee leaves your employ

• Never leave checks or bank records unattended in order to assist customers

Issuing and reconciling checks

• Assign accounts payable functions to more than one person and make each one responsible for different payment areas. This division of responsibility makes it more difficult for employees to tamper with checks and payments.

• Limit the number of official signers. The fewer check signers you have, the lower your chances are of being defrauded.

• Require more than one signature on large dollar check amounts. In this way, any losses you may incur will be low denominations only.

• Immediately notify the bank of any change to your accounts payable process and personnel. You donąt want former employees who may have secreted some checks from your business to retain authorization to sign them after they have left your employ.

• Separate the check writing and account reconcilement functions. Try not to have the same person who balanced the bank statement issue checks. This provides greater safeguards against an employee writing fraudulent checks and covering it up. The reconciler would be able to prevent the crime unless the employees are in collusion.

• Reconcile your account promptly and regularly -- quick fraud detection increases the likelihood of recovery. Businesses and personal consumers who do not balance their accounts monthly and don’t find the discrepancies until months have passed, can become liable for losses.