NEWS & RESOURCES

Authored by: Jennifer Babcock, CPA & Financial Advisor

Despite the digital age, many small business owners continue to use paper checks to pay their employees and vendors. While this traditional practice is perfectly fine, it can expose your business to the risk of check fraud. Understanding the common methods of check theft and implementing preventative measures is key for safeguarding your financial assets.

Common Methods of Check Fraud

Mail Theft: Mail theft involves stealing outgoing mail from collection boxes or intercepting incoming mail after it’s delivered. This can provide fraudsters with access to your checks, which they can then alter or counterfeit.

Employee Fraud: Employees in possession of paychecks or expense reimbursement checks can also commit fraud. Once a person with malicious intent has your check, they can alter it or use it to create counterfeit checks.

Altered Checks: Fraudsters can change the recipient’s name and/or the amount on a check by using chemicals to remove the original information, a process known as “check washing.”

Fraudulent Checks: Using information from the original check, such as bank account numbers, routing numbers, and signatures, criminals can create entirely new, bogus checks. These forged checks are then deposited into fake accounts, allowing the criminals to transfer funds out before the fraud is detected.

Preventative Measures

To protect your small business from check fraud, consider implementing the following strategies:

1. Use Bank Services: Most banks offer services like positive pay, which matches the check number, payee name, and check amount to records that your business communicates to the bank. This can help detect and prevent fraudulent checks.
2. Avoid Mailboxes: Instead of using mailboxes to send or receive checks, opt to send and receive mail inside a post office building. This reduces the risk of mail theft.
3. Electronic Payments: Transition to electronic payments for both vendors and employees. This not only reduces the risk of check fraud but also speeds up the payment process.
4. Online Banking: Regularly review your transactions through online banking —daily if possible. Promptly identifying any suspicious activity can prevent significant losses.
5. Bank Reconciliations: Perform bank reconciliations regularly to ensure that all transactions are accurate and accounted for.
6. Quick Action: If you suspect fraud, notify your bank immediately and consider filing a police report. Contacting your insurance company might also be advisable to understand your coverage and any steps you need to take.

Additional Considerations

Check fraud is just one type of fraud that small businesses need to guard against. Regularly consulting with your accountant or a trusted financial advisor can provide valuable insights into improving your business’s internal controls and preventing various types of fraud. By staying informed and implementing these strategies, you can reduce the risk of check fraud and keep your business secure. For more information, visit our website at cnccpa.com or give us a call at (509) 663-1661, and we’ll begin helping you, your family or your business today.