What to Do If Check Fraud Affects Your Business
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Check fraud is one of the most common schemes affecting businesses. Take these steps if your company has been targeted.

Although electronic money transfers have become increasingly common, many businesses continue to use checks to make and receive payments. While paper checks are still an appealing payment method for a variety of reasons, they’re also appealing targets for criminals. In 2018, 70% of U.S. organizations reported check fraud, totaling more than $18 billion in losses, according to the Association for Financial Professionals.

“There are a lot of companies out there who continue to use checks as a part of their business operations, and because of that, fraud occurs. We see check fraud very often,” says Randy Wilborn, Vice President, Treasury Management Products and Services at Regions.

If you’ve discovered that your business has been impacted by check fraud, it’s important to act quickly and carefully. Here, we’ll discuss how to report check fraud and take steps to help ensure it won’t happen again.

How Does Check Fraud Occur?

Check fraud can happen in a variety of ways and can be perpetrated by an external scammer or an internal employee. According to Wilborn, counterfeit checks and altered checks are two of the most common check fraud schemes.

  • With counterfeit checks, criminals create and use a check that looks like it belongs to a company or organization. Today’s technology has made it easier than ever to create realistic-looking checks — even with a home printer.
  • With altered checks, a scammer has gotten their hands on a physical check that belongs to a company or organization and altered the information — such as the recipient name or amount — on the check.

In some cases, external criminals may intercept incoming checks or outgoing checks that are meant to pay a vendor or employee. “Whenever someone writes a check and puts it in a traditional mailbox, it’s an opportunity for a fraudster to come in,” Wilborn explains.

In addition to altering the physical check they’ve intercepted, they can also use the information on the check — including the authorized signature, account number, routing and transit numbers — to create counterfeit checks in the future. “When you put that information into the hands of someone else and that person doesn’t have good intentions, there’s an opportunity for counterfeit to take place,” says Wilborn.

In other instances, the culprit of check fraud may be an internal employee. According to Wilborn, even a well-trusted, long-time employee who has access to the company’s accounts may turn to check fraud after a tragedy or financial crisis occurs in their personal life.

“Normally, we see that it would start out as a smaller amount,” Wilborn explains. “If they’re able to do that and it goes undetected, they’ll eventually do it again and again.” Unfortunately, if a company doesn't have a solid process in place to review payments, internal check fraud can be hard to detect — and it may go on for a while.

Investigating Check Fraud

If your company has been affected by check fraud, it’s important to act quickly, carefully, and with discretion. First, check your accounts to make sure other instances of fraud haven’t occurred. If you find other discrepancies, make sure to keep a record of all transactions.

As soon as you’re able, contact your banker. “The sooner the banker knows, the better position the bank is in to help stop the fraud or attempt to recover the funds and prevent the company from realizing a loss,” Wilborn says. Depending on the scale of loss, you may also wish to contact local police. In some cases, financial institutions — like Regions — will work with the local law enforcement to conduct an investigation.

Because the fraud may have potentially been committed by an employee, it’s important to keep the incident discreet. Do not confront, question, or alert any suspected perpetrators — doing so may ultimately impede the success of the investigation.

To help with a successful investigation, try to identify who the check was originally issued to. If you have an image of the fraudulent check, keep it for your records and provide it to your bank and law enforcement.

How to Prevent Check Fraud

After check fraud occurs, take the time to implement or correct processes in your organization to help safeguard yourself in the future.

Take a hard look at your internal processes and identify areas for improvement. Are you reviewing bank statements or daily transaction activity online to check for irregularities? Doing so can help your company identify fraud quickly and potentially recover funds if fraud has occurred. Further, make sure that your employees who are authorized to sign checks are not the same people who reconcile the accounts. You may consider instituting two-person authorization on outgoing checks and payments. Likewise, you may find it beneficial to conduct surprise account audits on a periodic basis. Whenever possible, consider opting for electronic payments over physical checks. Finally, never leave outgoing checks in unsupervised mailboxes — if possible, use a USPS Collection Box or drop checks off at the post office.

Finally, know that awareness can be one of the best lines of defense against fraud. According to Wilborn, it’s crucial to make sure your employees undergo a fraud training program. “Education for everybody at the company should be a top priority,” Wilborn says. “All employees need to be aware of the company’s processes and make sure there are controls and regular reviews. It will help protect the company and the employees.”

In addition to your internal processes, take advantage of external procedures or treasury management products at your bank that can help you prevent payment fraud. For example, Regions Positive Pay compares and verifies the checks your business issues to the checks presented for payment against your account. Any discrepancies will be reported immediately.

Even if check fraud has already affected your business, taking time to improve your processes and help combat check fraud can help protect your company from a future loss.

For more tips on how to protect your business against fraud, visit regions.com/fraudprevention.

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This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions'. Consult an appropriate professional concerning your specific situation and irs.gov for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.

The information presented is general in nature and should not be considered, legal, accounting or tax advice. Regions reminds its customers that they should be vigilant about fraud and security and that they are responsible for taking action to protect their computer systems. Fraud prevention requires a continuous review of your policies and practices, as the threat evolves daily. There is no guarantee that all fraudulent transactions will be prevented or that related financial losses will not occur. Visit regions.com/STOPFRAUD, or speak with your Banker for further information on how you can help prevent fraud. References or links to third-party websites do not imply endorsement.