How to Protect Your Business From Cheque Fraud

15 January 2015
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Cheque fraud is one of the fastest growing financial crimes today. Projections indicate that cheque fraud will grow by 25% each year costing North American businesses upwards of 20 billion dollars annually.

There are two types of cheque fraud in which your business may be vulnerable. The first is cheques issued to your business and the other is cheques issued by your business.

To avoid the latter and become another statistic, there are steps you can take to safeguard your company from this fraudulent activity. Here’s a rundown on you can protect your business from cheque fraud.

Purchase High Quality Cheques With State of the Art Security Features.

Today’s business cheques have security features built in. These features include the use of watermarks, holograms and intricate designs that will disappear when someone attempts to photocopy or scan the cheque.

Another feature is a toner adhesion process. A treatment is applied to both sides of the cheque to maximize toner adhesion, thus protecting it against attempts to remove, scrape off or modify the printed area. The use of Microprint is another way to protect the cheque. Tiny words on the cheque or the company logo should not be legible if scanned or photocopied.

Keep Good Records.

The business owner or their financial officer needs to be aware of the very real possibility that business cheques can be intercepted and fabricated for the purpose of committing fraud. This makes the maintenance of good financial records imperative. Always record the cheque, the payee and regularly reconcile with the bank statements. Any discrepancy should be reported to the bank immediately. If you suspect a problem close the account and open a new one complete with new cheques. Expensive, yes, but ultimately essential to the financial integrity of the business.

Take Advantage of Your Bank’s Security Systems.

Most commercial banks and credit unions have systems designed to help your business avoid being defrauded. For example, some banks have systems in which you can electronically transmit your records of all cheques you have issued the previous day. They will automatically pay all cheques presented to them that match the records in your file.

You will be advised by email any discrepancies and items that require your ‘pay nor no pay’ authorization.

Another option available is receiving a record of all cheques presented to the bank for payment. You may compare the serial number and dollar value of the cheques presented to the bank for payment. By reconciling this record you can then make the ‘pay or no pay’ decision. This is similar to receiving a monthly bank statement. The difference being that prior to your bank processing the cheque you will be able to scrutinize whether or not it is a valid cheque. In addition you can receive this notification as often as required.

Periodically Review the Cheque Number Sequence.

In a small business, it is possible for you or your bookkeeper to ensure your cheques are still in order. A larger business may require additional staff to perform this function.

Restrict Access to Your Cheques.

Keep cheques in a secure location or under lock and key. In today’s financial world there is the very real possibility of fraudsters obtaining your cheques and using them to defraud others.

Implement Good Financial Systems.

Split responsibilities so that no one employee is responsible for doing cheque issue and reconciliation. Always destroy unused cheques from closed accounts immediately and order only one set of cheques per account.

Businesses are also at risk for cheque fraud when being paid for goods and services. There are ways to protect your company from fraudulent cheques.

Examine the Cheque.

There are a number of indicators to look for to determine if the cheque is fraudulent. Some are more obvious than others, which is why it’s important to be vigilant.

First, examine the cheque for perforations. A large company cheque will have perforations, whereas a cheque issue from a smaller company will not. You may notice that the cheque number is missing or not in the right sequence for the size of the business issuing the cheque.

For example, when receiving a cheque from an individual customer or a very small business the number sequence shouldn’t be in the thousand range.

Cheque details may be altered. For example, a phone number is added and written by hand. The address of the customer and more importantly the address of the bank could be missing.

The Magnetic Ink Character Recognition or MICR on the bottom of the cheque is shiny. Real magnetic ink is dull and not glossy. Also, the MICR coding does not match the cheque number nor the bank’s financial institution number, nor is there  an authorized signature.

Timing is Everything.

Remember, you are responsible for all cheques deposited into your business’s bank account. While your bank may provide you with provisional credit that gives you access to the funds right away, the provisional credit will be removed if the cheque is found to be fraudulent when processed. All cheques have a pre-determined number of days in which to clear. This can be as short a few business days or much longer should the cheque be written on a foreign bank account. Remember, it is your responsibility to get payment from the person or organization.

Be Cautious When Receiving Payment.

It is important to scrutinize all cheques received by your business. A fraudulent  cheque is usually drawn on an account in the name of the person or company with whom you do not recognize. These cheques are usually stolen and altered.

If Possible, Utilize an Electronic Payment Solution.

Consider switching to electronic forms of payment, such as wire transfers or e-mail money transfers, particularly if you don’t know the cheque writer. Electronic payment is more secure than cheques and in today’s electronic world easier than ever to utilize.

Cheque fraud is an unfortunate reality in today’s business world, but there are ways to fight back. By being vigilant and using good financial management tools, you can protect your business from cheque fraud.


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