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Commercial Check Fraud

Understanding and Preventing Commercial Check Fraud: Essential Tips for Business Owners

In today's rapidly evolving financial landscape, digital payment methods are gaining traction. Yet, traditional check payments continue to dominate many business transactions. While checks offer a familiar and straightforward means of payment, they also present significant security risks. Check fraud, a common type of financial fraud, can lead to substantial financial losses and damage a business's reputation. As a responsible business owner, it is crucial to understand the risks associated with check fraud and implement effective measures to protect your company.

According to Nasdaq’s Global Financial Crime Report, fraud schemes totaled $485.6 billion in losses globally. Of that, banks faced $42 billion in projected losses from payments, check and credit card fraud. Commercial check fraud involves the illegal use of checks to steal money from a business account. Fraudsters employ various techniques, such as counterfeiting, altering legitimate checks, and forging signatures, to deceive banks and businesses. Given the persistence and creativity of these criminals, businesses must stay vigilant and proactive in their fraud prevention strategies.

Common types of check fraud include counterfeit checks, altered checks and forged signatures. Each type of fraud has its own unique tactics, although some methods use more than one technique making them even more difficult to catch. For example, with counterfeit check schemes fraudsters create fake checks that appear genuine, using them to withdraw funds from a business account. However, altered checks schemes use legitimate checks, but alter such details as the payee’s name or amount, to redirect funds to themselves.

Because of the various ways a company can be targeted with check fraud, prevention requires a multifaceted approach, combining technology, policies, and vigilance. Here are some effective strategies to protect your business:

  1. Implement Positive Pay - Positive Pay is an automated fraud detection tool that helps prevent counterfeit and altered checks. Positive Pay ensures only authorized checks are paid by comparing checks presented for payment against a list of issued checks provided by the business. By leveraging Positive Pay, businesses add an extra layer of security to their check transactions, significantly reducing the risk of fraud. The process begins when a business provides the bank with a file containing details of all issued checks, including check numbers, dates, and amounts. When a check is presented for payment, the bank compares it against the information in the submitted business file. If there are any discrepancies, the system flags the check as an exception, and the bank notifies the business for review. The business then decides whether to authorize or reject the payment of flagged checks.
  2. Reconcile Bank Accounts Daily - Regularly reconciling your bank accounts helps identify discrepancies and unauthorized transactions promptly. Daily reconciliation allows for immediate detection of fraudulent activity, enabling quick action to mitigate losses.
  3. Use Secure Check Stock - Invest in high-quality, secure check stock that includes advanced security features such as watermarks, microprinting, and holograms. These features make it more difficult for fraudsters to counterfeit your checks.
  4. Segregate Duties - Implement a system of checks and balances by segregating duties among employees. Ensure that no single employee has control over all aspects of financial transactions. For instance, the person who writes checks should not be the same person who reconciles bank statements.
  5. Monitor Checks Sent and Received - Keep a detailed log of checks issued and received, including the date, amount, and payee. Regularly review this log for any anomalies or discrepancies.
  6. Educate Employees - Educate your employees about check fraud and its red flags. Conduct regular training sessions to ensure they understand the importance of vigilance and the procedures for reporting suspicious activities. Not sure where to start? Contact your local Union State Bank representative to discuss training options.
  7. Limit Check Access - Restrict access to check stock and financial records to authorized personnel only. Store checks in a secure location and regularly audit their use.
  8. Use Bank Alerts - Enroll in bank alert services to receive notifications of account activity. Alerts for large transactions, changes in account settings, or check processing can provide early warning signs of fraudulent activity.

Check fraud poses a significant threat to businesses, but by implementing robust preventive measures, you can protect your company from financial losses and reputational damage. Positive Pay, along with daily reconciliation, secure check stock, duty segregation, and employee education, forms a comprehensive defense against check fraud. Stay vigilant and proactive, and work closely with your financial institution to safeguard your business from this pervasive threat. For more information about Positive Pay or other commercial services, contact Union State Bank’s Director of Treasury Services, Amber Groene, through our website www.MyUnionState.Bank or call toll-free 866-557-0060.

About Union State Bank: Founded in 1908, Union State Bank has banking locations serving communities of Arkansas City, Newton, Udall, Winfield, and Wichita in Kansas and in Bartlesville and Edmond, Oklahoma. Union State Bank offers a full range of electronic, deposit and cash management services, as well as business and agriculture, commercial real estate, construction, mortgage, residential and consumer loans. Member FDIC. Equal Housing Lender, NMLS# 412388