10 Ways to Prevent Corporate Check Fraud
Check fraud is a massive issue in the United States for many incoming European businesses and can be a culture shock for many. The Covid-19 pandemic has contributed to the decline of check use, but it is still a vital currency, and most businesses cannot afford to decline checks. Luckily for you, TABS has come up with its top ten tips on avoiding check fraud.
10 Ways to Prevent Corporate Check Fraud
While fraud is persistent in all walks of life, corporations are often a routine target for scammers. The United States contains the same trickery as Europe, adding one major factor: checks. The American Bankers Association found that attempted check fraud in 2019 was 15.1 billion. Banks prevented 91% of this fraud, but the final 9% was tallied at 1.3 billion. Check fraud is undeniably a pressing issue in the United States, often underestimated by European enterprises. Companies breaking into the U.S. market want to make it as easy as possible for clients to do business. This often means that companies cannot afford to deny checks as payment. COVID has helped to accelerate the phasing out of checks, but the United States won’t be there for another couple of years, so corporations better learn how to reduce the risks that come with checks.
While this article won’t delve into the complexities of why checks are still prevalent in the U.S., it will focus on preventing the fraud that comes with them. For these reasons, these ten proposed safeguards will focus on corporate check fraud.
1. Try and limit exposure by reducing check use
The most obvious and important safeguard is to limit exposure. A business that uses checks is exposed every time a check is sent or received. Eliminating or reducing checks from your company’s repertoire is the most effective way to limit that exposure. Companies that sell goods and services online are particularly vulnerable to check scams and should reduce exposure as much as possible.
Online businesses should consider different methods of payment than receiving checks. Clients will “float” checks, or scammers will attempt to utilize how often a company accepts checks and slip through the cracks.
Floating a check is when a consumer pays for a good or service with a check that they know they can’t cash at that moment. The consumer is gambling on the producer to wait a couple of days to cash the check and, by then, hopes they will have the money in their bank account. Floating a check is not a vindictive scam, but it can cause the producer to foot the bill and waste considerable time and money. Like other forms of check fraud, limiting exposure can prevent this.
2. Stay on top of bank statements and reconciliation
Scammers rely on slipping through the cracks. Once a scammer has discovered a source, they will bleed it dry until detected. That is why it is important to consistently stay on top of bank statements and reconcile them punctually. Detection is key. It is the front line of defense once a scammer has gotten in.
Once detected and squashed, it is imperative to report the fraud. Authorities will be able to prevent further scams. The proper agency to report Check scams to is the Federal Trade Commission.
4. Positive pay procedures
Most corporations will not be able to eliminate checks entirely. If this is the case, it is crucial to apply safety measures. Nearly all commercial banks offer a service called positive pay. This service is one of the most effective bulwarks against check fraud, but it comes with its negatives. Positive pay procedures set permissions in a checking account, so the company gets confirmation before a check or ACH Debit against your company is processed.
ACH: ACH stands for Automated Clearing House and is a network that transactions pass through in the United States. The network exists to manage the transfers and organize them. ACH debit is the transaction executed through the Automated Clearing House Network.
The disadvantage is that you only get a narrow window to confirm and release a charge. This can be a bottleneck, especially for companies governed from Europe, causing payroll to decline. For this reason, some companies have a checking account dedicated to payroll. Routing & acct numbers should only be known by the bank, with payroll being whitelisted. Not by the public/clients/vendors etc. etc.
5. Internal safety measures
It is not uncommon for check fraud to occur from within a corporation. This creates a demand for strong internal safety procedures. These procedures encompass a wide variety of methods to ensure safety, but they should include keeping checks in a secure location, regulating access to processing and sending checks, and restricting who can order more blank checks. A way to minimize damage if a scammer is successful would be to fortify your equity. A common way of doing that would be to maintain a savings account where you keep your cash balance while ‘only’ keeping two times your monthly operating expenses in your checking account. This quarantines the damage if the checking account is compromised.
6. Limiting the usage of EIN, account, and routing numbers
Corporations are exposed to check and bank fraud even when not receiving or sending a check. European corporations often feel at home putting routing numbers and EINs on all invoices and similar postage. This should not carry over to the United States. It is imperative that companies only provide checking and routing numbers when onboarding a client. This limits exposure and denies scammers the ability to slip through the cracks.
EIN, Routing Numbers, and Account numbers
- EIN: EIN stands for Employer Identification Number and is used to identify companies/employees for tax purposes.
- Account Numbers: Account numbers are used to Identify a person or company in relation to the transfer of funds. The number is different for entity/person.
- Routing Numbers: Routing numbers are the bank’s identification. Large banks can have multiple routing numbers, but no two banks will ever have the same routing number.
7. Read the fine print
Checks can be written contracts. They might not look it, but they are. It is essential to analyze a check for any malicious fine print. If a scammer successfully gets a check with malintent signed, it is bonding. This is unsolicited check fraud; this scam is quite common and extremely dangerous.
8. Always Check ID
A mandatory ID check is vital when accepting any check—especially when dealing with new entities. Scammers gamble on the ability to slip through the cracks. Sealing those cracks through actions such as Checking ID is essential.
9. Do not be fooled by “Authenticity”
Fake checks are the sixth most common type of fraud in the United States. Anyone with access to a computer and a printer can forge a check. This is extremely difficult to counter, and an infallible way to add authenticity to a check does not exist. Many people often see a government check with the proper logos and feel at ease. Sadly, it is just as easy to counterfeit a government check as it is to counterfeit a personal one. This goes for cashier’s checks as well. No matter the check, the possibility of a counterfeit is always there. The easiest ways to spot a check are:
- Flimsy material
- Company name or bank misspelled
- If the logo is faded or missing
- The check number in the top right corner and at the bottom don’t match
- Does the check use MICR (magnetic ink character recognition)? To authenticate, make sure the MICR (located on the bottom of the check) is smooth and Matte
- Does the check have the correct routing number for the bank
Even if the check passes all these tests, it still has the possibility of being a scam.
10. Stay on your toes
European companies want to break into the U.S. market and shouldn’t be scared away because of this threat of fraud. Most companies will have to accept checks in the U.S. as it is a prevalent vessel for transactions. The Main takeaway from these ten tips is never to let your guard down and to establish thorough safeguards because check fraud can happen to anyone.