How to Prevent Check Fraud

Jun 14, 2024 | Listen

How to Prevent Check Fraud

Check fraud is one of the most common forms of financial fraud in growing businesses. 

And when it happens to you, dealing with the aftermath can get stressful.  Depending on how much is taken, the consequences can be severe and may negatively impact your daily operations.

You might not be able to pay your employees or suppliers, which can damage your reputation and even lead to legal action against you. Beyond losing your money, you’ll also lose time trying to track it down when you take part in potential investigations with your bank and the authorities. 

So what can you do to protect your business? 

What are the red flags to watch out for?  

Why is check fraud on the rise?

And what can you do to try and get your money back?

Courtney Olson: Protecting your business from check fraud

In this episode, Courtney Olson and I discuss the very real threat of check fraud and its impact on your growing business. She shares common fraud tactics and provides practical and easy-to-implement tips on how you can safeguard your business finances.



Timestamps for this week’s episode

02:04  The different types of financial Fraud

04:08 How to recognize check fraud

08:03 Prevention strategies against check, ACH, and wire fraud

11:38 What is Positive Pay?

24:20 Actionable steps to take to protect your business from check or financial fraud


The different types of financial fraud

Regularly monitoring your accounts and consulting with your bank and other financial experts for personalized advice can help protect against the following types of financial fraud: 

1.Check fraud: Even with decreased use, check fraud remains prevalent. Criminals can alter, forge, or counterfeit checks to steal funds.

2. ACH fraud: Unauthorized transactions through the Automated Clearing House (ACH) network can lead to significant losses.

3. Wire fraud: Scammers may trick individuals or institutions into transferring funds electronically through deceitful means.

Always verbally verify the information on where you need to send money. Don't blindly trust the phone number in the email that you receive. Google the business, company, or vendor requesting so you can get their office phone number and make that phone call to verify. Always, always verify.

How to recognize check fraud

Recognizing check fraud can be challenging as fraudulent checks often resemble genuine ones. Here are key signs and precautions to help you recognize and avoid check fraud:

Mail Theft

Fraud often starts with stolen checks taken from mailboxes or mail trucks. Criminals may alter the check’s amount, payee, or other details, so keep an eye out for any discrepancies in checks.

Check Washing

Fraudsters can remove ink from checks, allowing them to change the check amount or payee name. Verify checks carefully, especially if the handwriting seems unusual or faded.

Suspicious Emails

Watch out for emails that request you to change or edit your account information, especially for ACH transfers or wire fraud. Always confirm these change requests directly with whoever “sent” it – using a trusted method of contact – don’t simply email them back. 

Unexpected Requests

If you receive unexpected requests for cashier’s checks or money transfers, verify the identity and legitimacy of the request by contacting the sender directly.

Verify Transactions

Regularly monitor your bank statements and transactions. Any unfamiliar or unauthorized transactions should be reported to your bank immediately.

By staying vigilant and verifying any changes or requests for funds transfer, you can help protect your business from falling victim to check fraud.

“As a business owner, watch your account every single day. Whether that’s your eyes or an employee’s or some sort of alert tool to monitor your account. Watch your account every day for signs of fraudulent transactions.” – Courtney Olson

Prevention strategies against check, ACH, and wire fraud

  1. Verify, verify, verify. 

Always confirm all the information or details before sending money by contacting the business or individual directly using independently sourced contact details, such as Googling their official phone number. 

  1. Don’t use the contact information in the emails.  

Do not rely solely on the contact information provided in these request emails, as these can be spoofed.

  1. Monitor Accounts Regularly

Keep a close eye on financial accounts. For businesses, daily monitoring is essential to catch and address fraudulent transactions quickly.

  1. Use Security Tools 

Check with your bank if they have any alert systems or tools in place such as Positive Pay to track your checks and accounts to easily identify suspicious transactions.

  1. Know your liability

 Be aware of the scope of your responsibilities and liabilities, including timeframes needed for financial fraud.  Consumers generally have 60 days to report fraud, while businesses only have 24 hours.

Call your banker. If you have not sat down with your business banker in the past year, call now and have that conversation. Say, you're concerned about check fraud, ACH fraud, wire fraud and that you want to make sure your accounts are protected. Ask what your bank offers in terms of an alert or protection system.

What is Positive Pay?

Positive Pay is a banking service designed to protect businesses from fraud and unauthorized transactions. When a business issues checks or initiates ACH transactions, it creates a file with the transaction details and uploads it to the bank. 

As transactions are presented for payment, the bank matches them against the file to verify the check number, amount, and payee. If discrepancies are found, the bank sends an alert to the designated person, who must approve or reject the transaction by a certain deadline. 

This way, Positive Pay ensures that only legitimate transactions are processed, helping businesses avoid fraudulent charges. If the deadline is missed, the bank may automatically reject the transaction for added security.

“Have internal controls in place. Make sure the person cutting your checks is not the same person approving your Positive Pay because then they can just keep approving all the money they’re stealing.” – Courtney Olson

Actionable steps to take to protect your business from check or financial fraud

  1. Consult with your banker

Schedule a meeting with your business banker to discuss your concerns about check, ACH, and wire fraud. Ask them about any products and services thay offer to safeguard your accounts, including account transaction alerts and Positive Pay. 

  1. Review your insurance coverage

Contact your insurance agent to review your business liability policy and ensure it includes coverage for fraud. If not, consider adding it to your policy.

  1. Implement internal controls

Strengthen internal controls within your business to prevent internal fraud, including separation of duties (the person cutting checks should not be the same person approving them) or requiring two people to authorize certain transactions for added security. You can also educate your employees about fraud prevention and the importance of why they need to follow your internal controls.

  1. Monitor your accounts

Regularly check your accounts using mobile apps or online banking to quickly spot any unauthorized transactions.

  1. Stay Vigilant

Watch for signs of employee dishonesty, such as changes in behavior or financial difficulties, and investigate any concerns. 

Summary

  • Check, ACH, and wire fraud involve altering or unauthorized transactions to steal funds.
  • Watch for mail theft, check washing, suspicious emails, and unexpected requests for transfers or account information changes. Verify all your transactions regularly.
  • Verify information before sending money, monitor accounts daily, use security tools like alerts and Positive Pay, and understand your liability timeframes.
  • Positive Pay is a banking service that matches transactions against records provided by businesses so that they will only process legitimate transactions.
  • Consult with your banker and insurance agent, strengthen internal controls, train employees, and stay vigilant against fraud. Regular monitoring and tools such as Positive Pay will also help protect your business.

Transcript

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About guest – Courtney Olson

Senior Vice President / Managing Director 

First Bank Chicago

Courtney Olson is responsible for supporting the Bank’s growth and expansion through developing strong business relationships within the local marketplace. She utilizes her background in sales, lending, and deposits to assist clients and prospects in designing a holistic banking strategy.

Courtney also has strategic responsibilities regarding the growth of the Business Banking portfolio, including product design and management. She is responsible for developing and monitoring the Bank’s Community Development Lending initiatives.

Courtney was recognized as a 2021 Rising Star in Banking by BankBeat Magazine.

Contact Info – colson@firstbankchicago.com

Website – https://www.firstbankchicago.com/

LinkedIn – https://www.linkedin.com/in/courtney-a-olson-6865b410/


About host – Kathy Svetina

Kathy Svetina is a Fractional CFO for growing small businesses with $10M+ in annual revenue.

Clients hire her when they’re unsure about what’s going on in their finances, are stressed out by making financial decisions, or need to structure their finances to keep up with their growth.

She solves their nagging money mysteries and builds a financial structure with a tailored financial strategy. That way they can grow in a financially healthy and sustainable way.

Kathy is based in Chicago, IL and works with clients all over the US.

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