CHECK FRAUD

By: Les C. Cseh, Tue May 23rd, 2006

YOU COULD BE ON THE HOOK!

Did you know that the UCC (Uniform Commercial Code) regulations place responsibility for forgery losses partially on bank customers, rather than solely on the banks? But in addition to this exposure, there can be significant expenses and lost time investigating the crime, not to mention damage to your credibility and reputation.

Your only defence is to show that you have taken due diligence. One way to demonstrate this is by implementing careful practices regarding your checks. Another is to use checks with well implemented security features.

HOW BAD IS THE PROBLEM?

The problem is so serious that the banks don't like to reveal the extent of the problem. Estimates range from hundreds of millions to 10 billion dollars annually.

In 1991, the FBI tracked over 26,000 cases, but this is just the tip of the iceberg, because the FBI mostly focuses on cases where the amount exceeds $100,000. Just one example comes from The Green Sheet (a publication to the Financial Services Industry), reporting an incident where a family had allegedly stolen more than $1 million from area merchants since 1993 by writing checks on closed and non-existent accounts at 11 financial institutions in Indiana and Chicago under 25 different names.

In just 4 years, Northern Trust Bank has detected more than 3 million dollars worth of counterfeit checks.

WHAT KIND OF THINGS DO CRIMINALS LOOK FOR?

It is an endless list, but here are some of the types of things that someone looking to counterfeit or tamper might look for:

* High volume bank accounts where a fraudulent check can easily slip through. * Checks that are easy to reproduce using a color copier. * Checks that are easy to tamper with. * Easy access to checkbook or check stock.

WHAT CAN I DO TO PROTECT MYSELF?

By protection, I mean reducing the chance of someone counterfeiting or altering your checks, as well as reducing your liability when it occurs.

Be aware that is is impossible to prevent fraud. But you can significantly minimize the risk using a two-prong approach. It is critical that good procedures related to your check processing are put in place, and that you use a check that is difficult to counterfeit or alter (see sidebar).

* Reconcile your bank statement promptly. Now that bank statements are available online, you can do this as frequently as you feel is necessary for your situation. * Restrict access to your checkbook/check stock. Ensure that only trusted staff that need access have it. * Audit your checks. However, this can be difficult because often checks are removed from the bottom or middle of the book or stack. * Use a custom design. While this isn't an affordable option for many businesses, look into it. The next best thing is to ensure that your check supplier uses comprehensive security features. Remember though that a custom design is not a substitue for security features. * Advise your bank branches' officials of the security features in your checks .. in person or in writing (and keep a copy of the letter on file!). * If you issue a large number of checks, particularly with a low amount (eg. rebate checks), open a separate account and alert the bank staff of an upper limit for that account.

THE BOTTOM LINE

Don't take unnecessary chances. The more security you have through procedures and choice of check form, the less likely that someone will tamper with your checks.

About the author: Les C. Cseh is the owner of ASAP Checks, Forms & Supplies, a check printer operating out of Alexandria Bay, NY and Perth Road, Ontario. He can be reached at info@asapchecks.com and at 888-85-CHECK. In addition to a variety of secure checks, the ASAP web site (http://www.asapchecks.com?jayde offers a non-commercial section related to check processing issues called the MICR Repository.

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CHECK FRAUD