Saturday, January 14, 2006

Check Fraud

CHECK FRAUD by Les C. Cseh
YOU COULD BE ON THE HOOK!Did you know that the UCC (Uniform Commercial Code) regulationsplace responsibility for forgery losses partially on bankcustomers, rather than solely on the banks? But in addition tothis exposure, there can be significant expenses and lost timeinvestigating the crime, not to mention damage to yourcredibility and reputation.Your only defence is to show that you have taken due diligence.One way to demonstrate this is by implementing careful practicesregarding your checks. Another is to use checks with wellimplemented security features.HOW BAD IS THE PROBLEM?The problem is so serious that the banks don't like to reveal theextent of the problem. Estimates range from hundreds of millionsto 10 billion dollars annually.In 1991, the FBI tracked over 26,000 cases, but this is just thetip of the iceberg, because the FBI mostly focuses on cases wherethe amount exceeds $100,000. Just one example comes from TheGreen Sheet (a publication to the Financial Services Industry),reporting an incident where a family had allegedly stolen morethan $1 million from area merchants since 1993 by writing checkson closed and non-existent accounts at 11 financial institutionsin Indiana and Chicago under 25 different names.In just 4 years, Northern Trust Bank has detected more than 3million 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 thingsthat someone looking to counterfeit or tamper might look for:* High volume bank accounts where a fraudulent check can easilyslip 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 someonecounterfeiting or altering your checks, as well as reducing yourliability when it occurs.Be aware that is is impossible to prevent fraud. But you cansignificantly minimize the risk using a two-prong approach. It iscritical that good procedures related to your check processingare put in place, and that you use a check that is difficult tocounterfeit or alter (see sidebar).* Reconcile your bank statement promptly. Now that bankstatements are available online, you can do this as frequently asyou feel is necessary for your situation.* Restrict access to your checkbook/check stock. Ensure that onlytrusted staff that need access have it.* Audit your checks. However, this can be difficult because oftenchecks are removed from the bottom or middle of the book orstack.* Use a custom design. While this isn't an affordable option formany businesses, look into it. The next best thing is to ensurethat your check supplier uses comprehensive security features.Remember though that a custom design is not a substitue forsecurity features.* Advise your bank branches' officials of the security featuresin your checks .. in person or in writing (and keep a copy of theletter on file!).* If you issue a large number of checks, particularly with a lowamount (eg. rebate checks), open a separate account and alert thebank staff of an upper limit for that account.THE BOTTOM LINEDon't take unnecessary chances. The more security you havethrough procedures and choice of check form, the less likely thatsomeone will tamper with your checks.

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