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University of Massachusetts Amherst

Family Business Center

Don't get Ripped Off By Check Fraud - A $20 Billion a Year Problem

by Shel Horowitz

Tip Simons, of FBC sponsor Sovereign Bank, reported that technology has made it easy for check thieves. 1.2 million bad checks are passed each day, costing $20 billion per year. Worse, banks are not required to verify signatures, and banks match only on account number, not payee name. But the good news is that business owners can actively take steps to protect themselves. "Banks and customers must form strong partnership to prevent fraud"- and here are some of the ways: Positive pay (also called match pay) automatically sends copies to bank as checks are drawn, The bank match incoming checks against their records. For clients issuing 500 checks/month, this service costs about $1500 per year. And checks themselves have more security features now, for example:

  • Background planographs that show "copy" when photocopied
  • Microprinting, visible with magnifying glass; the line becomes solid if copied
  • Watermarks
  • Larger type fonts - tampering leaves more visible marks
  • As much ink around the payee name as possible (asterisks, etc.), to make it harder to change the name.Simons recommends including as many as possible. "A strong argument can be made for client negligence if you're not using security features.

Couple check features with sensible procedures, such as:

  • Keep tight control on check stock and also any stored digital signatures
  • Require two signatures
  • Reconcile promptly (catch fraud quickly and report it). [Many banks allow you to download your statement a day after cycle closes - and some banks have shortened the period from 30 days, so promptness is key.
  • Keep checks the same color whenever possible - easier to detect chemical wash
  • Protect your account number and transit number. Staples sells check-printing kits and someone can go in and print checks with those two numbers.
  • If your vendor wants debits, open a new account for the exact amount of purchase.

Discuss all this with your banker. Failure to implement means you may be liable for some or all of a check loss.

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