Despite advancing technology, businesses continue to fall victim to fraud.
But that doesn’t mean you have to just sit around waiting for an attack on your company. Instead, be proactive by taking steps to make your accounts less vulnerable to fraudulent activity.
“The more protective services and security parameters used, the harder it becomes for criminals,” says Matt Zeck, vice president and commercial sales manager for the corporate treasury management team in Fifth Third Bank’s Cincinnati, Northern Kentucky and Dayton markets. “Much like the burglar who will move past a house with an alarm system, deadbolts and guard dog, the potential fraudsters will find another business to hit if you have taken preventive steps against fraud.”
Smart Business spoke with Zeck about how to protect your business from becoming a victim of fraud.
What are the types of check fraud, and why is it difficult to thwart?
The most common types of check fraud are counterfeit checks, in which checks are reproduced via a scanner, software and printer; forged signatures, in which legitimate checks are cashed with bogus signatures; stolen check stock, in which counterfeit checks are created with technology; and altered checks, in which valid checks are chemically altered with a new payee or amount.
Despite the decline of paper check usage, there are still billions of them being passed within the financial markets, and each check provides all the information a criminal needs to commit fraud.
Each check reveals the account number, where the account is held, the range of check numbers being written, the company address and often the logo, and a copy of the authorized signer’s
signature.
With a minor investment in technology, a criminal can purchase all the supplies needed to perpetrate fraud against a business and/or personal checking account. More than 500 million checks are fraudulently passed each year, and payroll accounts are the most susceptible to check fraud because of the widespread distribution of checks.
How can you prevent check fraud?
Diligent and daily reconciliation of items, either paper or electronic, is a great defense to make sure money isn’t being fraudulently removed from accounts. Banks also provide a number of security and defense services to protect business accounts, such as Check Positive Pay, ACH blocks, filters and Positive Pay.
You can also require identification and utilize check protection services when accepting checks as payment. Some services will scan the financial networks for the basic parameters of the checking account, such as if the account is open and in good standing.
Others will actually verify account balances and/or put holds on the funds, and some will even guarantee the check funds, much like a credit card transaction. Each service involves a different level of risk.
What other steps can you take to prevent fraud from occurring in your business?
Put in place a mindset of vigilance and maintain the attributes needed to protect and defend your accounts.
These include high-quality internal controls over the use and distribution of checks, use of check stock with security features, reconciliation of account activity daily, use of bank protection services, and use of alternative financial services like ACH to reduce paper check usage.
A good majority of fraud is committed in-house, so you need to create a separation of duties for employees. No employee should be given complete control over an entire accounting process.
Separate the duties of the person running the payroll and the person who receives and distributes the payroll reports and checks. The use of online check stubs can also help you spot incorrect payments quickly.
Are businesses and banks held liable when they are the victims of check fraud?
In the past, financial institutions were fully responsible for fraud losses reported within a specified time frame. Check fraud has become a highly complex matter involving legal issues, but current Uniform Commercial Code revisions outline specific check fraud responsibilities for corporations and banks.
There is also case law now that shows companies can be held liable for fraud.
Besides check fraud, how else are businesses vulnerable?
Six billion phishing e-mails are sent each month, and about 50 percent of people respond to these attacks. Phishing is a scam where criminals send spam e-mails and direct Internet users to Web sites that look like legitimate e-commerce sites but that are controlled by thieves.
Unsuspecting users are asked to provide sensitive personal information, such as passwords, Social Security numbers, and bank account or credit card numbers, often under the guise of updating account information.
Criminals then use this information for fraudulent purposes.
Never access a site by clicking on a link from an e-mail, and legitimate businesses will never ask you to confirm sensitive information from a Web site.
matt zeck is vice president and commercial sales manager for the corporate treasury management team at Fifth Third Bank’s Cincinnati, Northern Kentucky and Dayton markets. Reach him at (513) 534-0344 or [email protected].
