Have you ever been frustrated to get a red-alert email or call from your bank warning you of credit card fraud? I have, and while I am grateful for the precautionary steps the bank took in order to protect my account, it’s frustrating at the same time. First, because I was the victim of fraud. And second, because when they issue me a replacement card I have to re-save the new card information with all the online merchants I do business with.
For Controllers and CFO’s whose primary job is to develop a profitable financial strategy while mitigating risk, combating check fraud should be near the top of your list. In particular, small and medium size businesses should be on high alert because checks are viewed as the most convenient payment form with these business types and the value of check writing is not slowing down any time soon. Furthermore, fake check scams were the highest reported complaint to Fraud.org at 24.23%.
Check security measures and check fraud technology have certainly improved over the years. Remember the 2002 movie Catch Me If You Can depicting the remarkably successful teenage check washer Frank Abagnale, Jr., who committed check fraud against many businesses. He became so good at it that he was hired, after serving time in prison, as an FBI consultant – later designing check security enhancements to reduce the fraud that made him so famous.
But check washing is not the only type of check fraud or source to watch out for.
MICR Lines & Font Types
A check’s MICR line is printed with special toner that can only be read by check readers to help verify the authenticity of check payments. Something as elementary as the MICR line should not be overlooked when it comes to check fraud. There are the Top 10 Tips to Spot Fake Checks, but maybe the most important is to analyze the MICR line – the row of numbers at the bottom of all checks.
The Association of Financial Professionals 2014 Payments Fraud study found that altering the MICR line is “the most prevalent check fraud method … at 62 percent.” To the naked eye MICR lines should look and feel dull, not shiny. And the check number in the MICR line should also match the number in the top right corner of the check.
Font types can also set off red flags that indicate check fraud. If your business prints its own checks, you may already be aware of specialized fonts that must be used.
The two most common font types are E-13B and CMC-7, both of which satisfy international check printing standards. Of course, only specialized check processing equipment can distinguish these fonts – emphasizing the need for such equipment as well.
Organized Crime Rings
It’s rarely your employees “washing” their paychecks that’s costing you money and giving you headaches. Rather, it’s usually outsiders who have a systematic process to attack you.
For those instances where it is an inside job, positive pay and daily reconciliation can help reduce check fraud. Banks offer positive pay services to make sure they fund only checks they know about in advance, preventing fraudulent distributions written on company checks. Entrepreneurs use daily reconciliation to confirm that only verified and preferably guaranteed checks are presented to the bank for deposit, making sure no false checks were introduced to cover theft (such as cash from the till) elsewhere. These methods virtually eliminate the chances that internal check fraud will succeed.
But most of the time it’s an outside job. The same AFP Payments Fraud study shows that 80% of companies that experienced attempted or actual fraud were targeted by outsiders. One-fifth of those attempts came from organized crime rings. We’re not talking about Sopranos and mob bosses here, but a systematic process nonetheless.
Merchants who accept checks should be aware that while attempted check fraud is the most common type of fraud, processing checks as soon as they are received -- especially with a guarantee in place -- effectively mitigates the risk. But for a more in-depth look at the role of checks in today’s evolving digital payments world, and their continued importance to your bottom line, read the white paper here.