Everyone is talking about cybersecurity risks, but check fraud remains the top form of payment fraud experienced by companies. According to the Association for Financial Professionals’ 2016 Payments Fraud and Control Survey1, 71% of companies that experienced attempted or actual payments fraud last year were victims of check fraud.
Although the use of paper checks is declining, checks still are used in the United States for a large portion of business transactions. Common check fraud methods include forged signatures, forged endorsements, counterfeit checks, and altered payee names and dollar amounts. Check fraudsters cast a wide net, hoping to find organizations that do not have sufficient safeguards in place.
There are many ways to protect your business from check fraud:
- Positive Pay – Often cited as the best defense against check fraud, Positive Pay is an automated bank solution that detects fraud by matching checks presented each day for payment with the company’s list of issued payments. Exceptions are highlighted, and the organization can either authorize the red-flagged payment or have the check returned. In the recent AFP survey1, 88% of respondents reported using Positive Pay to guard against check fraud. Fifth Third Positive Pay Services offer companies a range of options, including payee name verification, teller-maintained positive pay, and reverse positive pay in which a company maintains control over its list of issued checks.
- Daily reconciliation of accounts – Once a bad check has been passed, fraudsters often repeat the process at the same company because they recognize its vulnerabilities. Performing daily reconciliation of accounts can substantially reduce the risk of check fraud by verifying the status of payments and highlighting anomalies quickly. Fifth Third’s Account Reconciliation service provides fast, accurate account activity information.
- “Post no checks” – Placing a “post no checks” restriction on certain accounts that are not often used can reduce the risk of check fraud. To further protect these seldom-used accounts, you also may want to consider initiating only Automated Clearing House (ACH) transactions from these accounts instead of checks.
- Dual signatures – For large check transactions, it’s wise to require dual signatures for authorization of payment. Setting this requirement on large amounts adds another barrier of protection against check fraud.
- Internal policies and procedures – Although most check fraud is committed by external parties, it’s wise to have written policies in place to reduce the risk of internal threats. Policy should define who is authorized for check writing and approval, as well as dollar limitations, and should require locked storage of check stock.
- Issue fewer checks – One of the ways companies can reduce the number of checks they issue is by moving to electronic payments. Fifth Third’s ACH processing is an ideal solution for repeat payables such as payroll, reimbursements, dividends, taxes and other items. Wire transfer services through Fifth Third use the latest security technology on front-end and back-end processing for fraud protection, and are designed for larger-dollar transactions that require immediate settlement.
For more information on ways to protect your company from check fraud, please contact your Fifth Third Bank Relationship Manager.
Results of 2016 AFP Payments Fraud and Control Survey available at http://www.afponline.org/fraud/