Paper cheques remain a prevalent means of committing payments fraud despite the growth in electronic fund transfers. Click "Full Article" for descriptions of the most common forms of cheque fraud, tips on how to recognize them and steps to take to fight this crime.
 Billions of Dollars in Annual Losses |
According to the one survey, cheques remain the top method of fraud, with 91 per cent of organizations reporting attempted or actual instances of this crime. Annual losses from cheque fraud have been estimated in the billions of dollars.
With the pervasiveness of this crime, your company and its employees should learn these five primary types of cheque fraud and take steps to combat it:
1. Counterfeiting: This can range from creating fake cheques using easily acquired sophisticated desktop publishing equipment or simply duplicating a cheques with advanced color photocopiers.
2. Alterations: Scammers use chemicals and solvents such as acetone, brake fluid and bleach to remove or modify such information as the name of a payee or the amount of a cheque. Criminals can either alter small areas of a cheque, known as spot washing, or the full cheque, a process called cheque washing.
3. Forgery: For businesses, cheque forgeries typically involve employees issuing a cheque without authorization, forging an official signature and making the cheque payable to themselves or an accomplice. Forgeries also occur when cheques are stolen and fraudulently endorsed to someone other than the intended payee.
4. Closed accounts: Also known as paperhanging, this involves writing cheques against accounts that are closed and contain no funds.
5. Kiting: This fraud involves opening chequing accounts at two or more institutions and covering cheques drawn on one account with deposits of cheques from the other account which does not have funds. By relying on the float time involved in processing cheques, the fraudster carefully times deposits of the worthless cheques to artificially inflate the balance of an account.
Different rules and regulations apply to the way your organization's bank handles losses from the various types of cheque fraud. Techniques for investigating fraud involving an employee, for instance, will differ from those used to look into counterfeit cheques.
To detect and prevent cheque fraud your company should focus on both internal and external efforts. For example:
- Internal Steps: Review your organization's controls related to receiving, storing and issuing cheques. Among other things, your business should reconcile bank statements in a timely manner, segregate cheque writing from account reconciliation, and limit the number of employees with signing authority. You may want to get a professional assessment of your organization's controls.
- External Steps: Talk to your bank about ways it can help protect your account. The cost may depend on the size of the bank and the volume of cheque your business issues. One defense most banks offer is called Positive Pay. In its simplest form, this process matches the account number, cheque number and dollar amount of each cheque against a list of cheques your company has previously authorized and issued. The bank will not cash the cheque unless all three components match.
If your organization is -- or suspects it is -- the victim of cheque fraud, contact law enforcement officials, your legal advisor and your accountant. They will know how to handle the investigation and can offer guidance on the best practices to prevent and investigate crime at your business and prosecute the offenders.
