NFIB

Avoiding Check Fraud on Your Company Account
05/ 28/ 2002

Just last week I spoke with the owner of an advertising agency that had been hit with a series of fraudulent checks. Someone not employed by the company had stolen a checkbook, along with an authorized signature stamp, and over a period of several days had forged checks totaling more than $300,000. To date, not all of the money has been recovered, leaving the agency in a perilous financial position. In today's Workshop, Jeffrey Moses will discuss ways to help avoid this situation.

The larger your company is, the more at risk you are of someone writing fraudulent checks on your account. It's vital as you grow to know exactly who has access to checks, and who has the authority to write checks. Normally, a bank requires samples of signatures for every person who will be writing checks. Limit the number of people you give this ability to, and make sure that one person is in charge of knowing exactly where all blank checks are at any given time.

Unless your company writes hundreds of checks daily, avoid using signature stamps. By requiring each check to have a real signature written by a designated individual or individuals within your company, you'll limit your exposure to fraudulent check writing.

You can set up financial limits for checks with your bank. Make these limits appropriate for typical purchases. Then, should you have any unusual expenses that require larger amounts of payment by check, you can clear these checks personally with the bank.

Some businesses may have difficulty setting reasonable limits for checks. The ad agency mentioned at the beginning of this article, for instance, often wrote checks for placement of newspaper, radio and TV advertising (often up to hundreds of thousands of dollars). If your company often must write very large checks, provide your bank with the names of companies to which such checks will be written and ask the bank not to cash checks written to any other company without checking with you first.

Your bank should be instructed to never, in any case, cash a check written to an individual. This simple instruction would have saved the ad agency much misery. Payroll checks, which of course are written to individuals, should be written from a special account. Again, the bank should be provided with the names of all employees to whom payroll checks will be written. And check limits should be established with the bank for payroll checks, to make sure that unscrupulous employees or former employees don't try to write and cash a payroll check.

Regular inventories of blank checks should be undertaken, so that the owners or designated individuals know exactly where all blank checks are at all times. Checks should be kept under lock and key, with any discrepancies in numbering immediately reported to ownership or management.

Work closely with your bank to prevent fraudulent check writing. A little time spent could prevent financial disaster.

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