Every year consumers and businesses lose billions, if not trillions, of dollars to fraud. We hear about them on the news and in our social media feeds.
While the largest companies, like Experian and The Home Depot make the headlines, it’s small businesses that are especially at risk of fraud – check fraud in particular.
According to the Association for Financial Professionals, although the usage of paper checks has been consistently declining for many years, businesses on average still make 42% of their business customer payments by check. Fifteen years ago, this number was almost double. But even with the large increase in electronic payments, businesses still use a significant amount of checks.
If your business is one of the 97% that uses checks to pay business expenses, you need to be aware of the risks and familiar with a simple tool that can help protect your business: Positive Pay.
Check fraud prevalence
The AFP survey also found a staggering amount of U.S. organizations, 82%, were victims of fraud or attempted fraud in 2018. Check fraud is one of the most common ways that thieves try to steal from businesses.
Checks that are sitting in mailboxes are an easy target. Once a thief has possession of a legitimate check, chemicals are used to “wash” the payee and dollar amount off the check. The con artist will then attempt to purchase items or cash the check. Often the dollar amount of the check is increased dramatically.
Here in Springfield, there were several recent news articles written about people stealing checks out of business and personal mailboxes. In August, a Springfield man pleaded guilty to a fraud scheme he and 11 co-conspirators participated in over a period of months. The scheme involved stealing mail and trying to cash 41 counterfeit checks at banks in Jasper, Newton, Christian and Greene counties. The checks also were used at Walmart and other stores to purchase merchandise.
In another local case, a man from Republic and a woman from Ava were charged with a 47-count indictment by a Springfield federal grand jury. Over a period of five months, they stole mail from 24 businesses and 15 households. The pair purchased more than $17,000 worth of items with 38 checks and cashed nine more checks. In 2017, they were sentenced to a combined 17 years in federal prison.
At a Springfield Business Journal Economic Growth Survey Forum this summer, Guaranty Bank Corporate Services Director Ashlee Radford asked a room of more than 100 business leaders to raise their hands if they knew about the Positive Pay system. Only a few hands went up.
Positive Pay is an underutilized fraud prevention system, an easy solution to help protect a business from check fraud. It’s offered by most banks and helps protect businesses from having their checks forged.
Here’s how it works. A company provides their bank with a list of legitimate checks. If a check is presented that doesn’t match the dollar amount and check number, it’s flagged as an exception. The participating business is provided a daily report of exceptions to their list. They can review checks on the exception list and choose to pay or return the checks, protecting themselves from potential fraud.
The Association of Certified Fraud Examiners estimates the typical organization loses 5% of revenues per year because of fraud. Businesses can help protect themselves by investing a small amount of time and money in systems like Positive Pay. Even with electronic payments gaining in popularity as a predominant payment method, paper checks are still used extensively and will be for the foreseeable future.
So the next time you’re in a crowded room and someone asks if you’ve heard of Positive Pay, be sure to raise your hand.
Dee King is the corporate services development officer at Guaranty Bank. She can be reached at email@example.com.
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