Ask the Expert | Fall 2020

Paper check fraud is on the rise: 7 steps to mitigate your business’s risk

Woman at computer

By Sue Ostroswki

Despite the increased use of technology for financial transactions, and a reduction in the use of paper checks, paper check fraud is on the rise.

“The bad guys are like water, taking the path of least resistance,” says Don Boian, cybersecurity outreach director at Huntington. “People are getting smarter about electronic banking, and fraudsters are looking for the weakest link.”

Boian says check fraud occurs in a number of ways, including the theft of checks out of mailboxes, and employees stealing checks from their place of employment. A secure mailbox or a post office box can help prevent the former, while it can be more difficult to detect and prevent employee misconduct.

“In many cases, businesses get burned well before they discover the fraud,” he says.

Boian offers these seven tips to help protect your business from paper check fraud.

  1. Keep physical control of your checks to prevent them from getting into the wrong hands.

    “After remotely depositing checks and making sure they’ve cleared, destroy the paper check to prevent fraudsters from gaining access to information they can use to steal from your accounts,” Boian says.

    Properly destroying the check after deposit confirmation will also prevent the alteration of the physical item.

  2. To reduce the risk of employee fraud, implement a segregation of duties, a multi-faceted verification process for all financial transactions.

    “Do not allow one individual full control of your accounts by themselves,” he says. “The accounts receivable person should store the information, mark who the money is going to, indicate, ‘Pay this amount,’ then another person should approve and make the payment.”

    It is beneficial to systematically enforce segregation of duties and secondary authorization controls wherever possible. This reduces the risk of an employee using their authority or influence to bypass manually enforced processes.

  3. Know your employees. Although you can never entirely know someone or predict what they will do¬—even long-term trusted employees have been convicted of embezzlement—carefully vetting employees before granting them access to your money can help reduce your risk. In addition, never grant access to employees for responsibilities that are outside of the norm.

  4. Use your financial institution’s Positive Pay system. With Positive Pay, when a business issues a paper check, you enter into a spreadsheet the check number, the amount of the check and who it’s made out to and send it to the bank to compare against checks submitted for payment. “You are saying, ‘Here are all the checks I have written or authorized. Do not pay checks against this account if they are not on this spreadsheet,’” he says. Additionally, Teller Positive Pay may mitigate the risk of having checks cashed at your financial institution that have not been authorized.

  5. Set limits and alerts. “On most accounts, you can set limits on the maximum amount for which a check can be written, and you can set alerts to be notified if a check clears for over a specified amount,” Boian says.

  6. Pay attention. Fraudsters often start by writing checks for small amounts, testing the waters to see if anyone will notice. If no one does, and they get away with it, they will gradually increase the amounts of the fraudulent payments.

    Periodically reviewing checks paid against the account on your online account may provide an additional measure of timely review rather than relying entirely on the monthly statement. Remember, financial institutions have until the business day following payment to return an unauthorized check that has paid against the account. By regularly reviewing bank statements online, you can catch irregularities early.

  7. Transition away from paper checks to electronic payments. By writing a check, you are providing the payee not only with your account information but with a piece of paper that can be duplicated or recreated to draw funds on your account. In addition, someone in possession of a physical check can alter the payee or the amount of the check. Boian recommends optimizing payment channels with appropriate focus on having adequate system controls in place.

For more information on mitigating check fraud, visit huntington.com/Commercial/payables-management/fraud-mitigation or reach out to your Relationship Manager.


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