While petty crimes like shoplifting obviously pose a threat to businesses, the most expensive crimes against businesses continue to be white collar check crimes. One of the biggest thorns in the side of businesses is check forgery, a form of check fraud. Check related crimes cost the country between $10 and 14 billion every year, according to the Financial Services department of the Federal Reserve Bank. This type of crime can be committed both within a business, among its employees, or from outside of it, coming from its clientele. So what is check forgery, and how can both businesses and individuals identify it before its too late?
Employee check forgery
While tampering with the payroll or other financial schemes, an employee of a company can steal money by issuing a check without proper permission. This is especially a problem for small businesses, according to an article by the Association of Certified Fraud Examiners, which points out that small businesses often lack the resources to put internal controls in place. To figure out more about the motivation of these fraudsters, the Association looked to an article in the Journal of Accountancy. The article, titled 'The Downside of Good Times' by Anita Dennis, explains that everything from personal financial pressures, employee disenfranchisement, to just plain greed can often be to blame for trusted employees resorting to fraudulent tactics. Another troubling statistic, according to a 2007 Business Credit magazine article, is that the people committing crimes from inside a company often don't look or seem like criminals. They are often trusted employees, often having worked with a company for 4 to 5 years. Most of the fraudsters are also first time offenders.
Legitimate checks and checkbooks can also be stolen by fraudsters and presented as payment at a business. Other forgery attempts, which aim to get banks to part with their cash and are presented at the teller window, include altering the numbers or words on a check written to the perpetrator to increase the amount of money received in the perpetrator's bank account.
Other check fraud types are varied. They include a technique known as abandonment, where someone writes a bad check and deposits the money into an account in order to withdraw the resulting money quickly – as well as close the account – before the bank recognizes that the check is bad.
While there's a lot of bad news about check fraud, there's good news as well. Many forms of check fraud can only work when there's sufficient 'float' time – that is, a delay in processing checks. The Check Clearing Act for the 21st century, or the Check 21 Act, was a law put in place in 2003 requiring banks to make a digital copy of each incoming check. The result of this act was less float time overall, giving criminals a much smaller window in which to commit their crimes.
Who Pays for the Losses due to Check Fraud
If you're balancing your checkbook one night and find an expense you don't remember writing a check for, you're likely looking at a fraudulent charge. But don't worry – if you can prove that the charge is a fraudulent one, you won't have to pay for someone else's free lunch. What's more, many banks are just as committed as you are in finding and charging the perpetrator.
After identifying the charge, it's important to notify your bank or credit union right away, according to the consumer financial protection bureau (CFPB). Most states have a statute of limitations which give you a one to two year window for reporting check fraud. Best to do it as early as you can to avoid any deadline problems.
While reporting a legitimate fraud case will mean that your bank can't ask you to pay for that expense on your account, you do have to ensure that your bank trusts that your claim is legitimate. In order to do that, you must prove that the signature on the endorsed check in question is not your own. To determine that, your bank you will bring up the signature on the back of the endorsed check and compare it to your real signature. During this process, it's rare that you'd need a lawyer as most banks have a strict plan in place to deal with check fraud and forgery.
If check fraud is indeed proven, the bank that accepted the check in the first place is usually responsible for paying for it. Known as the 'depository bank,' this financial institution is charged with reimbursing your own bank for the unauthorized charge.
When you can't recover the expense
There are some times, however, when you can't get your money back after a fraud occurs. If you sign a blank check, and then someone else takes it, writes in his or her own name and then cashes it, you will have to cover that expense, according to the CFPB. To prevent this from happening, make sure that if you signed a check and ended up misplacing it, that you stop payment on it immediately to prevent it from being cashed. According to a personal finance article from Demand Media, it's also likely that you will have to cover at least some of a fraudulent expense if the bank can prove that you are a negligent customer via a regulatory body known as the Uniform Commercial Code (UCC.) This can come into play if you hire a bookkeeper without credentials.