Recently, the Financial Crimes Enforcement Network (FinCEN) told financial institutions in the U.S. to exercise caution when processing paper cheques because they might be fake. “Paper cheques??”, you say.
Yes, electronic transfers have indeed replaced paper cheques for many consumer and business payments. Yet paper cheques are still used at many businesses and cheque fraud has been increasing. According to FinCEN, U.S. banks reported 680,000 cheque fraud incidents in 2022, almost double those reported in 2021. The Postal Service has noted a similar rise in mail theft, particularly a higher incidence of criminals breaking into collection boxes and robbing postal carriers to obtain paper cheques. These criminal strategies employed in the US are becoming more prevalent in Canada, although on a smaller scale relative to the populations.
Even if your business conducts most financial transactions electronically, you should protect against possible cheque fraud.
Why thieves like cheques
Paper cheques are attractive to thieves because they’re easy to alter. Criminals can use household chemicals to “wash” original amounts and payees and replace them with higher numbers and another name. Or they might use the transit and account numbers of stolen cheques and print entirely new ones. Crooks typically deposit the illicit cheques in bank accounts set up for this purpose or use the accounts of “money mules”. Then, funds are withdrawn quickly, before the fraud is discovered. Cheque thieves also take advantage of “dark web” marketplaces, selling the stolen cheques.
Ounce of prevention
You can limit opportunities for fraudsters to steal your company’s paper cheques by using electronic payment methods whenever possible. When it’s not possible, either drop mail containing cheques in a well-trafficked Canada Post postal box close to the pickup time or, even better, take them directly to the Post Office. As well, consider investing in a MICR toner ink solution limiting the ability for cheque washing.
Also, regularly monitor your business accounts for anomalies. Be sure to train accounting employees to look for unusual transactions and suspicious-looking cheques. And to prevent possible internal fraud, consider common-sense internal controls. For example:
- Store company cheques securely,
- Update signature cards with your bank, when there is a change in signors,
- Immediately investigate any complaints from customers and vendors about payment issues,
- Separate overlapping accounting duties, e.g., the person who opens the mail doesn’t also deposit payments.
Still useful
Although technology has dramatically changed how business in done, old-school tools such as paper cheques probably aren’t going to disappear anytime soon. Don’t let cheques make your organization vulnerable to fraud. If you have any questions, please contact us.
