Top ten steps to reduce check fraud risk

September 29, 2011

Has your company been subject to check fraud? Chances are you will at some point. 71% or organizations experienced attempted or actual payment fraud in 2010. This can result in thousands of dollars in losses to your business, and, in some cases, even bankruptcy. A U.S. Chamber of Commerce survey reports that one-third of business bankruptcies are due to employee theft. The greatest financial losses from payment fraud are attributed to checks as they remain the most widely used payment methods for businesses.

The good news is that you can take proactive measures to protect your company against check and paymentfraud. Following are a few suggestions that can be implemented in your

  1. Have the employee who opens the mail immediately stamp the “For Deposit Only” endorsement on the back of each check received.
  2. Segregate duties of invoice payment approval, check preparation, check signing, and bank reconciliation to different individuals with your organization.
  3. Implement direct deposit for vendors and employee checks.
  4. Implement Positive Pay with your bank for both Accounts Payable and Payroll.
  5. Create a budget and compare the actual results against it regularly – at least quarterly, if not monthly.
  6. Review monthly financial reports with budget, year to day and prior year comparisons.
  7. Actively participate in the approval, review and oversight functions of your company.
  8. Require that bank statements and copies of checks remain available for review and check them periodically.
  9. Require that bank reconciliation be performed within the accounting system – not on a spreadsheet or manually and by a person that does not write the checks and make bank deposits.
  10. Require two signatures on all checks over a specific high dollar amount.

What else can I do?

  • Configure your network and financial software so only certain printers can print certain types of forms (easy to do for most financial software)
  • Be mindful of certain “red flag” behavior in employees, such as them living beyond their means, experiencing financial difficulties, or unwilling to share duties or refusing to take a vacation.
  • Purchase adequate fidelity bond coverage on all employees who handle cash.
  • Implement and enforce a company credit card usage policy. This policy should include who can use the cards, for what purposes and require original receipts.
  • Implement and enforce a detailed expense reimbursement policy. Require original receipts, as well as date, location, purpose and amount.

Topics: Featured, Business Best Practices, Management, Blog Posts, Risk Management, Accounting & Finance

Lillian Aaron

Accounting Software Consultant, Porte Brown CPA

Lillian is a business adviser with more than 30 years of experience assisting small to medium businesses prosper by selecting the correct business accounting tools based on their specific needs. Her specialty is in process workflow—helping companies gain efficiency in their operations. Businesses seek her help when they have outgrown their basic accounting systems and are ready for a customized, robust solution that is still affordable. Lillian is an expert in a number of systems including Traverse ERP, Open Systems, and QuickBooks Enterprise and Method CRM. Specialties: Traverse Accounting Software, Open Systems Accounting Software (OSAS), QuickBooks Enterprise, Method CRM Her clients say, “Lillian is my go-to person when it comes to accounting software. She has a deep knowledge of available options and takes time to understand the needs of her clients,” “I found her to be of the highest integrity and extremely knowledgeable,” and “She is always willing to go the extra mile to make sure that her clients get exactly the solution they need.”
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