Every business fears the potential losses associated with accepting counterfeit and forged checks. Although banks lose an estimated 893M per year in check fraud, the untold story of losses at the merchant/business location is more dramatic. Industry consultants have estimated these losses can be as high as $10B per year!
Banks have sophisticated system options to protect their checking accounts from fraudulent checks, and many of the check clearing rules favor the paying bank. Although deposit fraud is problematic for most banks, many times businesses “take the hit” when a fraudulent check is accepted because a tangible item already purchased is “out the door.”
For that reason, it is vital that financial institutions work with merchants cooperatively, providing ideas on how to limit fraud exposure. The following are four quick and basic concepts to communicate to commercial customers to help determine if a check is legitimate.
Look for Perforation
Almost every legitimate check will have one side that is perforated. Think about it, personal checks have to be torn from a checkbook and business checks are always attached to a paper stub for the customer to maintain. Remember, there can be perforation on the top or on the side, and depending on the technology of the machine that printed it, it may be very fine perforation, but it is there nonetheless.
Investigate the MICR Line
The MICR line at the bottom of the check is one of the main places that forgers make mistakes, which is why it should always be checked. There are many important details that you should look for in the MICR line to signify a legitimate check. First and foremost, the magnetic ink should be dull and matte. If the ink is shiny, this is your first sign that something may be off. Second, the numbers in the MICR line should match the numbers on the top right-hand corner of the check. This includes not only the check number itself, but also the bank district and routing number.
Check the Signature
Always make sure to compare the signature on the check with a signature on a piece of government-issued identification. Types of signature fraud to look for include:
- Random Forgery – A different name is signed.
- Blind Forgery (Unskilled) – The correct name is signed, but looks nothing like the genuine signature.
- Skilled Forgery – A forgery that is very close to the genuine signature, but difficult to distinguish from the original.
Confirm Security Features
Lastly, the backside of most legitimate checks will list what security features have been implemented on the physical paper. Many fake checks get accepted every year that could have been identified if the check was investigated more thoroughly. Although security features are less impactful after the check is imaged, they can still be very useful at the point of presentment. Examples of Relyco check security features can be found here.
By taking the time needed to evaluate checks before accepting them, commercial customers can make significant strides towards reducing financial loss due to check fraud.