How check fraud can cripple your business's profitability

By Andrea Carstensen, Minnwest Bank

Fraud poses an ever-looming threat to businesses. Despite the common notion that check fraud may be outdated in today’s digital society, the reality could not be more different. Checks remain the most susceptible business payment method to fraud. A recent survey in 2022 offers some alarming statistics on this issue:

• Check fraud continues to dominate other types of payment fraud, evidenced by 63% of businesses reporting incidents. This far exceeds the next most common type, corporate card payment fraud, at 36%.
• Only 3% of fraud was attributed to unethical business employees.
• The U.S. Postal Service reported an 11% increase in mail thefts.

Check fraud is a crime of opportunity that is cheap and easy to execute, offering a tempting prospect for fraudsters. Since integral information such as the account and routing numbers are available on the checks themselves, there are several ways for crooks to misappropriate funds: chemically erasing ink to reuse the check, illegitimate check printing and using account details to carry out unauthorized ACH transactions. In 2022, 30% of businesses reported fraud related to ACH.

Some business owners mistakenly think reduced check usage automatically safeguards them from check fraud. Even if you issue just a handful of checks annually, staying alert to potential threats is crucial. The harsh reality is that businesses do not have the same account protections against liability that consumers do. Personal and business bank account protections are governed by different rules and restrictions; a business has only a 24-hour window to report fraud, in which the financial institution can return the transaction. Beyond that point, the liability shifts to the business. Let that ramification sink in.

As seen with clients, falling victim to fraud can have devastating consequences for any business, big or small, with a newfound sense of worry and stress. Recovering from fraudulent activity can be expensive and incredibly time-consuming, and most businesses recover less than 10% of stolen funds.

An unprotected account is always a target for fraudsters looking to exploit gaps in your system. Your business should take proactive steps to ensure strong account operations. How can you safeguard yourself in the future? Here are a few recommendations:

• Positive Pay, a service through online banking, compares and verifies checks your business issues to the checks presented for payment. Any discrepancies are notified to you for immediate decision on whether to allow or return.
• Positive Pay also enables you to customize your ACH needs with vetted payees, parameters for ongoing payments, and customized notifications for exceptions.
• Key associates should have access to business online banking. Monitoring activity daily and enabling alerts for transactions is a good daily practice, especially if you choose not to implement a fraud mitigation software.
• Whenever possible, businesses should try using more secure payment methods, such as credit cards, virtual cards, ACH origination and wire transfer.
• Consider instituting dual control for payables transmitted via ACH origination and wire, attesting multiple individuals are involved for submission and approval.
• Be leery of business email compromise and revealing sensitive information, as this can open doors for fraudsters to be even more creative. Educate and encourage employees to trust their gut.

Safeguarding your hard-earned assets is an essential aspect of managing a business. By prioritizing transaction security and adding a layer of defense, you can help protect against the nightmare of fraud potentially impacting your operations.

It is important to choose a financial institution that prioritizes you, one that works with you to customize offerings beneficial to your business and is committed to service. At Minnwest Bank, we’re serious about account security. We monitor all transactions and notify you if we see something suspicious. Making payments with the peace of mind that they are protected when something goes awry is priceless.

Want to learn more about Positive Pay and how to implement it for your business? Reach out to one of our helpful experts in our Cash Management team.