Article

Check fraud prevention checklist

In the United States, check use for business-to-business (B2B) transactions remains at roughly 50 percent, despite a multitude of recent advances in payments technology. Simply put, checks are not going away any time soon in the United States. Check fraud can be internal, from employees, or external, from customers. Therefore, to prevent check fraud, businesses need to consider both their internal and external exposures. The following questions can be used to assess a business's exposure to check fraud.

Check fraud checklist

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Internal exposures

 

 

 

Have in-depth background checks been performed on employees in positions of financial responsibility?

     

Are employees with financial responsibilities bonded?

     

Is check stock provided with security features, purchased from well-established vendors, and stored in a secure location?

     

Is check stock provided with security features, purchased from well-established vendors, and stored in a secure location?

     

Are checkbooks or bank records kept in a locked drawer and not left unattended?

     

Have procedures been established for accounts payable so that the check writing and account reconcilement functions are separated by making two people responsible?

     

Is the number of personnel with the authority to sign checks limited?

     

Are two signatures required on checks for large dollar amounts?

     

Are check disbursements and deposits (i.e., bank statements) reconciled regularly, and are the authorized signers not the same people who reconcile the account?

     

Are surprise audits of all financial functions performed?

     

Are vacation policies enforced so that there is no chance an embezzler would be able to keep activity secret?

     

Are accounts payables processed through a service bureau? If so, are the service bureau's security procedures kept on file?

     

When a payment account is fraudulently used, is it standard procedure to close the account as soon as possible?

     

Is communication maintained with your bank so that it knows as soon as possible of any changes in company policies?

     

Are bank contracts read and understood regarding the company's liability for fraud?

     

Are bank services, such as positive payment and signature verification systems, used to protect accounts payables?

     

External procedures

     

Are two forms of identification required for all payments by check and listed on the back of the check?

     

Is it company policy to not accept third-party checks, such as payroll or government checks, since these may be stolen?

     

If you accept a large number of payments by check, has consideration been given to the use of electronic check verification services?

     

Copyright ©2018, ISO Services Properties, Inc.

The recommendation(s), advice and contents of this material are provided for informational purposes only and do not purport to address every possible legal obligation, hazard, code violation, loss potential or exception to good practice. The Hanover Insurance Company and its affiliates and subsidiaries ("The Hanover") specifically disclaim any warranty or representation that acceptance of any recommendations or advice contained herein will make any premises, property or operation safe or in compliance with any law or regulation. Under no circumstances should this material or your acceptance of any recommendations or advice contained herein be construed as establishing the existence or availability of any insurance coverage with The Hanover. By providing this information to you, The Hanover does not assume (and specifically disclaims) any duty, undertaking or responsibility to you. The decision to accept or implement any recommendation(s) or advice contained in this material must be made by you.

LC FEB 2019 14-40
171-0911 (12/18)