This might be an old scam, but it keeps rearing its ugly head. This happens when a scammer manufactures a business check on an account of an unsuspecting business or non-profit and makes it payable to any number of payees. The checks look real, but they will have a different appearance from the ordinary check stock of an account holder. For example, the signor might be different, or the font on the company name will be different. The payee often is another bank or credit card company whereby the author of the check will pay a personal debt. In an older application of this, the scammer or ring of scammers will hire unsuspecting persons to receive the checks, cash them at the bank, then give the cash to scammers for a fee. Years ago, there was a theft ring in Charlotte who used Hispanic women to enter banks and cash the checks.
Recently we had an occurrence with a non-profit client where our bookkeeper spotted a check on the bank statement that was clearly fraudulent and not on the check register. We notified the Treasurer of the organization, who immediately went to the bank and closed the account, and started a new account. Fortunately, that was the only fraudulent check to clear, but it could have been a lot worse. That particular check had cleared about 45 days before it was discovered. So, there was the potential for many more to have cleared before discovery.
How To Prevent This
The best preventative is vigilance. If you do not monitor your bank accounts online, you are at risk. You should be able to log in to your bank accounts online to see what cleared the prior day almost in real time. If you find something, the bank can prevent it from funding and return it. The older a check gets, the less likely you can recover the loss, as banks have varying policies for refunding losses depending on timing of discovery.
Occasionally we get bank statements here that are unopened. If you are a finance officer, please do not do that. Please look at your bank statements before we get them, and inspect for obvious problems, because by the time they get to us, 30 or 40 days might have passed.
If your bank statement does not come with check copies, you need to contact your bank and make sure they furnish images of the checks on the statements. It is a simple default in how the banks have you set up. If there is a fee, it is well worth having the record on the bank statement of who got paid. It also helps us in figuring out where to post items for bookkeeping. Without this, it is hard to spot fraud.
Another way to prevent this is to see if your bank has positive pay, or posi-pay as some call it. This is a system whereby a bank will send an email and/or text saying there are pending checks. Then you must log on to online banking and indicate whether the checks are good or bad. The good ones you choose will clear, while anything you indicate as bad will be returned without funding. I use this in my own firm,
and it works well. One drawback to this is you must attend to it, because if you do not log in and decide by 1:00 pm, the bank will automatically return all checks. So it takes diligence.
The takeaway here is this: If you are a responsible party for a bank account, (such as a treasurer or finance officer), please pay attention to the bank account on a regular timely basis. Many times non-profits are operated by volunteers who have other jobs, making them more susceptible to this kind of fraud. This goes for ministries, fire departments, booster clubs, public charities and any tax-exempt organizations that are run by volunteers. It can happen to regular for-profit businesses too, but they usually have paid staff who keep closer eyes on the finances.
The bottom line is, it can happen to anyone, so please be careful.