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    Accounting & Business Services Tip: Watch Out for a New Kind of Check Fraud

    October 2022

    As old hands of the business tax world and veteran business growth consultants, we have been around money for a long time. We’ve seen both the new and old ways of doing things, and each system comes with a distinct set of pros and cons. A type of check fraud that would have once been unthinkable is now easy for the unscrupulous to do.

    Do you remember going to the bank as a kid? Remember walking into the bank with your parents (or, on an even better day, utilizing drive-thru banking and watching that magical tube thing transport cash and documents between the teller inside and your parents’ car -- so cool). Back then, people physically endorsed checks, handed them over to the teller, and then got actual cash in return.

    Fast forward a few decades. Today, our paychecks are deposited directly, and any other check that is written to us can be deposited using a smartphone. Banking looks drastically different -- so different, in fact, that most children have rarely if ever, stepped foot inside an actual bank branch (or sat in the line outside)! It’s pretty rare to go into a bank anymore for small personal needs anymore. The whole concept of banking is radically different than it used to be.

    The convenience of mobile banking is astounding and, by and large, a pleasure. But the dark side to it all is a new wave of “double presentment” fraud plaguing banks and businesses. What used to be impossible, cashing a check twice, is now possible thanks to a lack of communication between old and new technologies. It is something you need to be aware of, even if you don’t personally utilize mobile banking.

    BGW CPA explains cashing the same check twice

    The situation goes like this: A person receives a check from you and deposits it via the mobile banking app on their phone. Then, several months later, still in possession of the paper check, they take it to a branch or an ATM and cash it again. Bank technology is great at catching double presentment at the same institution when the same method for deposit is used — the same check deposited twice using the same mobile phone, for example -- but it’s terrible when someone uses multiple methods of deposit (first the phone and then the ATM). And then there are the cases of people cashing checks using multiple methods at multiple banks, which is even harder to catch. Most banks’ review mechanisms are powerless to identify and reject items that have been previously deposited at other financial institutions.

    Either way, here’s the rub: As the payer, your checking account can get dinged twice for the same exact check. For small businesses on a tight budget, it can be a real issue, and one thing all business growth services agree on is that paying invoices more than once is a killer for cash flow!

    Audit firms note lack of security as a major cause of double presentment

    Working in accounting and business services, it is a little hard to believe that banks can be so loose with handing out mobile banking access to new account holders, but the law of supply and demand made it so that denying online privileges was simply bad for business.

    When mobile banking was new, banks were very judicious about granting remote deposit privileges to account holders, and that kept fraud rates extremely low. Tenure with the institution, deposit history, and average daily balances dictated which consumers or businesses were granted mobile deposit eligibility. But demand for mobile banking quickly increased, and those denied the privilege at one bank simply packed up and took their business to another, where security was lower. That pressure to accept remote deposits from anyone (and for any amount) left banks racing to compete over mobile services, and they favored speed over safety in the process. It’s only logical that fraud ensued.

    Tips from a business growth firm on how to protect yourself

    As an experienced business growths consultants, we have seen first-hand how losing track of the checks you write can come back to bite you. It’s easy to do, particularly in a day and age when most businesses aren’t writing a ton of paper checks.

    Our business CPA firm recommends following this list of tips compiled by The Consumer Financial Protection Bureau for consumers using mobile banking services to better protect against double presentment. Examples include, setting up balance alerts and frequently checking account balances.

    Remember that even if you don’t use mobile banking, you can be a victim. All it takes is an old-fashioned check written by you. Therefore,

    • Do not rely on your bank’s technology to catch errors.
    • Be vigilant and go over your account statements very carefully to keep an eye out for multiple drafts of the same check.

    If you do spot double presentment, call the bank immediately. You can initiate a dispute and have the money refunded to you. Depending on the amount, the bank may wish to pursue to the perpetrator of the fraud. Your hands are tied at that point, but at least you’ll have your money back -- and know which dishonest person or company to avoid in the future.

    For a larger business writing a lot of checks, particularly in a business-to-consumer setting, hiring a professional accounting service can provide an extra set of eyes to protect you from this and other types of financial fraud.

     

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