In today’s digital world, businesses face security threats on a regular basis. However, a larger threat can come from a nondigital process. Check stealing scams are one of the most prevalent scams facing companies, and construction companies have not been immune. Despite the industry's focus on physical security and site safety, construction companies are increasingly falling victim to these sophisticated fraud schemes, causing financial losses and disrupting operations.
Check stealing scams targeting construction companies operate much like those affecting other industries, but with nuances tailored to exploit the unique characteristics of the sector. From subcontractors to general contractors and suppliers, no entity within the construction supply chain is immune to the potential fallout of these fraudulent activities. If you think you’re immune because you pay bills online and don’t write paper checks often, think again. Using a variety of sneaky scams, criminals can access your checking account information even without a physical check.
How Do Check Stealing Scams Work?
Check stealing scams typically involve a scammer intercepting or stealing your company’s checks. The methods that scammers use to acquire a check range from stealing checks through normal day-to-day operations, stealing check payments from the mail, or even obtaining customer credentials through phishing scams that may allow them to review check images online and create a counterfeit copy of a consumer's check.
Another avenue for scammers to access your account involves obtaining a customer’s bank routing and account number to create fake checks. Scammers target outgoing mail containing checks by either physically stealing it from mailboxes or using other techniques to reroute or intercept it. Once they obtain the checks, they alter the recipient's name or the amount using various manipulation techniques. Once in possession of these checks, the scammer changes the payee or the amount, or they create counterfeit checks using the stolen information. Subsequently, they attempt to cash or deposit these fraudulent checks, all without leaving a trail leading back to the scammer.
Indeed, check fraud has become such a problem in the past few years that the U.S. Postal Service (USPS) has advised citizens not to mail checks if they don’t have to and if they must, to hand deliver the check to a post office.
If you think your company is safe because you only use digital payment methods and don’t write paper checks often, think again. Using a variety of methods, criminals can access your checking account information even without a physical check. Furthermore, phishing scams can be utilized to obtain vendor banking information. The end goal of the scammer is to reroute payments made to a company’s vendors, still leaving a company on the hook for the original liability. Companies need to remain diligent when monitoring banking activity and have strong processes in place for changing any vendor banking information.
Best Practices to Mitigate Your Construction Company’s Risk of Check Stealing Scams
To mitigate the risk of falling victim to check stealing scams, construction companies should implement these robust security measures and best practices:
- Secure Payment Processes. Utilize electronic payment methods and digital platforms for transactions wherever possible to minimize the use of physical checks.
- Strict Access. Develop stringent authentication and authorization procedures for approving payments, including multi-factor authentication and dual authorization.
- Internal Controls: Strengthen internal controls by limiting the number of employees authorized to initiate or approve payments, while maintaining proper segregation of duties.
- Security Checks. If you must use checks, consider security checks. Your company should opt for checks with advanced security features such as watermarks, holograms, and tamper-evident ink. These features make it difficult for criminals to alter checks.
- Secure Mailboxes. Use secure mailboxes and more specifically, ensure your mailbox is secure and consider using a P.O. box for sensitive mail.
Consider Your Bank’s Positive Pay Services
Many banks offer positive pay services for business checking accounts. Positive pay is an automated cash management system used by banks and businesses as a spend control tool to detect check fraud. You can pre-authorize checks for a specific amount by their check number. It employs a check-issue file that is sent to the bank by a company to be used for matching check numbers, account numbers, issue dates, and dollar amounts. The idea is to catch fraud before the check is processed through the bank.
Positive pay is not a complete fraud prevention system and companies have still seen fraud even with positive pay. Timely bank reconciliation process is the key to early detection. With online banking reports, bank reconciliations can be performed daily. The faster you identify a problem, the faster you can react. Question any transaction, even small items. Some scammers will start with a very small check to determine whether their system has worked. Once they can cash a small check, they will run through larger charges and in higher volume.
Reverse Positive Pay is Another Option
Cash is king for most companies and taking control of your own fraud detection is sometimes the best course of action. Banks also offer reverse positive pay, which would act as a daily bank reconciliation. With reverse positive pay, the burden of detection is on the company. Instead of the company sending the bank a check-issue file and reviewing any exceptions, the bank sends the company a daily list of checks presented for payment. The company then checks that list against their own records and notifies the bank to approve or deny payment. The list is sent by the bank the morning after and there’s a decision period for approval and denial. Any non-decision items will be automatically paid, so a prompt response is a must.
Reverse positive pay has benefits and drawbacks. The biggest drawback is the resources and the daily monitoring needed. However, by implementing proactive strategies and fostering a culture of vigilance and accountability, construction companies can mitigate the risk of falling victim to check stealing scams and safeguard their financial assets and reputation. In an industry where trust and reliability are paramount, protecting against fraud is not just a matter of financial prudence but a fundamental aspect of ensuring long-term success and sustainability.
Steps to Take if You Suspect Check Fraud
Even with a strong and watchful eye on your banking activity, fraud can occur. While there are steps you can take to recoup missing funds, recovery isn’t guaranteed and can often take months.
Generally, a bank is liable for accepting a check that has been forged, altered, or improperly endorsed. However, the bank may not be liable if it accepted the check in good faith, and the customer's failure to exercise ordinary care substantially contributed to an alteration or forgery. This means that if a company does not have measures in place to combat check fraud, they may be found completely at fault. Companies that implement security measures through the bank, such as positive pay, are more likely to be covered in the event that check fraud is discovered.
So, if you suspect check fraud, act as soon as possible. If mail theft is suspected, you can report it to the United States Postal Inspection Service at 1-877-876-2455 or their website here.
You need to report the fraud to your bank and the authorities immediately. If your bank is a national bank or federal savings association, and you are unable to resolve the issue with the bank, file a written complaint with the Office of the Comptroller of the Currency's (OCC) Customer Assistance Group.
If you would like to discuss strategies your construction company can take to mitigate risk, please contact a member of our Construction Industry Group.