Fraud is a crime of opportunity. The thief grabs a check out of your mailbox, erases the payee and changes the amount. They may even swipe a blank check from your office or personal space. They will look for personally identifiable information such as your birthday and social security number. Then, using this information, they open credit accounts or even file taxes in your name. They may even forge checks at your expense and the burden is often on you to prove your innocence.
Practicing due diligence with regard to fraud is imperative for small business owners. Banks are not automatically required to return funds to a customer which were taken by a fraudster. If the bank can prove two things it may not be liable for the amounts taken from your account. If the bank accepted the check in good faith and exercised ordinary care and diligence in handling the transaction, it may not be liable for returning the funds. Your actions regarding the way the check or checkbook was handled, issued, completed, or made payable might contribute to the fraudulent transaction and you may be at least partially liable.
The Uniform Commercial Code, Article 4, Section 4-406 is a valuable resource for determining your potential liability regarding checks and other commercial paper.
Here are 5 tips for avoiding fraud which every individual and small business should as standard operating procedures:
1. Reconcile your bank accounts regularly. If you wait too long before realizing fraud has occurred then your bank can claim that you’re at fault. You generally have 30 days to notify the bank of any transactions which you do not recognize. Timely reconciling makes it easier to recognize transactions and spot those which are not familiar. Regularly monitor your bank balances and look for any activity that might be suspicious. Reconciling no less than monthly, or every 30 days, is a best practice.
2. Employ the services of a trustworthy accountant or bookkeeper. This can be a major point of liability. You put a lot of trust in the person in this position. Ask if they’re bonded or licensed by some board. You may also want to ask if they carry business liability insurance. References and background checks are also good resources to establish the credibility and integrity of the individual.
3. Use strong passwords. Longer passwords containing upper and lower case letters, as well as, numbers and symbols are more difficult for fraudsters to crack. Also, don’t create passwords which relate to your other personal information. While we’d never expect someone who knows our pets name to perpetrate fraud against us, it happens often. If you write your passwords on paper, be sure to put them in a locked and secure place. This is true even if you work from home.
4. Limit your exposure. Have a system for deterring fraud. Stay organized and use a set routine for storing records and keeping files organized. This will go a long way in showing that you’re responsible and took appropriate steps to deter fraudulent activity. This may be the difference between the bank returning your funds, or not.
5. Be diligent. In addition to the above mentioned tips, you should do everything you reasonably can to fight fraud. This includes logging out when you leave your desk, keeping checks and other negotiable documents secure, backing up your data on a regular basis, and keeping an eye on your banking activities. Monitor your credit report on a regular basis and remember that all devices you use to access your information are also access points for a fraudster.
For more information regarding fraud and how to avoid losses, visit the U. S. Treasury website.
I hope these 5 tips for avoiding fraud have been helpful. For assistance with accounting or tax matters, contact me via the form below.
Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”
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