Protecting co-op cash has always been a priority. Are you aware that paper checks are an easy target for fraudsters? They fish checks out of mailboxes, change the payee and amount and then cash the check. According to the Wall Street Journal, check fraud accounted for almost $1.3 billion in losses in 20181. NCG members have also experienced check fraud, with single incidents reaching well over $100,000.
In many cases, once the fraud is identified, your bank might absorb the loss. But the bank will then close the account to cut off the fraudster’s access, creating several tasks that co-op staff must address to continue operating. Some of those tasks include communicating with the bank, opening a new bank account, ordering new check stock, changing automatic payments, identifying uncleared checks to be honored, notifying vendors, and sending out replacement checks or electronic payments. This is time-consuming and more burdensome than putting safety measures in place before a fraud can happen.
Are paper checks really necessary? The Federal Reserve Bank of Philadelphia predicts paper checks will be obsolete by 2026. And many countries have stopped using them entirely. There are many reasons to stop using paper checks. Several estimates2 have shown the average cost of writing, mailing and reconciling paper checks is anywhere from $4 to $20 per check, whereas electronic payments such as bank ACH transfer payments can be processed at a fraction of that cost. As a community looking toward sustainable business practices, our co-op network can benefit both the environment and the bottom line by reducing or eliminating its use of paper checks.
One way to stop using checks is to switch to an online service for bill payment. These service providers take on all the liability for fraud and provide the option to send a paper check or an electronic payment. The service can be set up to pay large and small vendors, allowing for fast, safe electronic payment. Because the vendor’s bank information is set up in the service by the vendor, the risk of handling sensitive bank information is also assumed by the bill payment service. Most services also sync with accounting software to save on data entry time. Providers include Bill.com, QuickBooks online bill pay, Melio, Airbase, AvidXchange and SAP Concur.
If giving up paper checks feels overwhelming, there are at least ways to make them safer. Many banks offer services that reduce the risk of check fraud. One such service is called Positive Pay, which allows you to instruct the bank as to which checks should be honored. Ask your co-op’s bank about its electronic payments products and other ways of managing payment fraud risk.
In all cases, it is recommended that accounts payable procedures adhere to best practices for controls, approvals and reconciliations. To learn more about how to reduce the risk of fraud, or about appropriate accounts payable procedures, see NCG’s Finance Preferred Practices, or contact Finance Services Manager Pamela Reeves.
1 “Rise in Check Fraud Could Motivate Treasurers to Switch to Other Payment Tools,” Wall Street Journal, 15 January, 2020
2 “The Real Cost of Sending Paper Checks for Your Business,” Checkeeper, 17 December, 2018
