A Small Business Accountant Shares Her Experience with Check Fraud

by Kevin Casey on March 18, 2011, Intuit Small Business Blog.

Carole Maddux knows numbers: She's been crunching them for small businesses for
more than 20 years. In 1987, after 11 years in the accounting department at General
Motors, Maddux founded Account Ability Accounting and Consulting Service, in part so
she could work at home while starting her family.

Flash forward to 2010: While balancing the books of her 30-some clients might be
second nature at this point, Maddux just recently had her first encounter with one
of the dark sides of running a small business: Check fraud.

Check fraud might mean different things to different businesses: It could involve a customer passing off a bad or phony check to pay for goods and services, for example. It could also involve any of the vast number of online cons that attempt to get consumers and businesses alike to part with their hard-earned cash. And an organization doesn't have to be small to be a fraud target: Last summer, for example, Boston University was the victim of a check scam.

In Maddux's case, it involved a criminal cashing counterfeit checks drawn on one of her client's accounts - complete with Maddux's forged signature. (Maddux pays the client's bills and has check-signing authority on its account.) Last June, she got a call from a bank teller at a Chase branch in Georgia. Red flag number one: Maddux and her client are both based in Michigan. The teller had called because a man was trying to deposit a check made out to him from her client's account, supposedly signed by her. Red flag number two was a biggie: The fraudster had misspelled the company's name. Maddux says the business goes by a common household name - the typo tipped the teller that something was wrong.

While Maddux was on the phone, a teller at a different Chase branch in Georgia called her with a similar concern - another scammer was trying to cash what also turned out to be a fake check bearing Maddux's John Hancock. "My signature was forged on the check," Maddux says. "In some cases, it looked exactly like my signature. They had obviously seen my signature. In other cases, it didn't look anything like mine."

After checking on the company's account online, Maddux realized that counterfeiters had successfully cashed nine checks totaling roughly $15,000. Maddux had to complete paperwork with the bank and file a police report to recoup her client's money. Chase reimbursed the stolen money after two days, Maddux says, though she was upset with the bank because they let both of the Georgia fraudsters - foiled by careless spelling - go free without calling the police.

To this day, Maddux hasn't been able to figure out how the fraud happened, or how one of her client's checks - signed by her - ended up in a crook's hands. At least one did, because it became the basis for the nine fake checks that were successfully cashed. It could have been anyone, Maddux says. But there are some common sense prevention tips that can be drawn from her experience:

First, be aware that this kind of thing can happen, and it can happen to anyone. Second, consider paying your bills online. Maddux says she does so more often since her brush with check fraud. When you do use checks, keep them safe and shred old ones rather than just dumping them in the trash, or use high security checks (like the ones Intuit offers). Third, no matter your preferred payment method, be vigilant about reviewing all of your accounts for unfamiliar payments or other suspicious activity. If something looks out of place, act fast: Call your bank immediately.

Fortunately for Maddux, she had a long-standing, trusting relationship with the client, though she says they were understandably distressed by the incident. "Luckily, I have been doing accounting for this particular client for 10 years," Maddux says. "Had they been a new client, they probably would have wondered if I had something to do with it."

Also lucky was that the client had plenty of cash on hand - the short-term theft did not cause them to bounce legitimate checks or make any late payments. A business operating with a tighter cash flow may have been hamstrung by this type of fraud: Maddux gives as examples missing payroll or bouncing a tax payment and incurring heavy penalties as a result.

Being cash-rich could have a downside in a fraud situation, though: Had the counterfeiters been better spellers, "they could have kept writing checks until the cows came home, because there was a lot of money in that account," Maddux says, noting that the fraudulent checks may not have been caught until the client's monthly banking reconciliation. "This could have gone on had an alert teller not noticed it."

For additional tips, check out Intuit's Fraud Protection Center.