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Check Fraud

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What can businesses do to prevent fraud?  Learn to recognize it before it's too late.

Watch out for these common frauds:

False Identification

The use of false identification contributes to losses from bad checks and credit cards. To minimize this problem, require at least one primary ID, preferably backed by at least one secondary ID.

Primary ID:

  • California driver license (do not accept temporary licenses)
  • California identification card

Secondary ID:

  • Check guarantee card (Check expiration date)
  • Gasoline company and major credit cards (with expiration dates)

Never Accept The Following Cards As ID:

  • Membership cards
  • Library cards
  • Any card or ID that appears to be altered
  • Social security cards
  • Temporary driver's licenses
  • Alien registration cards (because of the danger of forgeries, and often they are not current


 Types of Fraud
 How to Identify & Prevent

Credit Card Fraud

Signs of Credit card fraud:

  • The card has been altered, has expired, or is not yet valid
  • Signatures on the card and sales slip don't match
  • The customer makes several purchases in the same department, all under the amount of the floor limit or that which would require an authorization call to the card issuer

Preventive Actions:

  • Do not accept credit cards without proof of identity
  • Do not accept credit cards without checking "Hot Sheet" or telephoning for authorization
  • When suspicious, call for an authorization, indicate your suspicions and follow instructions
  • Always shred or destroy carbon copies from credit card invoices so that credit card numbers and names do not fall into the wrong hands

Check Fraud

There are a number of ways that fraudulent or stolen checks can bounce into your business. Stolen checks can be forged, while legitimate checks might be altered to show much higher amounts.


Set Up & Follow Check Cashing Guideline

  • Require two proper IDs to cash a check. Make no exceptions
  • Only accept local checks
  • Only accept checks with the name and address imprinted on them
  • Only accept payroll or government checks when you know the person or verify the check
  • Do not cash checks for more than the actual purchase. Require check guarantee cards for amounts over the purchase
  • Do not accept two or more party checks
  • Do not accept postdated checks
  • Do not accept checks with alterations

Fraudulent Refunds

Refunding is a courtesy extended by the store, and no store is compelled to honor any request.


To minimize losses on fraudulent refunds, consider the following:

  • Issue cash refunds only to persons who have a receipt verifying the purchase
  • Establish a policy for returning merchandise without a receipt
  • Refund by check, to be mailed from bookkeeping department
  • Offer exchanges only
  • Always require valid identification and maintain a file of returns

Bankruptcy Fraud

Bankruptcy fraud can be used by all sorts of crooks on all kinds of businesses. It's a favorite ploy of con men and organized criminals. Often, they will establish a fake company, buy materials on credit, and vanish. Sometimes they'll set up a company with a name and address almost identical to a well-known, respected company. That way, many suppliers are fooled into granting them credit. Finally, organized crime may buy a legitimate business, and use it (and its credit rating) as a starting point for a bankruptcy fraud.


Avoid becoming the victim of a bankruptcy fraud by watching out for these conditions:

  • A sudden change in your customer's management, without any public notice
  • The customer's payments start to lag behind, and the credit balance starts to climb
  • A new customer suddenly orders lots of merchandise on credit
  • Trade references for the customer can't be found
  • A company suddenly increases its orders and sales become "too easy"

Preventive Actions:

  • Get to know the new management of a company
  • Do a credit check on the customer
  • Make sure that new orders are not filled until a credit check has been completed