Check your cheques: Five ways to spot fraudulent cheques
We have often written about the risk that lawyers will be targets of fraud. Sometimes these frauds use technology to confuse their targets, such as a personalized spear-phishing attack or ransomware schemes. But often these fraudulent schemes take on a more 20th century character.
The use of counterfeit cheques or similar instruments is still a common form of fraud against lawyers. A potential client may provide a deposit, either for legal services or to be held in trust as payment in a transaction with a third party, only for the cheque to later be found fraudulent. If such cheques are deposited in a lawyer’s trust account, and the deposited amounts are then disbursed before the counterfeiting is discovered, the lawyer is vulnerable to trust shortages, theft, and malpractice claims.
It is therefore good practice to always take time to carefully examine any cheques that are accepted by your law firm. Often, the indicia of forgery are easier to spot than one might otherwise expect. Here are five simple steps to examining any cheques that come through a law office, which can assist anyone tasked with receiving cheques.
1) Check for spelling errors or obvious alterations
Often, a counterfeit cheque will contain errors as simple as a spelling mistake. One recent counterfeit cheque that came to the attention of LAWPRO went so far as to misspell the word “certified” in “certified cheque”, proclaiming itself to be a “CERFITIED CHEQUE.”
Obvious alterations are also clear warning signs. If the font or spacing suddenly changes between two words, or certain text appears to be printed at an angle that is not parallel with the top and bottom of the cheque, this may be evidence that aspects of the cheque have been altered in some way.
2) Check the MICR line for errors
Cheques issued by banks are required to display a string of numbers at the bottom of the cheque known as an MICR line. These digits follow a standard format and are divided into three sections: The first section displays the cheque number, the second section displays the routing number, and the third section contains the account number.
The quickest check that can be made against the MICR line is to compare the cheque number contained within the first section of the MICR line with the cheque number as it appears in the top right corner of the cheque. These two numbers should match.
To investigate further, the routing number contained in the second section of the MICR line can be compared against the true routing numbers used by the bank that supposedly issued the suspect cheque. Directories of routing numbers can be found online through Payments Canada or the issuing bank’s website.
If the routing number on the cheque is not one that is used by the supposed bank, this is evidence the cheque is illegitimate.
3) Check that the payor’s address actually exists
Payor information appears in the top left corner of a cheque. While you may not always be able to confirm that the payor name and address is authentic, you can confirm that the address actually exists. Example counterfeit cheques provided to LAWPRO have included entirely fictitious addresses and postal codes. Resources such as Google Maps can quickly confirm whether the stated address exists and could reasonably be the payor’s true contact information.
4) Confirm the identity of the payor
When the payor’s name on a cheque deviates from the name of the party presenting the cheque there is an increased risk of fraud. We have seen examples of fraudsters using stolen or copied cheques from an unrelated payor in the course of fraudulent schemes. Confirm the payor’s relationship with the party presenting the cheque by contacting the named payor to confirm the instrument’s authenticity.
5) Check the payment amount is correct
One method of fraudulently obtaining quick funds from a lawyer’s trust account is to provide a cheque to the lawyer that is for a larger amount than previously agreed. This may be with respect to a deposit in a real estate transaction, a retainer, or any other situation in which funds are held in trust by a lawyer.
In these situations, the client will quickly “discover” the supposed “overpayment” and request to be reimbursed for the difference. The client will then disappear, only for the original cheque to be found illegitimate and the lawyer left with a trust shortfall equal to the fraudulent “reimbursement.”
If you receive a cheque in excess of an agreed amount, it is advisable to request that the client provide a revised and accurate cheque before depositing it into a trust account.
Be smart about cheques
A quick and simple investigation for authenticity is better than no investigation at all. Even if your practice involves the receipt of numerous cheques, the steps outlined above can be conducted with little expertise and time commitment. Make sure everyone that handles cheques is aware of the obvious indicia of fraud and takes steps to avoid becoming a target.
The LAWPRO policy provides some overdraft protection to lawyers in relation to their trust accounts where liability for the overdraft results from the handling of a counterfeit certified cheque or certified bank draft. This enhanced protection is subject to several conditions and limitations. Review our FAQ to make sure you understand this coverage and the extra steps you must take to qualify for it.
For more information on cheque frauds, see our Cybercrime and Bad Cheque Scams Fact Sheet.