A cheque is a signed instruction on paper that can travel. Fraud tends to exploit one of three things: altering it, diverting it, or forging it.

1. Alteration

A genuine cheque modified after it left you — the payee changed, the amount raised. It looks legitimate because the signature and paper are real.

Controls:

  • Fill the space after the amount in words. Empty space is where text gets added. A line to the end, or ** before and after — ChequeMaster has this as a setting, see general settings.
  • Print rather than write. Printed text is harder to extend convincingly than handwriting.
  • Use positive pay for large cheques. The bank checks the presented cheque against details you declared in advance, so an alteration fails the comparison.

2. Diversion

The cheque reaches someone other than the intended payee, and they bank it.

  • Cross every business cheque. An account payee cheque can only be credited to the named payee's own account — it cannot be cashed or passed on. This is the single most effective control available and it costs nothing.
  • Avoid bearer cheques for anything but small, hand-delivered payments.
  • Get the payee name exactly right so it matches the account title.

3. Forgery and stolen leaves

  • Store cheque books securely. Not in an unlocked drawer, and not with the signatory's stamp beside them.
  • Never pre-sign blank cheques. A signed blank cheque is an unlimited liability, and "it was easier for when I travel" is how businesses lose serious money.
  • Account for every leaf. Gaps in a cheque sequence should have explanations — mark spoiled leaves cancelled rather than binning them.
  • Reconcile monthly. Fraud found in four weeks is recoverable far more often than fraud found in six months.
  • Report a lost book immediately and stop the range — see stop payment.

The internal risk

Less comfortable and statistically significant: a good deal of cheque fraud involves someone inside the business. The standard controls are separation of duties — the person preparing a payment is not the person authorising it, and neither holds the cheque book unsupervised.

This is what the Prepared By, Approved By and Received By blocks on a payment voucher are for; they are not bureaucracy, they are the audit trail. See printing cheque vouchers.

A record is itself a control

Fraud depends on discrepancies going unnoticed. A searchable record of every cheque issued — number, payee, amount, date, status — makes a cheque that does not belong immediately visible. That is worth more than any single precaution on this list.