Do You Have Too Many Checks Written to Cash?

Mike’s day couldn’t have gone any better.  The boss was leaving on that long overdue vacation, and asked him to hold down the fort.  In this case, “holding” also included the signature stamp.  It was only a few days ago when Mike wondered how he’d ever save enough money for that new motorcycle.

He wrote a few checks to cash, back dated them to a prior period and endorsed them with the stamp.  Looks like he’ll be riding sooner than expected!

In this worst case scenario, an employee takes advantage of a situation to steal money from his employer.  It happens more often than you might expect.  In fact, experts say disbursement schemes like this represent the majority of fraud cases in small businesses.

Worried yet?  You should be if you’re a small business owner.  According to the Association of Certified Fraud Examiners more than 30 percent of all fraud is committed at companies with fewer than 100 employees, and it often takes more than 18 months to discover that a fraud has even been committed.

Maybe you’re the one writing the checks, so there’s nothing to worry about, right?  The fact is that checks written to cash can be bad for your business, even if you’re the one who wrote them.

The most obvious problem is that a check written to cash, if lost or stolen, can be cashed by anyone.  And even if you’re willing to take this risk, there are other possible consequences.  For example, checks written to cash can also be a warning sign that raises the attention of both the IRS and U.S. Immigrations and Customs Enforcement.

The IRS is concerned about under-reported income and it uses analytical procedures to determine whether a taxpayer has accurately reported income.  One procedure is to monitor for an excessive number of checks written to cash. Similarly, U.S. Immigrations and Customs tracks checks written to cash as a warning sign of possible money laundering.  This has become more important as anti-terrorism efforts have increased in recent years.

The best thing to do is avoid writing checks to cash whenever possible.  You should also take the time to regularly review your check register.  Look for material transactions that you don’t recognize.  Also watch for transactions that have been recorded in prior accounting periods.  These tips won’t catch all the possible problems, but they can help.  Make it a habit to review transactions once a month to spot possible problems sooner rather than later.

About CP Morey

CP Morey is vice president of products & marketing at AuditMyBooks, an Intuit App Center company that automatically double checks accounting records to detect errors and fraud.Morey is also a member of the Intuit Partner Platform Advisory Board, the Principle Investigator for a National Science Foundation research project on small business fraud and a frequent speaker at industry events.
This entry was posted in Money and tagged , . Bookmark the permalink.
0 comments