What Law Practices Can Do About Check Fraud
Fraud plagues any business that writes checks, but it is an especially severe problem for the legal industry. The problem is so widespread that the banking industry has created a system called Positive Pay to fight fraud. It is imperative that billing or trust software for attorneys include support for Positive Pay, and CosmoLex now does so.
Types Of Check Fraud
There are two common ways people can steal money from your account through check fraud. The first method is to take a valid check you have written and add a few zeroes to it to increase the amount. The second method is to falsify a check completely, possibly imitating a valid check your business has written in the past.
Why Is Check Fraud So Dangerous For Attorneys?
One factor that limits the effect of check fraud for many businesses is the bank balance. Someone might alter a $1,000 check into a $1,000,000 check but the average business isn’t going to have the funds, the invalid check will bounce and the business will not lose any money. However attorneys handle trust funds that might contain millions of dollars, so that falsified check will sail through without a problem. It might be weeks before the theft is discovered — months if the practice is less than vigilant about reconciling bank statements with their legal billing system — and the criminal is long gone. What’s worse is, since funds in trust accounts are not the law firm’s money, the attorney may face disbarment over the incident.
Positive Pay Helps Against Fraud
Positive Pay is a system used by most banks that has proven to be extremely effective against check fraud. Under the system, the account holder sends the bank a list of checks written each day. When checks are submitted for payment, the bank checks it against the list and if the check doesn’t match then it is rejected. The check number on that million dollar check above will be matched to a thousand dollar check and the bank will know it’s been altered. A completely counterfeit check won’t have a number on the list at all.
CosmoLex law firm management software has added support for Positive Pay with the version 2.0 release. Users can generate a list of checks written with the click of a button. Once the list is sent to a Positive Pay vendor, the information can be passed onto the law firm’s bank so fraud can be stopped.
To learn more about Positive Pay and CosmoLex’s built-in support, visit our Trust Accounting feature page.