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Beware These Biz Scams

Our legal expert shares two new -- and ingenious -- scams every business owner should know about.
July 27, 2005
URL: http://www.entrepreneur.com/article/78966

You have to hand it to those dishonest people who try to cheat businesses: If nothing else, they're certainly persistent. Just when you thought you'd heard it all, presto! New scams and schemes are being created to separate your business from its cash.

As a public service to business owners everywhere, I thought I'd discuss two of the latest and, dare I say, more creative scams that are circulating across the country these days.

The "We Just Need Your Checking Account Number To Confirm Your Creditworthiness" Scam

This scam's been around for some time, but unfortunately, it's still very popular with those wanting a lucrative but illegal income. It goes something like this:

The scammer calls a business on the phone and tries to obtain the business's checking account number. Sometimes, the scammer will pose as a "New Accounts Executive" for a phony bank credit card company and offer an unbelievable interest rate and repayment terms for any balance transfer from another credit card. And, being exceptionally helpful, the scammer just wants one minute of your time to verify some basic information over the phone to complete the "pre-approved" credit application.

Of course, one of the pieces of "basic information" that's needed is the business's checking account number.

The object of this phone scam is to obtain your business's checking account number so the scammer can start writing "demand drafts" payable against your checking account. But no one but you can write a check against your own checking account, right? Wrong! Unfortunately, demand drafts don't require a signature, and when your bank receives the draft with a "valid" checking account number on it, it must honor the draft. You only discover the scam if you closely examine your monthly bank statement.

But that's not all! To avoid getting caught, most of the phony demand drafts are written for very small amounts of money, making it less likely that anyone will notice the monthly amount being withdrawn from the account. While being "nicked" for, say, $4.23 a month may not seem like a lot of money to some, $4.23 times hundreds or even thousands of business bank accounts can provide a very lucrative and illegal income to the scammer.

What to Do: Although it may take some time, be sure that you or your bookkeeper thoroughly review and reconcile each of your company's bank statements each month. If you find any unverifiable debits that can't be reconciled, immediately call and then notify your bank in writing of the suspicious charge.

The "Please Cash Our Check For $4.23" Scam

A newer and even more brilliant scam, this one starts by actually putting money in your pocket and then proceeds to take much larger amounts out. It goes like this:

The scammer finds your business's name and address on the internet or through a business or Yellow Pages directory. The scammer then mails you a check for a small amount, say $4.23, which is payable to your business. Your accounts receivable clerk dutifully deposits the check along with the 43 other checks you received that day.

You've just been scammed!

But how can cashing a check for $4.23 hurt your business? Here's why: When the check comes back to the scammer, the information on that cashed check allows the scammer to learn your checking account number which, as we saw in the first scam, allows them to start writing demand drafts on your checking account.

Talk about a great--but illegal--return on investment. The scammer spends just $4.23 to obtain valuable information that can lead to hundreds if not thousands of easy but illegal dollars. Pretty clever, I'd say.

What to Do: In addition to eternal vigilance in reconciling your checking account, an early way to detect this scam is to have your accounts receivable clerk reconcile all incoming checks with existing customer accounts and balances before cashing any check. If a check isn't expected or isn't from a regular customer, don't cash it until you can determine the source.

It's seems really sad to me that there are creative and brilliant entrepreneurs out there who decide that developing new and better scams to steal from people is a better business model than being the owner of a business that actually helps people and adds value to their lives. And it's even sadder if your business unwittingly starts "doing business with" these entrepreneurial scammers.

So keep your eyes open, and you'll avoid these unwanted business partnerships.