A forged check can drain an operating account before anyone notices. The loss may disrupt payroll, vendor payments or daily cash flow. Although the bank often bears the initial risk, the final answer depends on how the fraud occurred and how quickly your company responded.
The bank’s initial responsibility for a forged check
A bank generally may charge your account only for an item your business authorized. Under the Uniform Commercial Code, a check bearing a forged drawer’s signature usually does not meet the “properly payable” standard. The bank may therefore have to restore the amount removed from the account.
That starting point is not a guarantee. A forged endorsement, altered check or counterfeit item can involve different rules and several financial institutions. Businesses evaluating bank fraud claims must identify whether someone forged the signature, altered the amount or falsified an endorsement before deciding who may bear responsibility.
Circumstances that can shift the loss to your business
The Pennsylvania loss-allocation rule can shift some or all of the loss when a company’s lack of ordinary care substantially contributed to the forgery. The facts might involve poor control over blank checks, signature stamps, payment approvals or access to accounting systems.
Employee fraud creates another complication. If a worker entrusted with check-related duties forges an endorsement, the law may place the risk on the employer. However, when a bank also failed to use ordinary care, a court may divide the loss according to each side’s contribution.
The bank will also review the account agreement. Its security procedures and notice terms may affect the dispute, though contract language does not settle every issue.
Deadlines for reporting a forged business check
Do not wait for an internal investigation to finish before notifying the bank. The Pennsylvania reporting rule requires customers to examine statements with reasonable promptness and report unauthorized signatures or alterations.
Delay can have serious effects. If the same person forges more checks, the business may lose the right to challenge payments made after it had a reasonable chance, no longer than 30 days, to review the first statement and alert the bank. Pennsylvania also imposes a one-year outside limit for reporting an unauthorized customer signature or alteration after the bank makes the statement or items available. An account agreement may set a shorter notice period.
Immediate steps after discovering check fraud
Notify your bank in writing as soon as you spot a suspect check, identifying it by number, amount and date. A phone call starts the conversation, but writing establishes the date you reported. Preserve the statements, check images, your remaining check stock and your accounting system logs.
The outcome may depend on how quickly your business reported the loss and what safeguards were in place. A clear paper trail can strengthen your position when disputing the charge.