Teach your front-line staff the definition of 'negotiable instrument' and about ‘words of negotiability.’
To help your front-line staff spot forged checks before they cash or deposit them, first teach them about “negotiable instruments” and “words of negotiability,” suggests our most recent edition of First Line of Defense, offered by CUES in partnership with TRC Interactive, Inc. Then give them a checklist of things to look for.
According to the U.S. Uniform Commercial Code, a “negotiable instrument” is an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
- is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
- is payable on demand or at a definitive time; and
- does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money. (Certain exceptions do apply.)
Words of Negotiability
The words of negotiability on a check are those words that render it “negotiable”—that direct the transfer of ownership of the check’s value from one party to another.
On a check, key words of negotiability are “pay to the order of” before the name of the payee. A check can also be payable to the bearer (rather than to a named payee) if the instrument shows that it is payable to bearer or otherwise indicates that the person in possession of the check is entitled to payment; does not state a payee; or states that it is payable the order of cash.
In addition, a check written as payable to bearer may become payable to an identified person if it is specially endorsed.
Forged Check Checklist
Here are some things to look for in deciding whether a check is forged.
- The check does not have acceptable words of negotiability, such as “pay to the order of” but instead has words like “to” or “order of.”
- The last name is misspelled on the signature line when compared to what shows in the name and address block in the upper left corner.
- The check number in the MICR line does not match the check number in the top right corner of the check.
- The check is missing the name and/or logo of the financial institution on which it would be drawn.
- The routing number doesn’t contain nine digits.
Lisa Hochgraf is senior editor for CUES.