Many embezzlement investigations that I have conducted share a common element. The common element is that if someone at the entity had reviewed the canceled checks on a timely basis, they would have detected that unauthorized checks were being issued to the person preparing and processing the payments. The Check 21 Act may be the reason entities have not been reviewing canceled checks. But taking the extra step to review canceled checks with your monthly bank statement can save an organization from costly and potentially devastating fraud.

Check 21 Act

The “Check Clearing for the 21st Century Act,” commonly known as “Check 21” or “Check 21 Act,” took effect on Oct. 28, 2004. The concept for Check 21 originated from the Expedited Funds Availability Act of 1987, in which Congress directed the Board of Governors of the Federal Reserve System to consider establishing regulations requiring Federal Reserve banks and depository institutions to provide for check truncation, in order to improve the check-processing system. The terrorist attacks on Sept. 11, 2001—which caused major delays in check processing due to grounded planes (halting the transport of canceled checks to Federal Reserve banks)—was the catalyst that led to the passage of Check 21.