In an increasingly digital world, you might expect check fraud to be a thing of the past. But actually, check fraud remains a prevalent form of financial crime that continues to pose a significant threat to individuals and businesses alike. In fact, in February 2023, FinCen (Financial Crimes Enforcement Network) reported that financial institutions filed 680,000 check fraud-related suspicious activity reports (SARs) in 2022, which is nearly double the 350,000 SARs filed in 2021.
Personal and business checks are still widely used as a standard method of payment for both consumers and businesses. They are beneficial to utilize for bills and expenses that you might prefer a paper trail for such as rent, utilities, daycare, taxes, payroll, donations, etc. Unfortunately, check fraud has been on the rise, including a nationwide surge in mail-related check theft in 2023. It is important to know how to protect your financial institution and your accountholders from falling victim to this deceptive practice. As one of the nation’s largest check providers, we want to do our part to help you mitigate this risk for your financial institution and your accountholders.
Types of Check Fraud
Check fraud can come in many forms. As a financial institution, you are the best resource your accountholders have for fraud prevention and security, so it’s important to be aware of the various forms of check fraud. Here are some of the most common.
Forgery
In this form of check fraud, a perpetrator alters or falsifies the signature on a check to make it appear legitimate and may also modify the payee’s name, the amount of the check, or the check’s date.
Counterfeit Checks
Criminals produce counterfeit checks by replicating legitimate checks using advanced printing techniques. These counterfeit checks can sometimes deceive both individuals and financial institutions.
Check Kiting
Check kiting involves taking advantage of the time delay between depositing a check and its clearance. Fraudsters open multiple bank accounts and intentionally write checks from one account with insufficient funds, depositing the funds from another account. By exploiting the delay, they can withdraw cash before the financial institution identifies the fraudulent activity.
Check Washing
In check washing, the perpetrator erases or modifies the payee’s name and the amount on a legitimate check using chemicals or solvents. This allows them to reassign the payment to themselves or a designated accomplice.
Check washing schemes are on the rise. In late 2022, the Better Business Bureau issued an alert about an increase in check washing schemes across the country. They issued this video to educate consumers on the growing threat and shared ways that consumers can protect themselves from this popular fraud trend.
Check Fraud Tactics
Phishing and Social Engineering
Fraudsters may contact individuals posing as bank representatives, requesting personal information such as account numbers, passwords, and social security numbers. Armed with this information, they can create fraudulent checks or gain unauthorized access to accounts.Mail Theft
Criminals may steal checks from mailboxes, altering them or using the account information to produce counterfeit checks. In recent years, this form of fraud has been on the rise. In fact, the United States Postal Service (USPS) actually reported almost 300K mail-related fraud or theft complaints from March 2020 to February 2021. Because of this, USPS is now recommending that patrons opt to mail their checks in person from a postal facility rather than leaving checks sitting in their personal mailboxes or depositing them into a blue collection box overnight.Insider Fraud
Employees with access to checks or sensitive account information can misuse their positions to carry out check fraud.Identifying Check Fraud
Check fraud continues to be a growing threat to financial institutions and your accountholders. Understanding how check fraud occurs and being able to detect check fraud early can literally mean the difference between stability and bankruptcy for some of your accountholders.
In February 2023, FinCEN and USPS collaborated on a report regarding the uptick in mail theft-related check fraud schemes. Within this report, they shared red flags that financial institutions should be aware of to help recognize and report check fraud. Some of these include:
- A large withdrawal from a customer account via check that goes to a new payee.
- Customer complaints of stolen checks and then deposited into an unfamiliar account.
- Customer complaints of a mailed check never being received.
- Check stock that is noticeably different than the usual check stock for a frequent check user.
- Check deposits followed by quick withdrawals to a customer account that does not typically deposit checks.
- Suspicious checks appear to have been overwritten with faded handwriting underneath darker handwriting.
- A non-customer trying to cash a large check and offering a suspicious explanation.
Protecting Your Accountholders from Check Fraud
Prevention is the key for financial institutions to help safeguard your accountholders from check fraud. To help your accountholders prevent check fraud, it’s a great idea to continuously share tips and industry knowledge wherever you can including email, social media, webinars, lunch-and-learns, in your branches, or on your website. Below are some standard best practices for fraud prevention that you can share with your accountholders.
Utilize Secure Mail Delivery
Use secure mailboxes or consider mailing your checks directly through the post office. Whenever possible, use security envelopes that are not transparent and use a trackable delivery method to track your check packages to your local post office or mailbox. You can also sign up for Informed Delivery with USPS so that you’ll know exactly when to expect your checks and other mail to be delivered on a daily basis to avoid checks sitting in your mailbox without your knowledge.
Monitor Bank Accounts
Regularly review your bank statements, account balances, and transactions to detect any unauthorized activity promptly.
Shred Sensitive Documents
Dispose of old checks, bank statements, and financial documents securely by shredding them before discarding.
Be Wary of Phishing Attempts
Never share personal or financial information over the phone or via email unless you have initiated the contact and are certain of the recipient’s identity.
Strengthen Security Measures
Implement strong passwords, enable two-factor authentication, and keep your computer and mobile devices updated with the latest security patches and antivirus software.
Use a Gel Pen
Use a black gel ink pen rather than a ballpoint pen to write a check. This type of pen allows the ink to seep into the paper making it more difficult for scammers to remove the ink for check washing schemes.
Educate Yourself
Stay informed about the latest fraud schemes and techniques employed by criminals to better protect yourself and your finances.
Order From a Reputable Source
There are plenty of options in the marketplace for ordering checks, but the truth is that not all vendors are created equal. Ordering directly from your bank or credit union is a great first choice to ensure that your checks contain stringent security features and that they are ordered from a reputable check printing vendor that meets industry compliance standards.
Encourage High Security Checks
While most reputable check vendors have stringent security features automatically included on every check, high security checks are also a great option for consumers who are more wary of check fraud or have been a victim of fraud in the past. For example, Main Street’s High Security Checks include a foil hologram that make checks difficult to replicate by scammers.
Have Confidence in Every Check with Main Street, A Secure Check Printer Who Cares
As the nation’s third largest check provider, we understand that check fraud can be costly to both your financial institution and your accountholders. While we know that check fraud is ultimately out of our control, we stand with you in protecting your accountholders and their assets by doing our part to help you mitigate fraud risk. At Main Street, we take security very seriously. That’s why we maintain our SOC 2 Compliance Certification, we produce checks with quality paper and extensive security features such as heat sensitive logos or holograms, and we utilize a First-Class delivery method as standard protocol on all check orders. We also assign a dedicated Account Manager to every single client to conduct routine check-ins that allow us to identify potential issues or threats regarding check program management.
It’s important to remain vigilant against check fraud and educate your accountholders on proactive measures to protect their finances against the deceptive practices of check fraud schemes. By staying informed at your branches, exercising caution, and sharing education with your accountholders, your bank or credit union can minimize the chances of being targeted by check fraud and safeguard the hard-earned money of your organization and the accountholders you serve.