Despite the efficiency and security of electronic payments, checks remain a popular payment method for many organizations. As a result, check fraud remains an attractive target for criminals. Even with the increased number of business emails compromised and ransomware attacks in the digital age, check fraud remains a powerful tactic due to the relative ease with which it is pulled off.
Be on the lookout! Criminals are opportunistic and known to use business disruptions, emergencies, and high-profile news events to launch new check fraud schemes. Companies often think that when it comes to writing checks, low frequency equals less risk, but it only takes one large check to incur a significant loss. If just one check falls into the wrong hands, your account and routing information can be compromised. Here are ways to mitigate certain check fraud schemes.
Types of Check Fraud
Counterfeit checks
Once a criminal obtains an organization's account and routing number—as well as the name and signature style of the authorized signer—they may use printers and desktop publishing software to create counterfeit checks that look legitimate.
Altered checks
In this scheme, the criminal will alter the name or the payment amount before depositing a check.
Check washing
Check washing fraud is the act of removing important information from a check and forging new information onto it. The information is removed using an acetone solution such as nail polish remover. The check is then rewritten in the same type of ink used initially in the check.
Forged, missing or improper endorsement
Here, a criminal forges the endorsement on the back of a check and deposits it at a financial institution. In other cases, they may choose to not endorse it at all, or perhaps one party improperly endorses a check that was payable to two parties. Unlike with most altered or counterfeit checks, fraud protection products are not able to detect missing or improper endorsements.
To mitigate against this type of fraud, it’s recommended to implement thresholds above which electronic payment methods are required. If a check must be sent, the use of a courier service or other guaranteed delivery methods may help prevent theft of the check during transit. You can also proactively confirm with recipients that high-value checks were received.
Mobile deposit fraud
The convenience of depositing checks using mobile devices has enabled a rapidly growing form of check fraud. In this scenario, a business issues a check to an individual, who scans the front and back of the check and remotely deposits it into their bank account. The fraudster then takes the same physical check to another bank or check-cashing store and receives payment.
When the paper check is presented for payment to the originating bank a few days later, that bank will dishonor the paper item as a duplicate. The dishonored check is returned to the institution that cashed it, which could begin a time-consuming and expensive claims process. The institution holding the physical check could bring a legal claim against the company that wrote the check. The mobile deposit fraud scheme can be avoided by making electronic payments directly to payees in lieu of checks.
ACH debit fraud
This scheme is related to check fraud, even if it doesn’t use a physical check. By using the routing and account numbers found on a check, criminals can initiate ACH debits against a company’s accounts.
Internal client fraud
Guarding against internal check fraud is a concern for all types of organizations. This type of fraud typically occurs gradually and involves multiple checks over a period of time. A fraudster could be an employee, such as an assistant with visibility into the business’s accounting practices, or a vendor who has access to checks. Working undetected, this individual may issue company checks to themselves or to other associates to cash. Businesses should implement procedures to prevent internal client fraud, which may include securing the physical checks, segregating duties among employees, restricting access to checks and data and reconciling payments and bank records.
The best way to prevent check fraud is to check your account frequently. If you notice fraudulent check activity, it’s important to act quickly and contact us. Avoid mailing checks if you can use electronic payment methods such as Bill Pay or ACH. If you must mail checks it is best to take them directly to the Post Office. Monitor your bank account online regularly to confirm the checks that have been cashed and to see if anything seems suspicious.
Finally, we are here for you, so if something seems amiss do not hesitate to call us!