How to Ward Off Fraudulent Checks

Despite a steady decrease in the number of checks in circulation, check fraud remains as prevalent as ever. This is largely because even as the use of ACH, credit card and mobile payments increases, paper checks continue to lead business-to-business transactions around the world. This gives criminals the opportunity to take advantage of access to inexpensive technology, social engineering tactics and remote business practices to engage in illegal and deceptive check fraud schemes.

According to the FBI, 70% of U.S. organizations reported at least one instance of check fraud in 2021, resulting in more than $18 billion in losses. In addition:

• Approximately two million bad checks are processed through the clearing house system every day.
• In 2016, check fraud accounted for about $789 million dollars of uncompensated damages.
• Roughly half of all large fraud losses involve someone with inside information that the victim personally knew.

Understanding what check fraud is, how it happens and what you can do to prevent it is important for any business looking to avoid becoming another statistic.

Traditional Forms of Check Fraud

Check fraud can affect anyone that uses checks, wires or other types of direct payments between accounts. The most common types of check fraud include:

• Identity Theft. Using stolen information, an identity thief will open a bank account in the victim’s name.
• Check Forgery. Using either a paper or digital check, check forgers either write fake checks or forge the signature of the recipient.
• Chemical Alteration. Using a complex chemical process, some criminals will erase information on an already existing check and replace it with new information, such as a larger dollar amount or a new recipient. 
• Paperhanging. One of the most common types of check fraud, paper hanging involves deliberately writing bad checks you know cannot be cashed, whether that is due to the account being closed, insufficient funds or something similar.
• Printing Fake Checks. New check fraud techniques, strengthened by advanced printing and scanning technologies, have made the act of producing fake checks less expensive and simpler than ever. Criminals can create counterfeit checks on high-quality stock with legitimate financial institution names and addresses, multi-colored watermarks and verifiable routing and account numbers.

These are just a few of the activities that might constitute check fraud. Both the person issuing the check and the person receiving or cashing the check should take active measures to ensure that fraud is prevented.

Minimizing Risk

For businesses, check fraud can lead to a myriad of problems beyond not being able to recoup lost funds. A single instance of fraud or other payment issues—even if it was not your fault—might cause some distrust between you and your customer base. Unchecked instances of fraud can also potentially cause long-term damage to your credit score or put your other finances at risk. Being proactive and taking steps to prevent check fraud can be extremely beneficial.

Fortunately, there are steps businesses can take to minimize their risk of becoming a victim of check fraud:

• Do not put checks in mailboxes. Instead, drop them at the post office yourself.
• Implement and use a contactless payment method to allow your customers to make safe payments and avoid putting critical information at risk.
• Create separate, unique passwords for all digital financial accounts and change these passwords regularly.
• Check all financial transactions for possible signs of fraud or suspicious activity on a daily basis.

Fraud mitigation solutions like Busey’s Check Positive Pay provides multiple options for business owners to choose from to meet their select needs. From Traditional Positive Pay and Payee Match to Reverse Positive Pay and Check Block, you can add an extra layer of security to your accounts.

In addition, our ACH Positive Pay solutions allow you to “authorize” transactions to post and blocks any unauthorized items—and can be done automatically to save you time.

Be Proactive

As fraudsters continue to change their tactics, stay informed and learn to protect your confidential information.

To learn more about Check Positive Pay and ACH Positive Pay, visit busey.com/TreasuryManagement. For additional details on how to protect your small business, visit Busey's Money Matters blog and our Fraud Prevention FAQs.