Whether you are a small business or serve thousands of customers a day, taking steps to fight check fraud is vital to keeping your organization safe. The Treasurer’s Guide to AR Payment Optimization estimates that 40% of all business-to-business (B2B) payments in the United States are made via check. As long as payments continue to be made in this way, fraudsters have the opportunity to take advantage of it for their own gain.

What is check fraud?

Check fraud involves stealing checks, altering the information on them, and then cashing or depositing it into an account to be transferred elsewhere. Criminals target blue outdoor USPS collection boxes, residential mailboxes, and cluster box units in the hopes of finding and stealing checks. Once they have the checks, they are free to “wash” them of their correct information and write in a new payee and dollar amount. Then they aim to either cash the check or deposit the money to be transferred to a different untraceable account.

What does check fraud look like?

In a stack of stolen checks, business checks tend to be more valuable, as business accounts are typically well-funded and may take longer to notice fraudulent activity has occurred. Knowing the forms check fraud can take will allow for easier and quicker identification of the scheme. Three common types of check fraud are check alteration, check counterfeiting, and check forging.

• Check alteration occurs when a criminal alters the name or the payment amount on a check before depositing it; this is also called check washing. The fraudster will create a chemical solution that erases the information printed on the check in order to write in their desired payee and amount.
• Check counterfeiting occurs when a criminal obtains an issued check from your business and copies the information found on it to print realistic-looking counterfeit checks. Once they have the checking account number, routing number, name, and signature style, they can use these counterfeit checks to clean out your checking account.
• Check forging occurs when a criminal forges the endorsement on the back of a check to deposit it into his or her account.

How to protect your business

In all check fraud instances, time is of the essence. Once a criminal deposits a check and moves it to an untraceable account, it becomes nearly impossible to retrieve the funds. Remaining proactive in protecting your business and quickly identifying fraud is key to safeguarding your assets.

1. Reduce paper check payments. The first step you can take to reduce the potential of falling victim to check fraud is to reduce the payments you are conducting with physical checks. Consider sending and receiving payments through Automated Clearing House (ACH). ACH can be used to issue payroll, process accounts payable, and collect payments from vendors. Conducting payments electronically also allows quicker access to the funds.
2. Reconcile accounts. Balance your accounts monthly to verify that all issued payments have made it to their correct location and that no transactions look fraudulent. Review your bank statements and check images to ensure everything is accurate.
3. Implement internal controls. Protect your internal supply of checks by storing them in a secure and locked environment and training employees to never leave blank checks unattended. Closely monitor who has access to create checks in your organization and disperse the role of accounts payable to multiple people to ensure the person who writes checks is not also endorsing them and entering them into the accounting system.
4. Use Positive Pay. Positive Pay is a feature that helps fight check fraud by comparing checks presented for payment against a database of checks previously authorized by your business. If the check does not match the information, it becomes an “exemption item.” You are notified of these exemptions so you can review the item to confirm or deny payment.

To learn more about these services, contact our Treasury Management team at 515-222-2300 or 1-800-810-2301.

What should you do if you suspect you are a victim of mail-related check fraud?

In addition to contacting your banker, you can report the suspected fraud to the USPIS at 1-877-876-2455 or https://www.uspis.gov/report.