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Check fraud

Check fraud

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What is Check Fraud?

Check fraud is one of the largest challenges facing businesses and financial institutions today. With the advancement of computer technology, it is increasingly easy for criminals, either independently or in organized gangs, to manipulate checks in such a way as to deceive innocent victims into expecting value in exchange for their money.

A significant amount of check fraud is due to counterfeiting through desktop publishing and copying to create or duplicate an actual financial document, as well as chemical alteration, which consists of removing some or all of the information and manipulating it to the benefit of the criminal. Victims include financial institutions, businesses that accept and issue checks, and the consumer. In most cases, these crimes begin with the theft of a financial document. It can be perpetrated as easily as someone stealing a blank check from your home or vehicle during a burglary, searching for a canceled or old check in the garbage, or removing a check you have mailed to pay a bill from the mailbox.

Types of Check Fraud:

  • Forgery: For a business, forgery typically takes place when an employee issues a check without proper authorization. Criminals will also steal a check, endorse it and present it for payment at a retail location or at the bank teller window, probably using bogus personal identification.
  • Counterfeiting and Alteration: Counterfeiting can either mean wholly fabricating a check --using readily available desktop publishing equipment consisting of a personal computer, scanner, sophisticated software, and high-grade laser printer -- or simply duplicating a check with advanced color photocopiers.  Alteration primarily refers to using chemicals and solvents such as acetone, brake fluid, and bleach to remove or modify handwriting and information on the check. When performed on specific locations on the check such as the payee's name or amount, it is called-spot alteration; When an attempt to erase information from the entire check is made, it is called-check washing. 
  • Paperhanging:  This problem primarily has to do with people purposely writing checks on closed accounts (their own or others), as well as reordering checks on closed accounts (their own or others).
  • Check Kiting:  Check Kiting is opening accounts at two or more institutions and using "the float time" of available funds to create fraudulent balances. This fraud has become easier in recent years due to new regulations requiring banks to make funds available sooner, combined with increasingly competitive banking practices.
  • Payee Fraud: Changing the name of the payee on a check to someone other than the intended recipient.
  • Phantom Deposit Fraud: Depositing a fake check into an account and then withdrawing funds before the check bounces.
  • Check Washing: The use of chemicals to remove the ink from a check, allowing a criminal to rewrite the check to themselves for a larger amount.
  • Remote Deposit Fraud: Using a mobile device to deposit a check that has already been deposited at another bank or using fraudulent checks to make mobile deposits.
  • Business Email Compromise: Criminals hack into a business's email system and send fraudulent checks to vendors or employees, who then deposit them into their own accounts.
  • Lottery or Sweepstakes Scams: Criminals send fake checks to victims as part of a fake lottery or sweepstakes and ask the victim to deposit the check and send a portion of the funds back to cover taxes or fees.

Is it risky to deposit a check that may be fraudulent?

You are responsible for the checks you deposit.  If a fraudulent check is deposited into your account and you spend the money, you’ll be responsible for the dollar amount when the check is returned. If you are unsure whether a check is fraudulent, DO NOT deposit it into your account. While a financial institution may initially accept the check, there is no guarantee that the funds are good. It can take days, or even weeks, for a check to come back as fraudulent. Do not use those funds unless you are confident the check is legitimate.

Here are some ways to determine if a check you have received is valid. 
  • Did the check come with a letter? If so, read the letter carefully. Many fraud scams start with a letter and a check. The letter will have instructions to send money or purchase a money order. Do an internet search to find out if other people have received letters for the same purpose.
  • Research the business that issued the check. You’ll find the name of the business in the top left-hand corner of the check. If you find a listing online, call the business and ask them if they issued the check. Do not call the phone number provided on the check or in the email as it could lead back to the fraudster.
  • If you have trouble finding any information, take the check to the financial institution that issued the check and they will be able to verify whether it’s legitimate.
  • If you have concerns that the check may be fraudulent, take it and the accompanying letter to the nearest branch of your financial institution to discuss with a manager or call them.

How do I know if a cashier’s check is real?

One way Fraudsters attempt to ease your concerns about a fraudulent scheme is to mail you a Cashier’s Check. Scammers have become very good at counterfeiting these items or altering stolen cashier’s checks. 

These items are often presented under the following circumstances:
  • As payment for something you are selling.
  • As payment for work that has been promised to you.
  • As lottery winnings.
  • As part of a loan or advance.
  • In connection with a roommate who hasn’t moved in yet.
  • From someone who is pursuing a romantic relationship with you and needs to get funds to you for a variety of reasons.
While this list does not include all of the reasons why funds are sent from Fraudsters, there is one common theme among them. In each case, the Fraudster needs to get the cash from you which means that they will be asking you to either send funds via the numbers off of a Gift or Prepaid Card or have you wire the money to them. They may ask for all or part of the proceeds leaving you with a loss when the check that was deposited into your account is returned as a counterfeit by the paying bank.

If you receive a cashier’s check from someone with whom you have never transacted business, do not deposit it into your account via the ATM or Mobile Deposit. Please bring the item to the paying bank or into one of your branches so that your financial institution can scrutinize the item for you.

Signs for bad checks:

  • The check lacks perforations.
  • The check number is either missing or does not change.
  • The check number is low (like 101 up to 400) on personal checks or (like 1001 up to 1500) on business checks. (90% of bad checks are written on accounts less than one-year-old.)
  • The type of font used to print the customer's name looks visibly different from the font used to print the address.
  • Additions to the check (i.e. phone numbers) have been written by hand.
  • The customer's address is missing.
  • The address of the bank is missing.
  • There are stains or discolorations on the check possibly caused by erasures or alterations.
  • The numbers printed along the bottoms of the check (called Magnetic Ink Character Recognition, or MICR, coding) are shiny. Real magnetic ink is dull and non-glossy in appearance.
  • The MICR encoding at the bottom of the check does not match the check number.
  • The MICR numbers are missing.
  • The MICR coding does not match the bank district and the routing symbol in the upper right-hand corner of the check.
  • The name of the payee appears to have been printed by a typewriter. Most payroll, expenses, and dividend checks are printed via computer.
  • The word VOID appears across the check.
  • Notations appear in the memo section listing "load," "payroll," or "dividends." Most legitimate companies have separate accounts for these functions, eliminating a need for such notations.
  • The check lacks an authorized signature.

Check Fraud Tips for the Consumer

  • Use online banking to pay bills whenever possible.
  • Sign up for direct deposit of paychecks and other benefits.
  • Use certified mail or delivery service with tracking for important checks.
  • Monitor bank accounts and credit reports regularly for signs of fraud.
  • Report lost or stolen checks immediately to the bank or credit union.
  • Place a "stop payment" order on a check if it's lost or stolen.
  • Mail checks at the blue postal boxes during normal mail pickup hours. 
  • Use envelopes that are not transparent and seal them securely.
  • Do not write "payment enclosed" or "do not bend" on the envelope to deter tampering.
  • Make sure your checks are endorsed by your financial institution and incorporate security features like watermarks, heat-sensitive ink, or special designs that help combat counterfeiting and alteration.
  • Store your checks, deposit slips, bank statements, and canceled checks in a secure and locked location. Don't leave checks in an unlocked car or other unsecured location.
  • Reconcile your bank statement within 30 days of receipt in order to detect any irregularities. Otherwise, you may become liable for any losses due to check fraud.
  • Never give your account number to people you do not know, especially over the telephone. Be particularly aware of unsolicited phone sales. Fraud artists can use your account without your authorization and you may end up being responsible.
  • Unless needed for tax purposes, destroy old canceled checks, account statements, deposit tickets, and ATM receipts (they also frequently have your account number and worse yet, your account balance). The personal information on it may help someone impersonate you and take money from your account.
  • When you receive your check order, make sure all of the checks are there, and that none are missing. Report missing checks to your bank at once. Should you fail to receive your order by mail, alert your bank. Checks could have been stolen from the mailbox or lost in transient.
  • If your home is burglarized, check your supply of checks to determine if any have been stolen. Look closely, because thieves will sometimes take only one or two checks from the middle or back of the book. The longer it takes to detect any of your checks have been taken, the more time the criminal has to use them successfully.
  • If someone pays you with a cashier's check, have them accompany you to the bank to cash it. If at all possible, only accept a check during normal business hours so you can verify whether it is legitimate. Make sure you obtain identification information from the individual.
  • Do not mail bills from your mailbox at night. It is a favorite location from which a criminal can gain possession of your check with the intent to defraud you. Criminals will remove a check from your mailbox and either endorse it using bogus identification, photocopy and cash it repeatedly, scan and alter the check, or chemically alter it. The Post Office is the best location from which to send your bill payment.
  • Limit the amount of personal information on your check. For example, do not include your Social Security, driver's license, or telephone numbers on your check. A criminal can use this information to literally steal your identity by applying for a credit card or loan in your name or even opening a new checking account.
  • Don't leave blank spaces on the payee and amount lines.
  • The type of pen you use makes a difference. Most ballpoint and marker inks are dye based, meaning that the pigments are dissolved in the ink. But, based on ink security studies, gel pens, like the Uniball 207 uses gel ink that contains tiny particles of color that are trapped into the paper, making check washing a lot more difficult.
  • Don't write your credit card number on the check.
  • Use your own pre-printed deposit slips, and make sure the account number on your slip is correct. Thieves occasionally alter deposit slips in the hope you won't notice and the money goes into their account.
  • Don't make a check payable to cash. If lost or stolen, the check can be cashed by anyone.
  • Never endorse a check until you are ready to cash or deposit it. The information can be altered if it is lost or stolen.

Theft of your Mail

If you have had your mail stolen from your mailbox then you have become a victim of mail fraud, a federal crime. It is important to report this crime immediately and to take steps to protect your assets and credit rating. Here's a checklist of actions you should take:
  • Notify your local postal authority: Ask to fill out Form 2016, available at your local post office, or by mail.
  • Call your local police agency: Report the theft to the police or the sheriff's department, particularly if you suspect that checks or other valuables were stolen. Local law-enforcement authorities have caught some thieves by circulating lists of stolen checks to local banks, then nabbing suspects who showed up to clear out a victim's bank account.
  • Close accounts: If you suspect the thief obtained a credit card, checks, or bank statement, cancel your accounts immediately and notify creditors both by telephone and in writing.
  • Take action on missing checks: If a check payable to you is stolen, ask the sender to stop payment and issue a new one. Give the police the stolen check number.
  • Protect your credit: Make a list of creditors and see if any bills are overdue to arrive. Call creditors and obtain duplicate copies to avoid late payments, which could damage your credit rating or worse. Be sure to pay your mortgage payment and car payment to avoid the risk of foreclosure or repossession. Don't forget other bills that could be missing, such as an annual insurance premium, property-tax levy, or income tax refund.
  • Determine what else is missing: Contact professional organizations to learn if you've missed meeting notices or dues statements. Ask friends and relatives if they've mailed anything to you recently. Were you expecting a new driver's license? If so, contact your state Division of Motor Vehicles (DMV) promptly.
  • Talk to neighbors: Find out if their mail was stolen. Ask if anyone saw a strange person around your home or an apartment mailbox, then pass any information along to postal and law enforcement authorities.

Safety Measures to Follow

  • Lock your mailbox: If your postal carrier is willing, you can buy a padlock for your mailbox. Place it unlocked inside your mailbox. When the carrier delivers your mail, he or she locks the box. This works well with rural-delivery-style boxes with a hole to accommodate a lock, or you can drill holes in a wall-mounted box. The method is not foolproof, however. Persistent thieves have been known to use hacksaws to remove locks; some smash open mailboxes with baseball bats -- or even steal the mailbox, lock and all.
  • Replace a wall-mounted mailbox with a mail slot: If you have door-to-door delivery, ask your local Post Office if you can replace your mailbox with a mail slot on your front or garage door. The postmaster needs to approve any changes in delivery. If you add a mail slot, make it large enough to accommodate catalogs and boxes of checks. Mail slots are not allowed, however, in rural delivery areas or newer neighborhoods with cluster boxes
  • Buy a security mailbox: Check the yellow pages under "mailboxes" for listings of companies that sell tamper-resistant mailboxes. Heavy-duty metal boxes are available in both wall-mounted and free-standing models (the latter may be sunk in concrete to prevent vandalism.) Security mailboxes typically have a slot for the carrier to deliver mail. Mail goes down a chute and into a locked compartment.
  • Ask your apartment manager to improve security: If you're a renter and your mailbox lock doesn't work, insist that the management repair the damage. Counterfeit keys are another problem in rental communities, since often the same key opens all the boxes. Managers can counter these problems by installing security cameras or moving mailboxes into a mail room where residents must use an access key to get inside.
  • Get a post office box: If theft is a concern, the cost of renting a post office box may be worth the investment, since thefts from such boxes are rare, according to postal authorities.
  • Consider a parcel locker: If you own a home-based business and receive frequent shipments of valuable goods, you may wish to invest in a parcel locker. If you use multiple delivery services, however, you'll need one for postal deliveries and a separate locker for others, such as Federal Express or United Parcel Service.
  • Pick up mail promptly: Mail thieves often follow carriers on their routes, striking within 15 minutes after delivery. If you're home during the day, pick up mail as soon after delivery as possible. If you're not home, ask a trusted neighbor to get your mail.
  • Keep your mailbox visible: Trim shrubbery to keep your mailbox as visible as possible, eliminating hiding places for thieves.

Protecting outgoing Mail

  • Don't leave outgoing mail in your mailbox: That little red flag is an invitation to thieves. Take outgoing mail to your office, or mail it at a post office or mailing outlet store.
  • Don't mail holiday gifts from home: They'll not only steal your package, but they'll also peel off the stamps and use those, too.
  • Don't put mail in street mailboxes: The highest rate of mail theft locally is from those big, blue Postal Service mailboxes located on street corners and at other public places.  If you do, make certain that you mail checks during normal mail pickup hours. 
  • Send valuables via registered mail: Registered mail is kept under lock and key, and it is signed every time it changes processing centers.

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