People have used checks as a form of payment since medieval times. Paper checks haven’t changed much over the years. But since the pandemic, the U.S. Treasury Department has seen a 385% increase in check fraud.
Today’s businesses can no longer afford to ignore the potential ramifications of check fraud. According to the 2023 Association for Finance Professionals (AFP) Payments Fraud and Control Survey Report, 65% of organizations were victims of attempted or actual payment fraud in 2022. The report found that checks were far and away the payment most impacted by fraudulent activities, with a majority of respondents (63%) reporting that their organization dealt with check fraud in 2022.
The Institute of Finance and Management (IOFM)’s State of Security & Fraud in Finance and Accounting Departments survey underscored the prevalence of check fraud, reporting that 31% of accounts payable (AP) departments have suffered financial losses from check fraud, ranging from $50,000 to more than $1 million in total losses. AFP’s Payments Fraud and Control Report found that a majority of organizations recoup less than 10% of funds stolen due to fraud.
Read on to learn how criminals are stealing and “washing” checks, plus what you can do to better secure your company’s finances from this type of fraud.
How Are Checks Stolen?
Criminals are stealing checks from mailboxes. In some cases, they’re simply grabbing them from the mailbox at your home or business. They may “fish” letters through mail slots of community mailboxes or even USPS collection boxes.
Additionally, criminals target mail carriers to steal their universal arrow keys, which they use to open cluster mailboxes on their route. Cybercrime experts see these keys selling for between $1,000 and $7,000 online via illegal-market networking sites.
Once a criminal obtains a check, they may keep it for their own use or sell it online. Experts say personal checks sell for as much as $250 each and business checks can go for up to $650.
Criminals may use nail polish remover or other chemicals to “wash” the name and payment amount from a stolen check. Then they fill it in with their own name and the dollar amount of their choice. Other fraudsters scan or copy a stolen check to print multiple fake checks payable from your account.
Some brazen offenders will cash or deposit a stolen check themselves but most hire “walkers” to do the job for them. Walkers may be recruited on the streets or found via social networking sites. They’re paid a fee to cash the check or deposit it in the criminal’s account on their behalf.
What Are the Impacts of Check Fraud?
In some cases, your bank will cover you the first time a check is stolen, but this varies depending on the situation and the bank’s policies and likely won’t happen until after a lengthy investigation is complete. You may have to cooperate with the bank to prosecute the check thief if they’re identified by law enforcement. This exercise can be time-consuming and resource-intensive for a business.
If you experience check fraud more than once, your bank may not cover your losses a second time and you may be liable for the amount stolen.
Check fraud costs an organization money, time and productivity. Financial teams must close old accounts and open new ones while stopping payment on outstanding checks and re-issuing them.
In short, check fraud is a costly and frustrating time sink for businesses with potentially long-lasting repercussions.
Tips to Prevent Check Fraud
Postal Inspectors recover more than $1 billion in counterfeit checks and money orders annually. We believe the following actions will help prevent check fraud at your organization.
Mailbox Visits
Don’t let checks sit in the mailbox for long periods. Pick up your mail promptly after delivery.
Put outgoing mail in the mailbox close to the typical pickup time. USPS collection boxes are labeled with the times mail is picked up.
If you drop checks at the post office, walk inside and leave them in one of the indoor mail slots for increased protection. The collection boxes outside post offices are susceptible to break-ins.
Vacation Holds
If your office will be closed for a period with no one around to accept mail, set up a mail hold online for up to 30 days.
Alternatively, ask a trusted neighbor or colleague to pick up and hold your mail in your absence.
Account Monitoring
Check your financial accounts frequently for signs of suspicious activity. There are a number of fraud detection software options that can automate this process for you and send reports on potential red flags.
Make sure to reconcile your check register with your banking statements regularly.
Check Safety
Use dark ink and gel-based pens whenever possible. Don’t leave blank space in check fields. If your writing does not fill the whole area, finish it off with a dark line.
When cashing a check, don’t endorse it until just before you deposit it.
Order checks from reputable companies and choose designs with features to prevent counterfeiting.
Electronic Banking
Leverage technology and ditch paper checks altogether. Electronic payments are more thoroughly protected with multiple layers of encryption.
E-payments are designed to be safely transferred directly between banking institutions, so there are fewer opportunities for thieves to access your account information compared to paper checks. Plus, creating a counterfeit electronic transaction from your account may be less likely, as it involves much more skill and access to resources than paper check fraud.
More Benefits of E-Payments
Suppliers and their customers see a variety of advantages from issuing and receiving electronic payments, including:
Time Savings
Suppliers can receive and process payment 1-3 business days after approval with e-payment methods. Plus, suppliers don’t need to make check runs when funds are delivered electronically.
By issuing paper checks, businesses also save the time associated with cutting and mailing physical checks. Instead, payments can be issued with the click of a button.
Speed
Funds are transferred faster with e-payments and processing time is reduced. This helps supplier businesses with cash flow and planning. These faster processing times also benefit buyer customers, as they help reduce late fees and potentially capture early payment discounts.
Support for Hybrid Work
With e-payments, your staff can work from home. You no longer need to be in the office to collect checks and deposit them at the bank. Electronic payments can also be issued remotely.
Better Record-Keeping
Electronic payment systems often offer robust reporting features, making it easier for businesses to track and reconcile transactions. This can simplify compliance with regulatory requirements and audit processes for both buyers and suppliers.
Cost Savings
Issuing e-payments can significantly reduce costs associated with printing, processing and mailing paper checks. Additionally, recipients don’t incur bank fees associated with check cashing or deposits.
Scalability
Electronic payment systems can easily scale to accommodate growing transaction volumes, making them suitable for businesses of all sizes.
The solution is clear. Businesses that adopt e-payments protect themselves against the recent surge of check fraud in the U.S.
Learn more about implementing e-payments in your business by clicking below.
