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Blog Post

Protecting Your Business from Check Fraud

  • December 11, 2024

Check fraud is one of the most significant threats facing businesses today. According to the Financial Crimes Enforcement Network, there is a surge in mail theft-related check fraud schemes targeting the U.S. mail.

Despite a decline in check usage, the U.S. has experienced a surge in check fraud schemes. According to the Federal Reserve Bank of Boston, check fraud has become rampant, with banks issuing about 680,000 reports of check fraud in 2022, nearly double the number from 2021. Criminals target U.S. mail to steal checks, often fishing mail out of blue collection boxes or breaking into mail delivery trucks, commercial mail centers, and roadside mailboxes.

Real-Life Example

Let’s explore a real-life example to understand how check fraud can occur: A small business owner in Everett mailed a $30,000 check, taking it directly to the post office, assuming the check was safe once mailed. However, the intended check recipient later reported that they never received the check.

Somewhere between mailing and delivery, a fraudster obtained the check and altered it using chemical erasing or digital manipulation to include their name, and cashed it. While banks have procedures to handle such situations, there are instances where funds cannot be recovered, leading to financial losses for the business or the bank.

Checks are particularly vulnerable because your account number is printed on the bottom. If your business must use checks, consider ordering checks with security features such as:

  • Void indicators – When a check with a void indicator is copied or scanned, the word “VOID” appears prominently on the reproduced check, making it clear that the check is not valid for payment. This helps to deter counterfeiters from creating fraudulent copies of checks.
  • Chemically-reactive paper – This paper is treated with chemicals that react when exposed to certain substances, such as solvents or bleach, which are commonly used in check washing. When someone attempts to alter the check by using these chemicals, the paper changes color or displays visible marks, making the tampering evident.

For a more secure alternative, consider electronic payment options like ACH or wire transfers, especially for recurring payments. These methods allow payments to go directly into the payee’s account, giving you control over when the funds clear your account.

When setting up ACH or wire transfers, always verify the account information by phone, not email. Scammers often hack email accounts to impersonate vendors and redirect payments to accounts they control, a tactic known as business email compromise. To ensure the payment is received correctly, send a test transaction the first time. If your vendor changes their account, repeat this verification process.

If you continue to use checks, enroll in Positive Pay and make it a habit to monitor it daily. This service helps ensure that the checks you issue reach the intended recipients. Additional measures include using a separate account for accounts payable to easily spot unusual payments, notifying recipients when checks are mailed, and asking for confirmation upon receipt.

For more information on fraud prevention and assistance with setting up these services, please contact your banker.

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