Though check fraud certainly isn’t a new phenomenon, there’s been a dramatic increase in this type of fraud over the last several years. According to the Financial Crimes Enforcement Network (FinCEN), the annual volume of check fraud jumped by 84% to $815 million in the U.S. in 2022.
FinCEN, in collaboration with the U.S. Postal Inspection Service, issued a check fraud security alert earlier this year. The US Postal Inspection Service said it received more than 299,000 complaints of mail theft from March 2020 through February 2021, a 161 percent increase from a year earlier.
Check fraud typically takes one of two forms:
Altered checks. Thieves steal a legitimate, signed check and alter the payee and/or amount. The check is then cashed, and funds are gone from your account before you realize the check didn’t make it to its intended recipient.
Counterfeit checks. Criminals steal basic account information and use it to create doctored business checks. Within a matter of hours, they can produce hundreds of realistic-looking checks and clean out your checking account.
In one common approach known as “check washing,” criminals steal signed checks from postal boxes, then use common chemicals like nail polish remover to remove the dollar amount and the name of the “payee,” or recipient. Then they rewrite the checks for a new recipient and a larger sum — often hundreds or thousands of dollars more — before cashing the check.
Check washing has evolved from small-time criminals pilfering a check or two from residential mailboxes to more organized efforts involving the theft of mail in bulk from postal collection boxes.
Criminals sell copies of washed checks online or use stolen or counterfeit master keys, known as arrow keys, that allow access to Postal Service collection boxes. (The FinCEN report details that in some cases, postal carriers have been robbed at gunpoint for their keys; in others, postal employees are accused of stealing checks at sorting and distribution centers). They then recruit others to loot collection boxes, act as check cashers (often using fake IDs) or open accounts used for cashing doctored checks.
So, what can you or your business do?
Use a positive pay service
- Possibly the best strategy for protecting company funds is to use a positive pay service. With positive pay, before releasing checks to payees, you send your bank an issue file of those checks. Your bank then compares checks received each day to that issue file and singles out unmatched items for your review. Positive pay is an incredibly valuable tool to help you proactively prevent check fraud and is available through Stone Bank’s Treasury Management department.
Pay Digitally: Pay Bills Using the Stone Bank Online Bill Pay Process.
- Reduce the number of checks you send and utilize card or digital payment methods instead.
- Use your bank to send checks on your behalf. If you do have to pay for something via check use the Stone Bank bill pay service. Using this service will mean that the payment information will be printed onto a check, which makes it more difficult for a scammer to remove the information compared to a hand-written personal check.
Check the type of check-writing pen you use.
- If you do write a check, make sure you’re using a black gel pen. These types of pens have ink that’s more difficult to remove during check washing.
Order checks from a reputable source.
Banks and other reputable check-printing businesses typically include security features on checks that help combat counterfeiting and alteration, such as:
- Watermarks that are hard for fraudsters to duplicate.
- Reactive paper and ink that alert the bank the check has been tampered with.
Fill out the check properly.
- Use the entire name of the company when writing or printing checks. For example, if the payee is the Internal Revenue Service, don’t abbreviate “IRS.
- Indicate the amount of the check with both numbers and words and spell out the amount completely. For example, on a check for $2,255.00, write out “Two thousand two hundred fifty-five dollars and 00/100.” This makes it harder for fraudsters to tamper with the amount.
- Take care to fill in all available space on every box and line. If your entry doesn’t take up the full box or line, draw a line to the end of the space to prevent criminals from making alterations, such as adding an extra zero or adding an alternative payee. Filling out the check properly helps to ensure it is endorsed and cashed correctly.
Safeguard checks and account information.
- Review your account activity daily using your online banking application. Notify the Bank immediately of any suspicious activity. The Federal Reserve normally only allows 24 hours to return a check through the system. After 24 hours, fraud reporting and interbank coordination is all manual and complicated.
- Keep your bank account information safe. Don’t share or post your bank account information anywhere publicly, and never share account information with anyone with whom you did not initiate the communication. Do not allow websites to save your routing/transit and account number information.
- Keep reserve supplies of checks, statements, and other documentation in a secure and locked facility. Limit the number
- of employees allowed to have access to these documents and train responsible staff never to leave blank checks or bank statements unattended.
- Deface and keep voided checks to ensure they don’t fall into the wrong hands. If you want to shred voided checks, check with your accountant first. Some accounting firms prefer you to retain voided checks until after the annual financial statement audit is completed.
Segregate duties:
Assign responsibilities for accounts payable to more than one person, with each responsible for different areas. For example:
- The person who issues checks should also not sign checks and reconcile the bank account.
- Authorized check signers should not have access to blank checks or the ability to enter transactions into the accounting system.
- Segregation of duties makes it more difficult for employees to tamper with checks and payments.
- If you use a signature stamp, implement proper controls to ensure the stamp is not readily available for just anyone in the office to use.
Reconcile accounts promptly.
- Quick fraud detection tends to limit loss exposure, so balance accounts monthly to identify discrepancies. The reconciliation should also include a review of the bank statement and check images to ensure vendors are recognized, expenditures are related to company business, signatures come from authorized signers, and endorsements are appropriate.
Use mailboxes that are secure.
If you need to send any checks by mail, use the mailbox inside of a USPS facility rather than at a curbside mailbox or your residential outgoing mail.
Other Information:
The Postal Inspection Service is working with the Postal Service to make blue boxes more secure, like fitting them with “rakes” with metal teeth to make it harder for thieves to fish out envelopes. Other, more high-tech fixes are also being considered but there are “thousands upon thousands” of postal boxes, he said, and upgrades must be engineered and tested before being deployed.
If you must use a blue box, drop in the check before the day’s last scheduled pickup so it doesn’t sit in the box overnight. Don’t put checks in your home mailbox for pickup and raise the little flag to alert carriers, which signals to potential thieves that there’s something inside.
Monitor your bank account online regularly to confirm the checks that have been cashed and to see if anything seems suspicious.
If you are expecting a check or other important mail, consider using the Postal Service’s free Informed Delivery service, which allows you to get a preview of mail expected to arrive soon.
What should I do if I’m a victim of check washing?
If you think a check you’ve written was intercepted in the mail, promptly contact your bank as soon as you can and file a report with the Postal Inspection Service and your local police department.