How to Report Check Fraud: Tips for Small Businesses

Stealing a paper check for nefarious purposes might seem like a plot point in a movie, but it’s a very prevalent type of fraud experienced by thousands of businesses annually.

A recent survey from the Association of Financial Professionals found that more than 60% of respondents reported fraud activity via checks last year. Check fraud is the most common financial crime because scammers find it easy to execute.

We understand that many business owners cannot give up on checks – it remains a necessary financial tool for paying certain vendors. But that doesn’t mean that you can’t take measures to protect your business from check fraud.

Before we dive into how to reduce your risk of check fraud, let’s first define what it is and understand how it happens.

What is Check Fraud?

Check fraud is the use of a check illegally to gain money from an account. There are three categories of check fraud:

• Counterfeit checks: When a fraudster makes a fake check look real. Counterfeit checks are made to resemble legitimate business check stock and contain the same characteristics such as maker name, address and account number.
• Altered checks: When a fraudster intercepts a check and alters the check in some way. This can involve ‘washing’ the original payee from the check and replacing that name with a different payee name. Altered checks also often change the payment amount of the original check.
• Forged checks: Fraudster steals a blank check and forges the account holder’s signature to make the payment appear authorized.

Why Is Check Fraud So Prevalent?

“You’d think checks would be a thing of the past in today’s digital age, but it’s not,” said Karianne Golemme, Director of Financial Crime and BSA Officer at Rockland Trust. Why is it that so many businesses experience check-related fraud activity?

The short answer: It’s rooted in the speed with which the fraudster can access funds before fraud is detected.

Many banks allow for funds from deposited checks to become available for use as early as the next day in good faith. You might be surprised to learn that even though the funds are available, that deposited check may not have officially cleared all channels. Check fraud is attractive to money mules or others perpetuating fraud because these policies allow them to get hold of money fast.

Banks constantly evolve fraud detection techniques to stop bad actors before they can benefit from any type of fraud. Rockland Trust offers additional fraud prevention tools like Positive Pay to help businesses mitigate fraud risks. Positive Pay compares issued checks against checks presented for payment and will flag differences for you to review. This can help you more quickly report attempted fraud and safeguard your money.

Steps Small Businesses Can Take to Prevent Check Fraud

Know that you aren’t helpless in the fight against check fraud. Three steps any business can take to help prevent check fraud from occurring include:

• Using other secure payment options, including those available through online banking, to reduce the number of paper checks your business issues.
• Avoiding mailing paper checks when possible. The United States Postal Service (USPS) has also issued warnings against mailing checks due to stolen mail resulting in fraud. If you can, physically handing a check to a vendor helps ensure that the check doesn’t fall into the wrong hands.
• Checking bank accounts as often as possible, ideally daily. This proactive step helps you to identify fraud attempts quickly. Pay particular attention daily to checks clearing your account. Anytime there is a withdrawal from your account via check, ensure you recognize the transaction and amount. If you do notice anything out of the ordinary, it is vital to contact your bank right away.

“If there is one thing to take away from this article about check fraud, it’s to ensure you regularly check your accounts for unauthorized activity. It is the most important thing that anyone – a business owner, a consumer – can do to protect from fraud because you are in the best position to identify something unauthorized,” added Stacey Coyne, First Vice President Treasury Management and Union Banking Sales Manager.

Check out more tips from Stacey for Preventing Fraud

How to Report Check Fraud

Though no one ever wants to find themselves as a victim of check fraud, it's important to be prepared and know what to do if it does occur. As is the case with most security-related events, it's not a matter of if but when.

First, keep in mind that the faster you report any suspected fraud, the better the chance you have of recovering funds.

“We’re here to help and once we are aware, help get your money back and protect the accounts going forward,” shared Coyne.

Depending on the circumstances and type of fraud, there may be an element of identity theft at play. Once you’ve reported a fraud attempt or suspicious activity, you can let the appropriate authorities lead the way on additional steps.

Rockland Trust Will Help Protect Your Business

Nearly 70% of businesses experienced payments fraud attempts last year and checks continue to be a vulnerable payment method exploited by bad actors. Though paper checks remain necessary in business processes, there are steps you can take to reduce the likelihood that this type of fraud will impact your business. 

We take fraud attempts seriously and offer many resources for businesses of all sizes. From helping you protect your information to sharing best practice tips and tricks for managing your business, Rockland Trust’s business banking and treasury management teams are here for you and will support you every step of the way.