Startling Reality: Check Fraud Schemes & Their Impact on Financial Institutions

In the complex world of financial risks, check fraud stands out as a major concern for lenders, servicers, and banks. Surprisingly, 74% of organizations have faced check fraud incidents, according to a survey by the Association for Financial Professionals — an eye-opening statistic that underscores the seriousness of check fraud schemes.

The environment is filled with challenges as clever scammers continuously come up with new ways to take advantage of loopholes in the banking system. They’ve got a wide range of tricks up their sleeves, from kiting and washing to creating fake checks and setting up sophisticated fraudulent schemes.

But fear not! This guide isn’t just about laying bare the harsh realities confronting financial institutions; it’s also about arming you with knowledge and strategies crucial for beefing up your defenses against these widespread threats.

Getting to grips with how scammers operate is key—it turns an unseen danger into something you can handle. By implementing simple preventive measures specifically designed to block check fraud attempts, banks can greatly reduce their risk—turning what could be potential victims into strongholds of security amidst today’s volatile financial crime scene.

Common Types of Check Fraud Schemes

Check fraud is a massive problem that costs banks and businesses billions annually. Despite the rise of digital payments, good old-fashioned paper checks are still a prime target for fraudsters. Why? Because check fraud schemes are relatively easy to pull off compared to more high-tech financial crimes.

Check Kiting, Check Washing, Counterfeit Checks, Fake Check Scams, Altered or Forged Checks

There are several common types of check fraud that criminals employ to steal money:

  • Check kiting involves writing a check from one bank account with insufficient funds to cover it, then writing another bad check from a different account to cover the first one. The goal is to falsely inflate the balance before the bank catches on.
  • Check washing uses chemicals to erase details from legitimate checks, allowing them to be rewritten as the fraudster pleases. Acetone is often the solvent of choice for this check scam.
  • Counterfeit checks are entirely fake checks designed to look like the real deal. Creating these fraudulent checks takes some specialized printing equipment, but they can be hard to spot.
  • In fake check scams, a scammer sends the victim what looks like a real check and asks them to deposit it, then send some of the money back. The original check eventually bounces and the victim is on the hook.
  • Altered or forged checks are legitimate checks that have been modified, either by changing the payee, amount, or forging the signature. These altered checks and forgeries are an age-old type of check fraud.

While some of these schemes are more sophisticated than others, they all allow criminals to exploit the vulnerabilities in how checks are processed to steal money from unsuspecting victims. And as long as checks are still in use, fraudsters will keep finding new ways to create counterfeit checks and perpetrate check fraud.

How Check Fraud Impacts Financial Institutions and Account Holders

The effects of check fraud extend far beyond the initial monetary losses. It’s a crime that leaves lasting damage in its wake for banks and their customers.

Financial Losses, Reputational Damage, Increased Security Measures, Eroded Trust

First and foremost, check fraud results in massive financial losses. Banks and credit unions often end up bearing the brunt of the costs when fraudulent checks slip through. In fact, check fraud accounts for a staggering 35% of all bank fraud and is projected to cost financial institutions $24 billion this year alone. But the impact goes beyond just the balance sheet. Rampant check fraud also leads to reputational damage for banks and credit unions. Every time a customer falls victim to a check scam, it erodes their trust in their financial institution. To combat the rising tide of fraud, banks are having to pour money into increased security measures and fraud prevention solutions. This means more identity verification hoops for customers to jump through and longer processing times. Small businesses are frequent targets for check fraud, since their accounts often have high balances and it may take longer to detect a fraudulent check. These mom-and-pop shops can be devastated by even one incident of check fraud. Ultimately, the prevalence of check fraud threatens to erode the trust that is essential to the bank-customer relationship. Fraud generally makes people wary of using checks at all, which is bad news for financial institutions that still rely on check-based transactions for a good chunk of their business.

The Role of the Postal Service in Check Fraud Prevention

While banks are on the front lines of the battle against check fraud, they have an important ally: the United States Postal Service (USPS). The postal service plays a key role in preventing and detecting fraudulent activity involving checks sent by mail.

Secure Collection Boxes, Monitoring Suspicious Activity, Collaboration with Law Enforcement

One of the most important ways the USPS combats check fraud is by providing secure collection boxes for mail containing checks. These mailboxes are fortified to prevent tampering and strategically located to allow postal workers to safely pick up and deliver mail. The postal inspection service is always on the lookout for any suspicious activity that could indicate check fraud. Inspectors are trained to spot signs of check washing or other tampering and take appropriate action. When fraud is suspected, the inspection service works closely with law enforcement to investigate. The USPS has a long history of collaborating with agencies like the FBI and local police departments to track down check fraud rings and bring perpetrators to justice. However, the sheer volume of checks that move through the postal system each day makes it impossible to catch every instance of fraud. That’s why the post office also focuses on educating the public about the risks of mailing checks and the importance of using secure collection boxes. At the end of the day, preventing check fraud requires a team effort between the postal service, banks, and customers. By working together to implement security measures and stay vigilant, we can make it harder for fraudsters to exploit the mail for their schemes.

Strategies for Preventing Check Fraud in the Digital Age

While check fraud may seem like a low-tech crime, preventing it requires a decidedly high-tech approach. Banks and businesses are turning to innovative solutions to stop fraudsters in their tracks.

Positive Pay Services, Enhanced Security Features, Employee Training, Customer Education

One of the most effective fraud prevention solutions is called Positive Pay. With this service, businesses provide their bank with a list of checks they’ve issued. The bank then matches incoming checks against that list and only pays the ones that are a perfect match. Any discrepancies are flagged for review before the check is processed. Banks are also investing in enhanced security features for their official check stock. We’re talking watermarks, thermochromatic ink, holograms – the kind of stuff you’d see in a spy movie. The goal is to make their checks much harder to replicate or alter without detection. Of course, all the fancy technology in the world won’t help if the people using it aren’t properly trained. That’s why employee education is a critical component of any fraud prevention program. Bank staff need to know how to spot the signs of check fraud and what to do when they see something suspicious. Online banking and positive pay services can go a long way in preventing fraud on the business side, but consumers need to be vigilant too. Banks are ramping up efforts to educate their customers about common check scams and how to avoid falling victim. The key is to stay one step ahead of the fraudsters. As technology evolves, so do the tactics used by criminals. But by employing a combination of prevention solutions like Positive Pay, enhanced security features, employee training, and customer education, we can make it much harder for them to succeed.

The Future of Check Fraud: Emerging Trends and Threats

The bad news? Check fraud isn’t going away anytime soon. In fact, experts predict that it will only become more prevalent and sophisticated in the coming years. Here are some of the emerging trends and threats that banks and consumers need to watch out for.

Synthetic Identity Fraud, Social Engineering Tactics, Insider Threats

One of the most concerning developments is the rise of synthetic identity fraud. In this scheme, sophisticated criminals create entirely new identities using a combination of real and fake personal information. These synthetic IDs are then used to open bank accounts and obtain checks, which are promptly used to commit fraud. Social engineering tactics are also becoming more advanced. Fraudsters are using increasingly convincing phishing emails and phone scams to trick people into giving up sensitive information or even participating in check fraud schemes unwittingly. And then there are the insider threats. Unfortunately, some check fraud rings have been known to recruit bank employees to help them carry out their crimes. These insiders might provide information about account holders or even help process fraudulent checks. The constantly evolving nature of check fraud means that banks and customers can never let their guard down. It takes a proactive approach and a commitment to staying informed about the latest threats to prevent fraud.

At Advanced Fraud Solutions, we are committed to continually adding new streams of fraudulent information into our database to combat this growing problem for banks, credit unions, and merchants nationwide.

By sharing information and working together, the financial industry can stay one step ahead of the fraudsters – no matter what new tricks they try to pull. It won’t be easy, but it’s a fight we can’t afford to lose.

Key Takeaway: 

Check fraud is a big deal, costing lots of money each year. From check kiting to counterfeit checks, crooks have many tricks up their sleeves. But, with smart moves like Positive Pay and keeping an eye out for suspicious activities, we can fight back. Remember, staying ahead means being aware and working together.

FAQs in Relation to Check Fraud Schemes

What is the most common check fraud?

Check kiting tops the list. It’s a slick move where scammers play the float time between banks to create fake balances.

What possible check fraud schemes might the company be a victim of?

Your business could fall prey to counterfeit checks, altered checks, or even fake check scams aimed at tricking employees into wiring money.

What are the trends in check fraud?

Digital age brings synthetic identity and social engineering tactics front and center. Scammers now blend high-tech with old-school tricks for bigger hits.

What is an example of a check forgery?

An example would be someone altering a legit check by changing its amount or payee name to illegally pocket more cash than intended.


Check fraud schemes may seem like a daunting threat, but with the right knowledge and strategies, you can protect your finances and keep the fraudsters at bay. By understanding the common types of check fraud, such as check kiting, check washing, and fake check scams, you’re already one step ahead of the game.

Remember, the key to prevention lies in vigilance and proactive measures. Embrace digital solutions like Positive Pay, stay informed about emerging threats, and always trust your instincts. If a check or situation seems too good to be true, it probably is.

Check fraud may be a persistent problem, but it’s not an insurmountable one. By arming ourselves with the right tools and information, we can spot the red flags, avoid the pitfalls, and keep our money where it belongs – in our own pockets.


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