While check printing may be less common in recent years, it still plays a major role in our economy. In fact, in 2017, the average American still used about 38 checks every year. Additionally, this statistic doesn’t even take into account the massive number of checks, both print and digital, used by businesses across the country. So, while checks may be less popular, they certainly aren’t insignificant.
Here, we take a closer look at check fraud. First, we identify the issue, review some of the most common types of check fraud, and then offer ways to help you and your company prevent check fraud. Securing your financial processes should be a top priority for any business. Read on to learn how you can make your check processing even safer.
Check fraud, simply enough, is when someone is attempting to commit fraud via a check. Fraud occurs when someone intentionally acts to deprive another entity (a person or business) of money through deceptive means.
Nowadays, we can do almost anything electronically. Whether you’re looking to order a pizza, catch up with friends, or even find a date, you can do so through entirely digital methods. This is also true, of course, of financial processes. As debit and credit card transactions have become more popular, the number of check and cash transactions has decreased, which would lead one to believe that check fraud is on its ways out.
However, this isn’t the case. Check fraud is still rampant, and due to advances in technology, fraudulent checks have become even harder to detect. In fact, according to a 2016 study by the Association of Certified Fraud Examiners (ACFE), most organizations lose 5 percent of revenue as a result of fraud.
While the definition of check fraud may be simple, the act itself is much more complex. There are many different methods of check fraud that people will employ to cheat the system and rob someone of their funds.
Here’s a look at some of the most common types of check fraud:
1. Theft: when someone steals a check with intent to use it, this is considered check fraud and demonstrates why it’s important to secure your paper checks in a safe place.
2. Forgery: this type of check fraud occurs when someone forges their name or an endorsement onto a check.
3. Chemical alteration: also known as “washing,” this method refers to check fraud when someone uses chemicals to wash out certain information on a check. They can then change the information and write the check to themselves.
4. Check kiting: this form of check fraud involved two bank accounts. The fraudster will write a fraudulent check from one account and then withdraw the funds from the second account before the bank can acknowledge the fraudulent check.
5. Paperhanging: a common type of check fraud, paperhanging is when someone purposefully writes a bad check from their account, knowing that the funds are not there. This usually occurs in new accounts that are established for the sole purpose of committing check fraud.
No one wants to be involved in an incident of check fraud. While the most obvious problem is the potential loss of funds (the Federal Trade Commission estimates that the average loss of funds from check fraud is just under 2,000 dollars), check fraud can affect you in even more ways. Many victims of check fraud are also victims of identity theft. If a fraudster can access your checking information, they often can access other personal information. This can affect your credit score, finances, and delay the processing of loans or other forms of credit.
In some cases, the victim of check fraud isn’t always a “victim.” For those who knowingly take part in check fraud, they can expect severe legal consequences. Penalties for check fraud vary state to state, but they may carry sentences of a hefty fine and even a prison sentence. It’s clear that engaging in check fraud is never worth the risk.
In addition to understanding the common types of check fraud, there are often telltale signs that can signal to you that something suspicious may be occurring. While not always the case, these following signs may indicate the potential for check fraud.
· Asked to send money overseas.
· Asked to pay immediately.
· Notified that you won a sweepstakes you never entered.
· Notified to buy gift cards or send a money order.
· Asked to pay for a prize.
Regardless of whether you use checks for personal use or as part of your company’s financial processes, check security is vital. There are certain ways you can work to prevent check fraud for your personal or business account.
First and foremost, never accept or send a check to someone who you don’t know. This may seem difficult in a day and age where most of our financial processes are performed online, but you still want to know who you’re working with.
You should also be very cautious about wiring money—especially to an individual or company you aren’t familiar with. Never cash a check you weren’t expecting to receive and always verify the authenticity of a check before depositing it. This is especially important when it’s the first time you receive a check from a person or company.
While electronic methods have become more popular in recent years, check printing and processing is still a vital financial process for many businesses and individuals. As a result, check fraud is still a serious issue, accounting for millions of funds lost every single year. However, by understanding the common types of check fraud and being able to recognize the telltale signs that something might be up, you can prevent check fraud and protect your funds. Looking for methods on how to prevent check fraud should be a priority for every business.