Recently, the Financial Crimes Enforcement Network (FinCEN) told U.S. financial institutions to exercise caution when processing paper checks because they might be fake. Paper checks? Didn’t those go the way of the dodo?
Jokes aside, electronic transfers have indeed replaced paper checks for many consumer and business payments. Yet paper checks are still used at many businesses and check fraud has been increasing. According to FinCEN, banks reported 680,000 check fraud incidents in 2022, almost double those reported in 2021. The U.S. Postal Service has seen similar rises in mail theft, particularly a higher incidence of criminals breaking into collection boxes and robbing postal carriers to obtain paper checks.
Even if your business conducts most financial transactions electronically, you should protect against possible check fraud.
Why thieves like checks
Paper checks are attractive to thieves because they’re easy to alter. Criminals can use household chemicals to “wash” original amounts and payees and replace them with higher numbers and their own names (or those of stolen identities). Or they might use the routing and account numbers of stolen checks and print entirely new ones. Crooks typically deposit the illicit checks in bank accounts set up for this purpose or use the accounts of “money mules” (willing or unwilling accomplices). Then, they try to withdraw funds quickly, before the fraud is discovered.
Check thieves also often take advantage of “dark web” marketplaces to sell stolen checks to other criminals, who may use check information to conduct identity theft schemes. Business checks are considered particularly valuable because business bank accounts usually boast higher balances. Also, it generally takes longer for someone to notice business check fraud than consumer check fraud.
Ounce of prevention
You can limit opportunities for fraudsters to steal your company’s paper checks by using electronic payment methods whenever possible. When it’s not possible, either drop mail containing checks in a well-trafficked USPS collection box close to the pickup time or, even better, take it directly to the Post Office. Don’t drop mail for pickup in an unsecured container — for example in your building’s lobby. It’s an open invitation for theft.
You can increase the odds you’ll discover any check fraud scheme quickly by regularly monitoring your business accounts for anomalies. Be sure to train accounting staffers to look for unusual transactions and suspicious-looking checks. And to prevent possible internal sabotage, adhere to common-sense internal controls. For example:
- Limit the number of employees with access to checks,
- Maintain current signature cards with your bank,
- Immediately investigate any complaints from customers, vendors and employees about payment processing, and
- Segregate accounting duties so that, for example, the person who opens accounting department mail doesn’t also deposit payments.
Although technology has dramatically changed how business in done, old-school tools such as paper checks probably aren’t going to disappear anytime soon. Don’t let checks make your organization vulnerable to fraud. Contact us for help implementing strong internal controls.