Combating Check Fraud

In this episode of The Herbein Conversation's Fraud Fighters series, host Debbi Fetter, Partner and Managing Director, sits down with Jason Kline, Senior Manager in Herbein's Risk Management practice, to discuss the evolving threat of check fraud.

Fraudsters are using increasingly sophisticated tactics—from check washing to mobile deposit scams—to target businesses and individuals alike. Learn how to spot red flags and implement practical strategies to protect your finances.

Whether you're a business owner or managing personal accounts, this episode will equip you with the knowledge to stay one step ahead of fraud.

Debbi S. Fetter: Hello everyone and welcome to another episode of the Herbein Conversation Podcast where we dive into some of the most pressing issues in the modern workplace.

I'm Debbi Fetter, Partner and Managing Director of our firm's Risk Management practice and host of the Fraud Fighters podcast series; your go-to podcast for the latest in fraud and cybersecurity tips and trends. Join me in welcoming Jason Kline, a Senior Manager in our Risk Management practice, to the Fraud Fighters series. Today we’re going to discuss an age-old yet widely prevalent fraud topic, check fraud.

Jason's expertise in internal controls across our client base, from financial institutions to small businesses and even nonprofits, is sure to add a great perspective on this issue. With that said, Jason, welcome to the podcast.

Jason M. Kline: Thanks Debbi. It's great to be here. Check fraud remains a significant issue even in an era where electronic payments dominate. I'm looking forward to breaking down what businesses and individuals need to know to stay protected.

Debbi S. Fetter: Awesome. Let's start with the basics. What is check fraud and why is it still a major issue in today's digital world?

Jason M. Kline: Check fraud involves criminals altering, forging, or stealing checks to fraudulently withdraw funds. While digital payments are increasing, many businesses and individuals still use checks, making them a lucrative target for fraudsters. The U.S. has seen a resurgence in check fraud due to advancements in counterfeiting and mail theft schemes.

Debbi S. Fetter: That's concerning. Can you walk us through some of the most common check fraud schemes?

Jason M. Kline: Absolutely. There are several prevalent schemes. Some of the top tactics include…

• Check washing: So, this is where fraudster steals a check and chemically removes the ink to alter or rewrite the payee and amount.
• Counterfeit checks: In this example, fraudsters create fake checks using high resolution printers and software that mimic legitimate checks.
• Stolen checks: This one again is on the rise again. Checks are typically stolen from the mail and deposited into fraudulent accounts.

Mobile deposit fraud has become more common, where fraudsters deposit a check via mobile app and then cash it again at a different location.

And then lastly, business e-mail compromise attacks are on the rise. Fraudsters pose as vendors or executives requesting fraudulent check payments

Debbi S. Fetter: It's clear check fraud can take many forms, and the fraudsters aren't afraid to recycle old techniques using modern technology. What are the potential financial and operational consequences of check fraud?

Jason M. Kline: Victims can suffer financial losses, delayed payments, damaged banking relationships and even regulatory scrutiny or credit damage if fraud is not reported and addressed properly.

Debbi S. Fetter: So with that, for our audience's fraud toolboxes, what are some of the warning signs that a check may have been tampered with or is fraudulent?

Jason M. Kline: The techniques are getting more and more sophisticated everyday with high resolution printers and technology, which makes spotting warning signs increasingly difficult. But some key red flags to watch out for are:

• Discrepancies in font or print quality. So counterfeit checks will often have subtle differences in comparison to a standard check.
• Altered check amounts, or payees - the ink looks smudged or overwritten.
• Missing security features such as watermarks or microprinting, which you would typically see on a legitimate check.
• And then unexpected check payments- businesses should verify all outgoing payments in case there are payments going out that should not be.

Debbi S. Fetter: That's great information. What proactive steps can both businesses and individuals take to try to mitigate check fraud?

Jason M. Kline: Sure, A one size approach doesn't fit everybody's needs, but some of the best practices include…

• Don't use checks: Use electronic payments whenever possible. ACH and online banking bill pay are great alternatives to writing a check. If the check isn't in circulation, it can't be compromised.
• Use the fraud detection tools available from your bank: Positive pay services are available at most banks for businesses. Via technology, positive pay services allow banks to verify checks against those a business issues before clearing them. But make sure you understand the service, the role you play in the service, and have your settings properly configured.
• Use blue or black nonerasable gel ink to write your checks: Gel ink soaks into the paper more deeply than ballpoint pen ink, making it more difficult to remove.
• Secure check storage: Keep blank checks in a locked, secure location. Don't allow someone to lift a check and make it all the easier to forge a check.
• Monitor bank accounts regularly: Get into the habit of looking at your accounts online daily for businesses, or at least once a week for individuals. It's easy enough to do via banking app on your phone or logging in on your computer. Look for any suspicious activity. Reconcile your accounts regularly. Also use online banking alerts. These can be easily configured on your online banking app by dollar amount, balance, etc.
• Be wary of mail theft: Use secure mail services when sending checks. Take the checks directly to the post office and avoid leaving mail in your mailbox overnight.

Debbi S. Fetter: Is it also true that when you're picking checks to the post office that you shouldn't leave them in that outside receptacle that you know I can very easily drive through?

I thought I'd read somewhere that fraudsters were actually lifting the checks or envelopes out of those outside containers.

Jason M. Kline: That's correct. Yeah, it's same thing as mailbox for all. They're just grabbing those checks out of there and making way and doing what they do with them.

Debbi S. Fetter: It sounds like the robust measures available for businesses and individuals alike to combat check fraud. This has been really a great and valuable discussion.

Jason, any final thoughts for our listeners?

Jason M. Kline: The key take away is vigilance.  Fraudsters are always adapting, so businesses and individuals must stay proactive. Educate yourself and educate your team.

Debbi S. Fetter: Thanks Jason. This was great information. That's all for today's episode of Fraud Fighters. We hope we've given you some beneficial tools for your fraud toolboxes.

Should you need assistance implementing or identifying gaps in your internal controls that could lead your business vulnerable to check fraud, need guidance on properly setting up your bank products, or just want to talk through some of your fraud concerns, please reach out to our risk management team. And if you enjoyed this episode, I'd like to encourage our audience to listen to our fraud Fighters series, which is available on our website, herbein.com, Spotify and Apple podcasts.

Stay tuned for future topics where we dive deeper into identity theft, construction, industry fraud, phishing scams, and more. Thank you for tuning in and remember, keep up the fight and see you next time fraud fighters!

Protect your finances before fraud strikes. If you’re unsure where your vulnerabilities lie or need help strengthening your defenses, contact our Risk Management team today.