By Todd Duncan, Law Enforcement and Safety Specialist
With advancements in technology over the past few decades, many individuals and organizations have transitioned to using electronic payment methods instead of issuing paper checks. Despite the popularity of electronic payments, fraud statistics for 2023 reveal alarming trends with paper checks, and as one NIRMA member recently discovered, counties are not immune from this type of crime. Depending on the circumstances, check fraud can result in significant financial losses and reputational damage.
Mail Theft
Check fraud can take many forms, but most cases begin with mail theft. Checks are typically stolen somewhere along the line from the point it is placed in the outgoing mail to the point it is received by the intended recipient or bank. Thieves often steal checks from residential or commercial mailboxes and United States Postal Service (USPS) collection boxes, i.e. the blue USPS mailboxes located in public spaces. Once stolen from the mail, criminals can alter the checks in a variety of ways.
Check Fraud Methods
Once the check has been stolen, criminals use a variety of methods to commit fraud. One of the more common methods is check washing, where criminals take the stolen check and alter the payee and/or amount by using chemicals to remove the original information on the check and replace it with fraudulent information.
As technology has advanced, so have criminal check fraud methods. For instance, thieves are now using scanning devices and editing software to duplicate legitimate checks and then digitally altering check numbers, payee information, and/or amounts. The counterfeit check is then printed out and cashed by the bank.
Despite advances in technology, forgery remains a viable option for criminals. With forgery, the thief gets their hands on a stolen check, often a blank check, and imitates a legitimate signature to authorize a check without the account holder’s knowledge.
Even a well-trusted trusted employee with access to county checks may embezzle funds under the stress of a family tragedy or financial hardship in their personal life. In this case, proper internal controls can go a long way towards protecting employees as well as the county.
Protecting Against Check Fraud
Here are some simple steps you can take to reduce the risk of check fraud:
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- Where possible, opt for electronic payments over physical checks, particularly checks written for large dollar amounts.
- Use gel pens when writing out checks. Gel pens are designed with pigments suspended in a water-based gel, which makes them resistant to most chemicals. Ballpoint pens, on the other hand, use oil-based ink, which settles on the paper’s surface. Once the paper is soaked in water or any other chemical, the ink can wash off relatively easily.
- Avoid using mailboxes. Instead, mail checks directly from your local USPS office.
- Create and follow internal financial policies to ensure there are checks and balances. Everyone handling money should be accountable and know exactly what is expected of them. Examples of effective internal controls include:
- Making sure that employees who are authorized to sign checks are not the same people who reconcile the accounts.
- Requiring two signatures for all checks over a certain dollar amount.
- Keeping supporting documentation for all payments or reimbursements.
- Actively monitoring the organization’s books and records and conducting random audits on a periodic basis.
What To Do If You Suspect Fraud
If you suspect check fraud, it is important to act quickly and with discretion.
- Notify your bank immediately and request a copy (image) of the fraudulent check from your bank so you can provide it to law enforcement. The sooner you notify the bank the better as the bank can help stop the fraud and attempt to recover the funds to prevent the county from experiencing a loss. Furthermore, some banks require you to report check fraud within a certain time period as part of their agreement with the account holder.
- It may be unclear who committed the fraud, so it is important to limit who you tell about the incident to avoid impeding law enforcement from investigating the matter.
- Thoroughly review your bank records to look for other unusual or suspicious activity and follow up with the bank to report additional fraud if applicable.
- Report the incident to your local law enforcement agency.
Aside from the above listed tips, preventing check fraud is a straightforward process. Like most loss prevention strategies, it comes down to good policies, staff training, and consistent oversight.
Please contact Todd at 531-510-7446 or tduncan@nirma.info if you have any questions or would like to request training.
