Understanding the different types of check fraud is essential to protect your customers and their assets. This guide will explore the most common types of check fraud and provide tips on how to recognize them.
Let’s dive into it!
What is check fraud?
Check fraud occurs when a fraudulent individual or group illegally manipulates checks to gain money or goods.
This can include altering a legitimate check, using counterfeit checks, or taking advantage of banking systems to deposit money that doesn't belong to them.
Once detected, check fraud can lead to significant financial losses, legal complications, and a damaged reputation. It’s important to stay vigilant and learn how to spot the red flags of check fraud.
For more information about check fraud, you can check out this blog post.
How does check fraud work?
Here’s an explanation of how check fraud typically works:
- A fraudster creates or obtains a check: The fraudster either creates a counterfeit check or steals a legitimate one.
- They alter or forge the check details: The check is either altered or forged to change the payee, the amount, or other details.
- The check is deposited or cashed: The fraudster deposits or cashes the check through various means (bank teller, ATM, online deposit).
- Banking systems are fooled: The fraudulent check might initially clear due to banking systems not catching the red flags immediately.
- The fraud is discovered: The legitimate account holder or financial institution eventually realizes the check is fraudulent, leading to investigation and potential loss recovery efforts.
- Investigations and legal actions are taken: Legal measures are put in place to track down the fraudster, often with financial institutions involved in recovery or dispute processes.
Types of check fraud
There are several types of check fraud to be aware of, each with unique characteristics. Let’s break them down:
1. Counterfeit checks
Counterfeit checks are fake checks created to resemble legitimate ones closely.
These checks are often produced using advanced techniques to replicate the appearance of real checks, including watermarks and bank logos.
When to look out for it?
Counterfeit checks are commonly used in scams or fraudulent transactions where the fraudster attempts to pass off a fake check as genuine.
Key indicators:
- Poor print quality.
- Missing security features, such as watermarks.
- Unusual fonts or inconsistent layout.
2. Check washing
Check washing is a technique where fraudsters erase the ink from a legitimate check and rewrite it with new details, such as a different payee or amount.
This method often targets checks that are lost or stolen.
When to look out for it?
Check washing is typically performed on checks intercepted in the mail or from other unsecured sources.
Key indicators:
- Overly faded or “washed-out” checks.
- The check’s details don’t match the original account holder's records.
- Strange markings or signs of tampering on the check.
3. Duplicate deposits
Duplicate deposit fraud occurs when a fraudster deposits the same check into multiple accounts, often using different channels, such as mobile deposits and traditional bank tellers.
When to look out for it?
This type of fraud can be more challenging to spot but can lead to issues if checks are deposited multiple times.
Key indicators:
- Multiple deposits of the same check into different accounts.
- Unusual patterns of deposit frequency or method.
4. Forged signatures
Forged signature fraud happens when a fraudster signs someone else’s name on a check to cash or deposit it.
When to look out for it?
This type of fraud typically occurs when the fraudster gains access to another individual’s checkbook or account details.
Key indicators:
- Signature that doesn’t match the account holder’s handwriting.
- Unfamiliar payee names or account numbers.
5. Account takeover fraud
Account takeover fraud occurs when a fraudster gains unauthorized access to a bank account, often through hacking or phishing, and writes checks from the victim’s account.
When to look out for it?
This fraud typically happens when hackers steal personal information, such as bank account details, and gain access to accounts.
Key indicators:
- Unexplained checks were written on the account.
- Unusual transactions or withdrawals that don’t align with normal account activity.
6. Synthetic Check Fraud
Synthetic check fraud involves creating a fake identity using stolen or fabricated information and then writing fraudulent checks under that identity.
When to look out for it?
Synthetic fraudsters typically bypass traditional fraud detection methods by creating entirely new identities, making it harder to identify fraudulent behavior.
Key indicators:
- Checks issued from new or unfamiliar accounts.
- Inconsistent personal information on the check.
7. Post-date fraud
Post-dating fraud involves writing a check with a future date and attempting to deposit or cash it before that date, often to take advantage of delayed detection.
When to look out for it?
This fraud usually happens when the fraudster plans to take advantage of banking delays or changes in processing schedules.
Key indicators:
- The check is presented for payment before the post-dated day.
- Unusual payee or signature on the check.
8. Bad check writing
Bad check writing occurs when someone knowingly writes a check with insufficient funds in the account to cover the payment.
This type of fraud often happens when the fraudster intentionally bounces the check to avoid paying for goods or services.
When to look out for it?
This fraud typically targets businesses or individuals who issue checks without verifying sufficient funds.
Key indicators:
- Frequently bounced or returned checks.
- A pattern of insufficient funds or overdraft activity.
9. Overpayment scams
Overpayment scams involve a fraudster sending a check for more than the required amount and asking for a refund of the excess, often in a different form, such as cash or wire transfer.
When to look out for it?
This type of fraud often targets businesses or individuals selling goods and services, particularly in online marketplaces.
Key indicators:
- A check written for more than the sale price.
- Requests for refunds to be sent in a different form, such as cash or money transfers.
10. Mystery shopping check scams
In mystery shopping scams, fraudsters offer to pay individuals as “mystery shoppers” and send them a fake check for the job.
The individual is then instructed to deposit the check and use the funds for various tasks, often including transferring money.
When to look out for it?
This fraud preys on people seeking legitimate side jobs or remote work.
Key indicators:
- Receiving unexpected checks with instructions to perform tasks or wire money.
- Requests for personal financial details or banking information.
11. Personal assistant check scams
Personal assistant check scams involve a fraudster posing as someone who is hiring a personal assistant and instructing them to deposit a fraudulent check and then send the funds elsewhere.
When to look out for it?
This type of fraud usually targets people looking for administrative or remote work.
Key indicators:
- Checks from unfamiliar companies with no clear business relationship.
- Instructions are given for transferring or wire money after depositing the check.
12. Car wrap decal check scams
Fraudsters offer to pay someone to wrap their car with advertisements (decals) and send them a fraudulent check for payment.
The scammer may ask the individual to transfer some of the funds or cover certain fees.
When to look out for it?
This scam is often targeted at individuals looking to make extra money through advertising opportunities.
Key indicators:
- Offers to wrap your car in advertisements for an upfront payment.
- Requests to transfer funds after depositing the check.
13. Fake prize check scams
Fake prize check scams involve a fraudster sending a check claiming the recipient has won a prize, but the check is counterfeit or invalid.
Often, the fraudster will ask for a fee to claim the prize.
When to look out for it?
This fraud preys on people hoping to win prizes or sweepstakes, often with unexpected checks arriving by mail.
Key indicators:
- Receiving checks for prizes you didn’t enter.
- Requests for “fees” to claim the prize or deposit the check.
14. Business email compromise (BEC) check fraud
BEC check fraud occurs when a fraudster gains access to a business email account and issues fraudulent checks, typically under the guise of a trusted vendor or business executive.
When to look out for it?
BEC fraud often targets businesses, particularly those with wire transfer or check payment systems.
Key indicators:
- Unfamiliar checks issued from familiar business accounts.
- Suspicious emails or requests from company executives or vendors.
15. Mobile deposit fraud
Mobile deposit fraud involves a fraudster depositing a counterfeit check using a mobile banking app and withdrawing the funds before the bank detects the fraud.
When to look out for it?
This type of fraud takes advantage of mobile banking apps, making it easier for fraudsters to bypass traditional bank systems.
Key indicators:
- Deposits made via mobile apps from unknown accounts.
- Duplicate checks deposited through different channels.
16. Check kiting
Check kiting involves writing checks between multiple accounts to artificially inflate the available balance, with the fraudster intending to withdraw funds before the checks clear.
When to look out for it?
This fraud is often used to create the appearance of available funds by moving money between accounts.
Key indicators:
- Frequent transfers between accounts with insufficient funds.
- Bounced checks after deposit or withdrawal.
17. Paperhanging
Paperhanging occurs when a fraudster writes checks with no funds in the account, intending to leave the checks unpaid, often as a form of fraudulently avoiding payment.
When to look out for it?
This fraud typically targets individuals or businesses with insufficient funds or poor banking history.
Key indicators:
- Unpaid checks that are written with no intention of being covered.
- Frequent overdrafts or bounced checks.
Check fraud prevention
Preventing check fraud is essential for maintaining financial security and customer trust.
By implementing fraud detection systems and educating customers, financial institutions can minimize fraud risks.
Here are some key strategies:
1. Implement advanced fraud detection tools
Leverage AI, machine learning, and behavioral analytics to spot suspicious patterns before fraud occurs.
These tools help financial institutions flag anomalies in real time, preventing losses.
Action steps:
- Use AI-powered fraud detection systems to analyze transactions.
- Integrate biometric or dynamic authentication for high-risk transactions.
2. Real-time decisioning for check deposits
Implement systems that instantly approve or reject checks based on predefined criteria.
This accelerates the deposit process while preventing fraudulent checks from clearing.
Action steps:
- Set up alerts for flagged checks.
- Offer customers transparency by notifying them of real-time decisions.
3. Educate customers & Provide transparency
Help customers recognize fraudulent checks and encourage them to report suspicious activity.
Transparency builds trust and ensures clear communication.
Action steps:
- Provide fraud awareness programs and resources.
- Offer fraud prevention tools, such as alerts.
4. Continuous monitoring & Real-time alerts
Monitor transactions in real time to detect fraud early.
Setting up alerts can help institutions act quickly and prevent further damage.
Action steps:
- Set up continuous transaction monitoring.
- Notify staff and customers immediately when suspicious activity is detected.
How can Valid Systems help you prevent check fraud?
Valid Systems is an AI-driven provider of risk management and fraud prevention solutions, designed to help businesses stay ahead of evolving threats.
By leveraging advanced behavioral analytics and machine learning, Valid Systems proactively detects emerging fraud patterns, offering real-time protection to safeguard your organization.
InstantFUNDS©
Our platform allows customers to opt for a small convenience fee for immediate access to guaranteed funds. With sub-second decisioning, we ensure checks are approved or rejected in real-time, helping you streamline deposit processing and reduce risk.
Real-Time Loss Alerts (RTLA)©
We detect up to 75% of potential check deposit charge-offs in real-time, providing actionable insights to help prevent fraud right at the point of presentment and protect your institution.
INclearing Loss Alerts
Using advanced analytics and machine learning, we help you detect fraud in real-time, even when traditional methods fail, minimizing disruptions to legitimate transactions.
VALID Edge Check Data Consortium
With access to data from over 420 million accounts and $6 trillion processed annually, we help you detect check fraud using predictive features, enabling proactive fraud prevention at scale.
Schedule a free consultation with Valid Systems today and discover how our advanced solutions can help protect your financial institution from check fraud and secure your transactions.