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!
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.
Here’s an explanation of how check fraud typically works:
There are several types of check fraud to be aware of, each with unique characteristics. Let’s break them down:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
Help customers recognize fraudulent checks and encourage them to report suspicious activity.
Transparency builds trust and ensures clear communication.
Action steps:
Monitor transactions in real time to detect fraud early.
Setting up alerts can help institutions act quickly and prevent further damage.
Action steps:
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.
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.
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.
Using advanced analytics and machine learning, we help you detect fraud in real-time, even when traditional methods fail, minimizing disruptions to legitimate transactions.
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.