While checks are still a widely accepted payment method, they’ve also proven to be the most problematic way to transfer funds. In fact, according to the 2024 AFP Payments Fraud and Control Survey Report, 65% of respondents reported that their organizations faced this type of fraud attack. Still, avoiding checks as a protective measure isn’t the answer.

In this guide, we’ll provide check fraud protection tips for the common types of check fraud, as well as actions you can take to ensure you avoid check fraud in general. We’ll also explain how check fraud occurs and what you should do if it affects your business. 

How Does Check Fraud Occur?

Check fraud involves using digital or paper checks illegally, either by forging, altering, or stealing them or writing bad checks. Fake checks look like they come from legitimate financial institutions, which makes them difficult to detect.

There are various tactics criminals use to commit check fraud, and the most common ones include:

• Counterfeit checks—Criminals can mimic real checks and create convincing replicas using sophisticated printing techniques. You can detect such checks by comparing them to real checks and relying on security features like watermarks to recognize counterfeits
• Altered checks—Criminals sometimes alter crucial check details like the payee’s name, fund amount, or date. You can identify this type of fraud by monitoring checks and regularly inspecting canceled ones for signs of tampering
• Fake signatures—Check fraud is often committed by forging signatures on checks. You can detect such checks by monitoring check signatures for consistency and using a dual-signature system to improve check security
• Removed/altered check numbers—Criminals may change check numbers to commit fraud, but you can recognize tampering by checking for missing or out-of-sequence numbers
• Delays in check clearance—Criminals may delay check clearance to buy time and commit fraud. If your check is taking an unusually long time to process, you should report it to your financial institution as a preventative measure

What To Do if Check Fraud Occurs

In case of check fraud detection, take action and report it as soon as possible. Even if you’re not fully sure your business has experienced fraud, you should notify your bank so that they can review your account and stop unauthorized transactions.

Besides contacting the bank, here are additional steps you should take to protect yourself and your business from further financial harm:

1. File a police report—Report check fraud to the police to document the incident and start an investigation. This will ensure the perpetrators are prosecuted when caught
2. File a complaint to the Federal Trade Commission (FTC)—Report the crime to the FTC online or by phone. Since the FTC collects data on fraudulent activities, the report you file can help them detect patterns in check fraud cases, leading to investigation and prosecution
3. Contact a check verification company—Companies like VeriCheck and TeleCheck specialize in verifying checks and can help you prevent future misuse of your information in case of check fraud

Check Fraud Prevention Solutions for Different Types of Fraud

Different types of check fraud require different prevention strategies. Here’s how to protect yourself from the following types of check fraud:

1. Check washing
2. Cash-back scams
3. First-party fraud
4. Stolen checkbook
5. Duplicate loss

Check Washing

Check washing is one of the most common scams, and it involves criminals stealing checks, erasing the ink, and rewriting details like the amount of money and the recipient’s name. In some cases, washed checks can even be duplicated and illegally sold.

To protect your business from check washing, you should always write checks using permanent ink. If you’re mailing a paper check, make sure you send it directly to the post office. You should also pick up any checks delivered by mail from your mailbox as soon as possible to prevent them from being stolen.

Cash-Back Scams

To carry out cash-back scams, criminals may pose as customers and use a bad check to overpay for goods or services. They then request a refund for the surplus amount. Once you give them the money back, their check bounces, resulting in time, money, and inventory losses.

You can prevent cash-back scams by:

• Declining overpayments
• Ensuring a check has cleared before providing a refund

To avoid this type of fraud completely, consider only working with trustworthy vendors.

First-Party Fraud

When criminals commit first-party fraud, they may misrepresent themselves as legitimate vendors or suppliers to get you to pay for their goods, which they never deliver. While this type of fraud applies to all means of money transfer, check payments are the most susceptible to it.

To prevent this crime, beware of vendors who try to rush the standard payment process, since they may be trying to quickly steal your money and disappear. You should also always verify a person’s identity before sending them a check by calling their number or looking the business up online.

Stolen Checkbook

As if having a check stolen isn’t bad enough, some criminals may even attempt to steal your business checkbook. This allows them to forge your signature and write checks for various amounts of money. Since checks take a few days to process, they can do serious damage before you suspect fraudulent activity.

To avoid this scenario, make sure you always keep your business checkbook in a safe place and only order the number of checks you’ll need for short-term expenses.

Duplicate Loss

If a person cashes the same check twice, you can be charged double the amount you agreed to pay through the check. Criminals usually do this by cashing the same check through, for example, both a mobile deposit and an ATM. If the check clears both times, they’ve committed fraud successfully.

To protect your business from duplicate losses, only issue checks to vendors and employees you trust. You can also use check monitoring services to confirm that the checks you write match the deposited amounts.

Check Fraud Prevention Best Practices

Check fraud is a serious issue that can cost your business thousands and sometimes millions of dollars. In fact, the Regions Bank has reported losing $135 million to check fraud in only six months in 2023.

While the solutions provided above can help with specific types of check fraud, it’s best to implement comprehensive preventative measures to avoid check fraud altogether. This is why you should:

1. Secure your checks
2. Monitor your bank account
3. Dispose of unwanted documents
4. Report stolen/lost checks immediately
5. Be careful with unexpected checks
6. Beware of phishing attempts
7. Educate your employees
8. Open a high-security bank account

Secure Your Checks

Keep your checks safe with some of the following tips:

• Store your checks in a secure place, such as a locked drawer or safe
• Avoid leaving blank checks in open spaces anyone can access since they may fall into the wrong hands and be used fraudulently
• Consider using tamper-resistant checks, which typically include security features like holograms and watermarks
• Whenever you write a paper check, use indelible ink that’s more difficult to wash
• Try not to leave any blank spaces in front of the payment amount
• Avoid writing blank checks even if you trust the person you’re issuing the check to since black checks allow criminals to write in any amount they want and steal your funds

Monitor Your Bank Account

Monitoring your bank account regularly can help you spot potential fraudulent activity faster, allowing you to report the crime as soon as possible. The most effective way to do this is to review account statements and online transactions frequently. Using mobile or online banking is the best practice since paper statements arrive only once a month.

You should also track all your checks digitally to ensure they get deposited. If you notice that a check hasn’t been deposited for a while, contact your bank to stop the transaction in case of suspicious activity.

Properly Dispose of Unwanted Documents

To prevent criminals from obtaining your personal details, shred any unwanted documents that contain such data—like canceled checks or old bank statements. Shredding these documents instead of tossing them helps ensure your personal information can’t be read, stolen, and used to commit fraud.

Report Stolen/Lost Checks Immediately

If you notice your check is missing, report it to your financial institution immediately to put a stop payment on the check, preventing the person who has it from cashing it. Even if you’re not sure the check is in the possession of a criminal, taking immediate action can help reduce the potential damage that check fraud can cause.

Be Careful With Unexpected Checks

When you receive a check you weren’t expecting, don’t rush to cash it, no matter how tempting the idea may be. Any companies that send you checks for a specific reason will typically provide supporting documentation to explain why they’re issuing you a check. This is why you should always verify unexpected checks before you proceed to cash them.

Beware of Phishing Attempts

If you receive an email or a message requesting your bank information or login data, delete it and never click on any links the email may include. Such cases are usually attempts of phishing, a method criminals use to obtain your personal details. Legitimate banks won’t ask for this type of data, so avoid engaging with such emails.

Educate Your Employees

The best way to implement check fraud protective measures is to educate yourself and your employees on how to recognize the warning signs of fraud. You can organize training on secure check handling and teach your employees what to do if they suspect fraudulent activity. As a part of the training process, you can:

• Have multiple employees handle payroll, make deposits, do bookkeeping, and reconcile bank statements
• Cross-train employees to take care of basic financial functions
• Train employees to perform basic internal audits

Open a High-Security Bank Account

While using the above-listed protection methods can help you reduce the risk of experiencing check fraud, this type of crime sometimes slips through the cracks. This is why you should consider keeping your company funds in a bank account with strong security features.

Many banks detect and flag security flaws after financial fraud has already happened. However, a high-security banking platform increases the safety of your funds by helping prevent fraud from happening altogether.

The best account that provides such advanced fraud protection features is FortKnox—a high-yield savings account with enhanced security that helps protect your company’s finances from fraud. It also blocks electronic debits to the account and forbids transactions with financial institutions previously associated with fraud.