Check Fraud Prevention

Types of Check Fraud Schemes

Various fraud schemes that involve checks include the following:

1. Counterfeit Checks
   • Counterfeit checks are the largest source of fraudulent checks
   • Today’s criminals use various desktop publishing software applications to copy valid checks and related check information
   • Selected information on these checks is changed while valid check components remain on the item lending themselves to their authenticity
   • Almost any kind of check can be counterfeited (i.e. cashier’s checks, government checks and personal checks)
2. Forgeries {Maker Signatures / Endorsements}
   • Usually involves the use of legitimate checks with a forged account holder’s signature
   • Forged signatures are perpetrated by a person known to the account holder; or involve the outright theft of checks or check information
   • Forged endorsements may involve the theft of valid checks that are then cashed and/or deposited by an individual other than the payee
3. Altered Check (Amount or Payee)
   • Altered checks occur after a legitimate customer issues a valid check
   • The check is then altered in some form to change or amend certain fields on the check such as the date, amount or payee name
   • This new information is then entered or added directly onto the check; for example, the written check amount is increased resulting in an overpayment of that check
4. Closed Account Fraud
   • This occurs when checks are written off a closed account
   • These checks are primarily passed at retail type store and businesses
   • Customers need to destroy all unused checks from any closed account relationship to mitigate this type of fraud loss 

Check 21 Processing / Electronification of Checks

To make check processing faster, Banks no longer send the actual paper checks to receive payment.  Banks now exchange this payment information electronically. A federal law, Check Clearing for the 21st Century Act (Check 21) was signed into law on October 28, 2003 and became effective on October 28th, 2004. The Act makes it easier for Banks to electronically transfer check images instead of physically sending the actual paper check. The Act allows for financial institutions to replace the actual “original” check with a substitute check. These substitute checks are paper copies of the front and back of the original check and can be processed as if they were the original check. Merchants will also convert paper checks to electronic ACH transactions to speed up the processing of the payment to them. The ACT significantly speeds up overall check processing and helps to reduce check fraud by providing the financial institution early notification on the return of any suspect item.

Check Fraud Prevention and Mitigation Measures

Customers have a duty to report unauthorized signatures, alterations and forgeries and have fourteen (14) days from the date that they receive their statement to contact the Bank regarding any unauthorized transaction.

Consumers – What you can do

• Perform daily account monitoring using the ADK Bank online banking application
• Review bank statements regularly
• Perform timely account and bank statement reconciliation
• Utilize ADK Bank online banking tools and applications such as setting up real time alerts for accounts with Notifi
• Utilize ADK Bank online bill payment methods for regular monthly expenses
• Notify the Bank as soon as you discover any unauthorized transactions, lost checks, or any type of suspect transaction
• Do not give your checking account information to anyone you do not know
• Fully read and understand the Bank’s terms and conditions and disclosures for all accounts
• Properly safeguard and / or dispose of both new and cancelled checks
• Close any compromised bank accounts and move to a new account relationship
• Report any lost or stolen checks or debit cards immediately

Businesses – What you can do

• Perform proactive daily account monitoring using the ADK Bank online banking application
• Review bank statements regularly
• Sign up for and utilize the Bank’s positive pay service
• Perform timely account and statement reconciliation
• Utilize ADK Bank online banking tools and applications i.e. notify and alert
• Notify the Bank as soon as you discover any unauthorized transactions, lost checks or any type of suspect activity.
• Move to electronic payment methods (ACH) for vendor payments, expenses, etc.
• Fully read and understand the Bank’s terms and conditions and related disclosures for all accounts
• Close any compromised bank accounts and move to a new account relationship
• Use care when issuing and or sending an amount for refunds as these types of checks are commonly used for check fraud
• Properly safeguard and / or dispose of both new and cancelled checks
• Report any lost or stolen checks or debit cards immediately