By Katie Reiser
Despite the global shift away from checks to other forms of noncash payments, check fraud is surging. The Federal Reserve’s annual “Diary of Consumer Payment Choice” revealed that consumers used checks for only 3% of payments. Yet the Financial Crimes Enforcement Network (FinCEN) reported a staggering increase in check fraud with over 680,000 suspicious activity reports (SARs) filed in 2022 — up from 350,000 in 2021.
Scott Birrenkott, Wisconsin Bankers Association (WBA) director – legal and staff liaison for the WBA Financial Crimes Committee, noted a substantial rise in member inquiries about check fraud, indicating an escalating concern within the banking community. “It’s one of the most frequent calls we get, and it’s risen quite significantly to the point where we’re getting several calls a week on the topic,” Birrenkott said.
Growth During the Pandemic
The U.S. Department of Treasury reported that check fraud has increased nationwide by 385% since the pandemic. Check fraud spiked during the pandemic partly due to the widespread mailing of government relief checks. Criminals exploited the overwhelmed U.S. Postal Service (USPS), with FinCEN reporting a huge surge in mail-targeted fraud. FinCEN and the U.S. Postal Inspection Service (USPIS) joined forces to identify red flags to help financial institutions detect, prevent, and report suspicious activity connected to mail theft-related check fraud.
Birrenkott also noted fraudsters grew bolder in general during the pandemic, stating that, “during the pandemic, there was a lot more online activity, and fraudsters pursued ways that they could exploit this fact, a trend which has continued.”
Mail Fraud Flourishes
Mail theft, particularly involving the theft and misappropriation of USPS “arrow keys” — the master keys that open USPS blue collection boxes — has become rampant. The USPS has even warned against mailing checks, advising that if you must mail checks, drop them off at a Post Office.
Dave Oldenburg, vice president of financial investigations at Tri City National Bank and vice-chair of the WBA Financial Crimes Committee, stressed how easily criminals can access mail and commit fraud. “Things that we once thought were safe, like the blue U.S. Post Office receptacles, no longer are. We’re now looking at an epidemic of those stolen arrow keys, which allows the fraudsters the perfect opportunity to get into the mail, where they start rummaging around,” Oldenburg said.
Detectives Gwen Ruppert and Michelle Viney of the Dane County Sheriff’s Office are veteran fraud investigators who often advise community groups and businesses on fraud prevention. “Don’t put payments in your mailbox at the end of the driveway or on the outside of your building. Take them to the Post Office or use a P.O. box number, so that mail doesn’t sit in your mailbox,” Viney advised. She also cautioned businesses against leaving outgoing mail in accessible areas like office lobbies and strongly recommends treating all business mail as if it contains cash.
Impact of Technology
Technological advancements have made check fraud easier to commit. Debby Bartolerio, chief operating officer at First Citizens State Bank and WBA Financial Crimes Committee member, recalled simpler times when fraudulent checks were harder to produce. “When I was a teller in the 1980s, we learned to look for drawn signatures because photocopies and facsimile signatures weren’t a thing. Now with color copiers, scanners, and checks being moved via image instead of physically transported back and forth, we really don’t have any good way of telling if a check is authentic,” Bartolerio said.
Detective Ruppert echoed this sentiment, explaining how the internet and increased computer access have facilitated check washing, allowing fraudsters to alter checks easily. “People can now smoothly take out the payee or the amount and then easily just reprint your check, and it looks like the original signature,” Ruppert explained. She added that matching check stock can be easily found online, making it simpler for criminals to create legitimate-looking checks.
Oldenburg also noted the relative simplicity of check washing. “They’ll just take that routing number and the account number, get basic check stock at Office Depot, and then give those counterfeit checks to various runners who open accounts at financial institutions,” he said.
Business Accounts at Higher Risk
Business accounts are prime targets for check fraud due to their higher transaction volumes, larger check amounts, and heftier account balances. Birrenkott emphasized the importance of using bank-provided fraud protection tools such as positive pay, fraud protection software, and fraud alerts.
“We see the most significant check fraud on the business side,” Birrenkott said. “That’s not to say there isn’t consumer check fraud, but what we most commonly see is that somebody will get a hold of a business’s checks, fraudulently represent themselves as the business, and start cashing items as though they’re that business.”
Importance of Vigilance and Customer Education
Oldenburg stressed the necessity of businesses reconciling their accounts daily. Proactive monitoring can prevent fraud from escalating. “There’s nothing worse than a situation where the business may not have looked at that check and it’s been five or six days,” he said. “Gone are the days of reconciling your accounts monthly. Customers should be in the habit of reconciling their accounts daily; partnering with their financial institution to make sure that if something is wrong, it can be corrected and that check can be returned.”
Positive pay is a highly effective tool, but Oldenburg warned that fraudsters are becoming increasingly sophisticated. “Fraudsters continue to be savvier, so in conjunction with the service, we recommend that they still reconcile the accounts,” he said. Oldenburg described business impersonation tactics where bad actors create counterfeit checks payable to similarly named businesses, which are fraudulently registered with the Wisconsin Department of Financial Institutions to avoid detection. Vigilant monitoring, particularly of new and unfamiliar endorsements by regular customers, is crucial to detecting and combating these tactics.
Empower Staff and Assure Customers
Ruppert highlighted the importance of frontline staff asking for ID and verifying customers’ identities despite potential discomfort. “I know it feels bad for someone to ask a customer standing in front of them or someone who purports to be the customer, for ID. But it’s important to make sure it’s a legitimate Wisconsin ID, compare the picture and make sure it’s actually that person,” she said.
Ruppert and Viney have countless examples of criminals using IDs stolen from cars and homes with the goal of using those IDs to commit financial fraud. Criminals will recruit a “money mule” (often a homeless or indigent person) who may vaguely look like the photo on the ID and instruct them to negotiate the check at a financial institution.
When financial institutions are clear about Know Your Customer (KYC) protocol to employees and empower frontline staff to ask questions, Ruppert shared, “you’re actually helping to protect your client.” Customers may not always see it that way and can find questioning annoying and intrusive. However, educating customers about the risks of fraud and the reasons behind security measures can help them understand the necessity of these precautions. “It’s to protect them, their finances, and all of their neighbors who are also falling victim,” Ruppert pointed out.
Collaborate, Communicate, and Educate
Fraud-fighting groups like Financial Crimes Investigators (FCI) in South Central Wisconsin and Wisconsin Association of Fraud Investigators (WAFI) in the Milwaukee area, and IAFCI at the international level, provide forums for financial institutions, government agencies, and law enforcement to share alerts and best practices. Jack Femyer, executive director of FCI, praised the value of information sharing in preventing fraud. “I think one of the best things for banks is our alerts which notify banks of potential fraud and theft attempts by bad actors in the area or state to help minimize loss,” Femyer said.
“Fraud prevention is all about information and teamwork,” echoed Birrenkott. In addition to timely email alerts, FCI meets in person every other month, inviting speakers to share strategies and best practices.
Oldenburg stressed the value of participation in anti-fraud groups and involvement with WBA, noting that there is always something new to learn. The WBA Financial Crimes Committee has worked diligently with WBA staff to create helpful resources for fraud prevention, available in the Best Practices Library on the WBA website, wisbank.com. “I encourage financials to be involved because there’s just a lot of knowledge that comes to the table,” Oldenburg said.
When Other Banks Call, Answer
WBA President and CEO Rose Oswald Poels recently shared a comprehensive list of available resources to fight check fraud with members. In her Executive Letter, she noted that check fraud is top of mind for banks across the state. Oswald Poels pointed out that it can be frustrating when another bank in the chain is not responding in a timely fashion. Bartolerio and Oldenburg also stress the importance of helping fellow bankers.
“If you get that phone call, respond to the questions because we’re in this together to stop the fraudsters from getting the money. Working together is the only way we’re going do that,” said Bartolerio, who went on to add, “knowing the other security officers at local smaller community banks is helpful. And if you do get someone that’s helpful at a big bank, be sure to keep their name and phone number because you might not get that same person again.” Bartolerio also finds the American Bankers Association’s Check Fraud Claim Directory useful.
Oldenburg said, “I really encourage people that if somebody calls and they have a fraud problem to be receptive to that.”
Reassuring Victims
Victims of fraud often feel embarrassed and isolated. Victims overcome by shame may not realize how prevalent fraud is. That embarrassment can cause victims to isolate themselves. However, sharing that information may prevent a neighbor, friend, or family member from being the next victim.
Sharing experiences can help prevent others from becoming victims. “We don’t want people to feel bad about this because [the criminals] are very practiced; they’re making their living on it and unquestionably [this fraud] is supporting small governments and terrorist organizations in Africa and the Eurasian continent, with some of this money going to cartels in Mexico,” Ruppert said.
Fighting Fraud Together
Despite the rise of fraud, the industry is prepared to stay one step ahead of the fraudsters. “It’s important to stay on top of fraud trends, and always remain vigilant,” Birrenkott offered. “Take advantage of tools, resources, and technologies where available. Provide information and tips to your customers. The more likely they, and staff, can spot fraud, the more likely you’ll be able to stop it.”
FinCEN, in coordination with USPIS, has identified red flags to help financial institutions detect, prevent, and report suspicious activity connected to mail theft-related check fraud, many of which overlap with red flags for check fraud in general.
- Non-characteristic large withdrawals on a customer’s account via check to a new payee.
- Customer complains of a check or checks stolen from the mail and then deposited into an unknown account.
- Customer complains that a check they mailed was never received by the intended recipient.
- Checks used to withdraw funds from a customer’s account appear to be of a noticeably different check stock than check stock used by the issuing bank and check stock used for known, legitimate transactions.
- Existing customer with no history of check deposits has new sudden check deposits and withdrawal or transfer of funds.
- Non-characteristic, sudden, abnormal deposit of checks, often electronically, followed by rapid withdrawal or transfer of funds.
- Examination of suspect checks reveals faded handwriting underneath darker handwriting, giving the appearance that the original handwriting has been overwritten.
- Suspect accounts may have indicators of other suspicious activity, such as pandemic-related fraud.
- New customer opens an account that is seemingly used only for the deposit of checks followed by frequent withdrawals and transfer of funds.
- A non-customer who is attempting to cash a large check or multiple large checks in-person and, when questioned by the financial institution, provides an explanation that is suspicious or potentially indicative of money mule activity.
By Daryll Lund
By Rose Oswald Poels
By Rose Oswald Poels
