Corporate Check Fraud: Risks, Cases, and Prevention Strategies Explored

In today’s business environment, checks continue to be a widely used form of payment due to their convenience and familiarity. In fact, according to PYMNTS.com, 81% of firms still pay other firms with checks. Despite the comfort that comes with this traditional payment method, the prevalence of checks has also resulted in a persistent risk of corporate check fraud.

With the evolving landscape of financial transactions, fraudsters have become more sophisticated in their methods for committing check fraud. While technology has made it easier for banks to detect and prevent certain types of fraud, it is essential to continuously evaluate and improve the processes, resources, strategies, and technologies employed by your institution. By doing so, you can help mitigate the risks associated with corporate check fraud and maintain trust in your banking services.

Throughout this article, we will walk you through some of the various risks associated with check fraud and explore real-life case studies. Moreover, we’ll discuss the most effective prevention strategies to ensure that your financial institution is doing everything it can to protect its clients and maintain a secure environment for business transactions.

Check Fraud and Business Accounts

Fraud Attractiveness to Businesses

The volume of transactions and the prevalence of checks in business environments make these accounts a prime target for various fraudulent activities. 

Fraudsters employ various techniques to exploit business accounts. On the dark web, criminals share methods and tools that enable them to commit fraud, such as selling stolen checks, creating counterfeit checks, or engaging in embezzlement and employee theft. These activities pose significant risks to businesses and financial institutions alike.

To protect our clients, we continuously stay ahead of emerging trends and new tactics in check fraud. Senior executives in the fraud department of a bank must evaluate their current processes, resources, strategies, and technologies to combat this ever-evolving threat.

Here are some key areas that we recommend considering to strengthen your organization’s fraud prevention efforts:

• Employee Training: Regularly educate your employees on the latest fraud schemes, red flags, and best practices to detect and prevent check fraud.
  
• Technology Implementation: Leverage advanced technologies such as artificial intelligence, machine learning, and image recognition solutions to detect fraudulent activity more efficiently and effectively.
  
• Internal Controls: Implement robust internal controls and policies to minimize the risk of employee theft and embezzlement.
  
• Dual Authorization: Require dual authorization for high-value transactions to reduce the risk of unauthorized transactions.
  
• Regular Audits: Conduct regular audits of your organization’s operations, looking for patterns or inconsistencies that could indicate fraudulent activity.
  

Following these strategies will help your organization stay on the cutting edge of fraud detection and prevention, ultimately safeguarding your business accounts and financial interests. 

Importance of Banks’ Solutions for Corporate Accounts

Business accounts are particularly vulnerable to check fraud due to the higher volume of transactions. To protect these accounts, financial institutions should adopt the following strategies:

1. Utilize technology: Leverage state-of-the-art check fraud detection software to identify counterfeits, forgeries, and alterations while monitoring customer accounts..
2. Adopt advanced Positive Pay features: Standard Positive Pay focuses on reading the MICR account information and transaction amounts. Investing in advanced technologies, such as payee positive pay, will enable payee name extraction for enhanced comparison and fraud detection, particularly for business checks.
3. Educate business customers: Ensure businesses are aware of the risks and take proactive steps to safeguard their accounts, such as using tamper-resistant checks and regularly auditing their accounts for suspicious activity.

Internal Policies and Training for Payment Security

It is important for businesses to implement comprehensive internal policies and provide regular training to ensure payment security. Establishing clear guidelines and maintaining strict adherence to them is essential for preventing fraud within financial organizations.

One crucial aspect of an effective internal policy is setting up strict access controls for sensitive financial information. Limiting access to employee data reduces the risk of unauthorized users gaining access to vital information. Additionally, it is essential to regularly assess compliance and perform internal audits to evaluate our current processes and resources.

As part of our commitment to staying at the forefront of the financial industry, we provide continuous education and training for our employees to remain vigilant against potential fraud schemes. We believe that empowering our employees with the necessary knowledge to identify suspicious activities and report them promptly is crucial in maintaining payment security.

When it comes to preventing check fraud, it is vital to implement technology solutions that can identify and flag potentially altered checks. Staying updated with the latest advancements in fraud detection allows us to employ tools that can effectively minimize the risks associated with fraudulent checks.

Reviewing Corporate Check Fraud Use Cases

Bob’s Farm Services bookkeeper charged with grand theft, forgery for alleged check fraud in excess of $100,000

In June 2023, Bob’s Farm Services bookkeeper Kelli Jones was arrested and charged with forging checks in excess for $100,000. Documents from the state investigation allege Ms. Jones rewrote many of her payroll checks to be higher than her actual pay, as well as forged checks while her employer was out of town, over a period of more than two years.

This is a classic case of poor internal controls and oversight on the payment process. Businesses should be reviewing check payment policies to ensure that a singular person is not controlling the entire process. 

From a banking perspective, positive pay systems would not be enough to catch the check fraud – as it appears Ms. Jones would be the person submitting the issuer. However, if the bank was deploying behavioral analytics and image forensic AI, the fraud would have been detect with a combination of anomalous behavior/transaction for checks written to Ms. Jones, along with the image forensic AI detecting the forged signature. 

GEN3 Electric: Stolen Checks from Mail

In Philadelphia, PA, GEN3 Electric has become a victim of the mail theft/check washing scheme. According to the article, the business mailed checks from a local blue mailbox and subsequently, 6 or 7 were stolen and washed – totalling $140,000. The report notes that the payee names and amounts were altered, but since the checks amounts were significant, the banks followed up with the customer to ensure that these were legitimate. 

This is a case all too familiar – but with a positive result as the banks were able to stop the deposit before any losses were taken. Whether it was a bank teller with proper training, or the utilization of image forensic AI that analyzed the check and detected an alteration (amount threshold, amount discrepancy, or writer style inconsistent), this is an example of where a bank was able to protect its client. 

Postal worker among 3 charged in $24 million stolen check scheme

Charlotte, NC, Postal Service worker, Nakedra Shannon, and two co-conspirators were arrested and charged for a stolen check scheme. Ms. Shannon used her position at the postal office to funnel stolen checks to her co-conspirators to sell these stolen checks on the encrypted messaging platform Telegram.

This is an example of a public servant abusing her position. Banks can mitigate stolen checks by deploying dark web monitoring services that actively scan the dark web and messaging platforms like Telegram from account holder information and stolen checks. 

Protecting Corporate Clients – A Collaboration

Unfortunately, corporate business accounts are a huge target for fraudsters because of the number of transactions performed and the larger amount of funds in their accounts compared to personal checking accounts. 

While businesses need to assess their internal processes, banks can assist by deploying technologies to detect fraudulent checks. This type of collaboration provides both the business and the bank with a strong defense against check fraud.