For companies of all sizes, check fraud is a real—and costly—risk.

Even as other payment methods (like ACH, mobile, and card payments) gain in popularity, paper checks still make up 33% of B2B transactions¹, according to the Association for Financial Professionals. And check fraud seems to be on the rise. According to the Financial Crimes Enforcement Network, a unit of the US Treasury Department, banks saw an 84% increase in check fraud in 2022 over 2021.²

As a bank serving businesses of all kinds, HomeStreet is dedicated to staying on the cutting edge of fraud detection and protection. While we can’t guarantee your business will never fall victim to check fraud, we are working hard to protect your business. And you can play a role, too. In this guide, you’ll find a wealth of information about check fraud, including the most common types of check fraud and the steps you should take if you suspect—or confirm—fraud. If you still have questions after reading this guide, don’t hesitate to reach out to your HomeStreet Bank banker or call us at 800.719.8080.

What is check fraud?

Check fraud happens when a criminal manipulates a paper or digital check in order to defraud a legitimate payer. While financial cybercrimes and electronic payments fraud are top of mind for many organizations, it’s important to remember that check fraud still occurs, and you should remain vigilant.

There are two main kinds of check fraud:

• Front-of-check fraud: This includes both fully counterfeit checks as well as checks where any important details have been altered.
• Back-of-check fraud: This includes missing, forged, or improper check endorsement. Mobile deposit fraud is also included in this category.
  

Front-of-check fraud

There are two common types of front-of-check fraud.

• Altered checks: In this scenario, a criminal will alter the name, the payment amount, or both, before depositing a check. Here’s an example. A business uses a check to pay a trusted, legitimate vendor. But, the valid check is intercepted en route to the vendor and a criminal alters the payee line and/or the payment amount, and is able to successfully deposit the check themselves.
  
• Counterfeit checks: Unlike altered checks, which are legitimate checks that you have issued, counterfeit checks are fakes, designed to look like real checks. In this scenario, a criminal obtains your account number, routing number, the design of your checks, and uses their own name and signature to create fraudulent checks with design software.

How to protect against front-of-check fraud:

• Use Positive Pay: HomeStreet offers Positive Pay to business banking customers. You’ll use Business Online Banking to report the checks you issue. Then, we’ll compare the check number, amount, issue date, and payee name to your check issue data. If anything doesn’t match, these checks become “exceptions,” and you can review and decide to pay or reject each check, individually.
• Have internal safeguards in place: Unfortunately, front-of-check fraud sometimes begins in-house, with company employees. Review your accounting processes to ensure that the authorized signer of company checks is not the same person who reconciles the account. Similarly, make sure that more than one person oversees your accounts payable, and consider instituting surprise audits.
• Keep paper checks as safe as possible: Businesses should keep their stock of checks under lock and key, ideally with an access code that is changed frequently. You’ll also want to do everything you can to keep your mailroom safe and secure.
• Go digital: Consider using digital payments like ACH or card payments with regular vendors, instead of relying on paper checks. This ensures that no alterations can be made to a physical check.
  

Back-of-check fraud

As the name implies, back-of-check fraud happens when a criminal forges or alters the endorsement on a check. There are two different types of check fraud that fall under the umbrella of back-of-check fraud.

• Forged, missing, or improper endorsement: The simplest example of back-of-check fraud is a criminal forging the endorsement on the back of a check and depositing it. Alternatively, they may not endorse it at all. Another tactic is a single endorsement of a check that was payable to two parties.
  
• Mobile check fraud: This type of fraud happens when criminals attempt to defraud a business using convenient mobile check deposit technology. Usually, someone will deposit a paper check with their bank’s mobile check deposit app, then attempt to cash the paper check again, either at another bank or a check cashing establishment.

How to protect against back-of-check fraud:

• When sending high-dollar value checks, send through trackable shipping methods: Never send checks, especially high-dollar value checks, through the regular mail. Instead, use a trackable shipping method and keep tabs on each send until you’re sure it’s been delivered. Requiring a signature upon delivery is a smart move as well.
• Securely store outgoing checks: Keep access to your outgoing checks secured so that only you and your authorized employees can access them. Minimizing access to your outgoing checks will reduce the risk of them being compromised.
• Follow best practices to avoid mail theft: Follow best practices including dropping off close to pickup time. Other options include dropping off mail inside the post office or giving it directly to your mail carrier.
• Act quickly: While the bank that accepts the fraudulent check is often liable for the missing funds, recovery isn’t guaranteed and can often take up to 180 business days. So, if you suspect a check has gone missing en route to a payee, take action as soon as possible. If a payee confirms that the check hasn’t been received, reach out to HomeStreet Bank to complete a check fraud affidavit.
  

In summary

Check fraud is an unfortunate reality for businesses, and while there are steps you can take after it happens to recoup your funds, preventing it from happening in the first place is your best bet.

If your business isn’t able to eliminate the use of paper checks completely, the next best thing is to put processes and safeguards in place to minimize risk. Be proactive—review all check-issuing accounts on a daily basis to quickly identify any suspicious activity. Recovery of funds lost to fraud can’t be guaranteed, but the sooner you report a fraud incident, the quicker we can take action. We’re always here to help if you spot a transaction that seems suspect.

If you have questions about the fraud prevention services available to you through HomeStreet Bank, please don’t hesitate to reach out to your HomeStreet Bank banker or call us at 800.719.8080.

^{1. Joanna Oh, “Check Use Drops to All-Time Low for B2B Payments” (2022)}

^{2. CNBC, “Criminals use Telegram to recruit ‘walkers’ as America’s big banks see an 84% increase in check fraud” (2023)}