5 Commonly Asked Questions About Check Fraud Answered

Frank Abagnale Jr., the reformed confidence trickster whose crimes inspired Steven Spielberg’s 2002 film “Catch Me If You Can,” believes that if you make it easy for people to steal from you, they will. And he should know. From checks and diplomas to transcripts, there hasn’t been a document Abagnale couldn’t forge. Although he eventually was arrested and sentenced to 12 years in prison for his cons, Abagnale served fewer than five years before the federal government recruited him to fight the very crimes he successfully pulled off.

Since Abagnale’s “hey day,” a score of criminals has followed in his footsteps. According to the Association for Financial Professionals’ “2021 AFP Payments Fraud and Control Survey,” 74% of the 500-plus treasury and finance professionals surveyed said they were the targets of payment scams in 2020, with checks and wire transfers cited as the most impacted payment methods. While that is smaller than the shares reported in 2018 and 2019, it’s still indicative of a larger problem.

Mail-related check fraud, where thieves break into mailboxes and sell bogus checks on the darknet, has also been rising since August, reported the Evidence-Based Cybersecurity Research Group at Georgia State University. Why? Because it’s easy.

“They take the check. They take a screenshot just in case. And then they use nail polish remover to remove the payee, as well as the amount that the victim essentially wrote on a check,” David Maimon, an associate professor of criminal justice and criminology at Georgia State University and director of the Evidence-Based Cybersecurity Research Group, told NPR. “Once they have that, they take another picture and then they upload the picture with the clean check on several darknets, as well as encrypted communication platforms that facilitate the online fraud underground markets.”

After a pandemic-fueled drop in order count, SAFEChecks, a Simi Valley, California-based company that works closely with Abagnale, is on track to print more checks in 2022 than its entire history. SAFEChecks President Greg Litster said fear is behind the growth in high-security checks coming from larger, more sophisticated companies. Specifically, fear of check fraud and fear of paying a fraudster electronically (e.g., electronic funds transfer, wire, automated clearing house).

“Bogus change-of-bank-and-P.O.-Box notifications sent in by fraudsters are often not adequately vetted by the accounts payable department, and their master vendor files are updated with the fraudster’s information,” Litster noted. “When an EFT payment is sent to the fraudster, the money is gone forever (according to the FBI, 95% of those monies are traced to banks in Hong Kong and mainland China). On the other hand, if a paper check is mailed to the P.O. Box controlled by the fraudster, the fraudster must endorse the check before depositing. Three days after depositing the check, the fraudster wires the money to a different bank account he controls, then withdraws the money or wires it out of the country.”

The difference between these two types of fraud, Litster explained, is that under the Uniform Commercial Code, a forged endorsement is the liability of the bank of first deposit for up to three years — except in Florida and Georgia, where the statute of limitations is one year. With EFT, no such protections exist.

As trusted distributors, it’s not only your job to provide secure solutions, but to restore faith among customers for whom fraud is a real threat. Knowing where to begin in the journey can feel overwhelming. You likely have a lot of questions. Fortunately, we have answers and are addressing some of the most frequently-asked-about topics when it comes to selling checks. Read on for expert input from Litster; Robin Johnson, assistant to the president, SAFEChecks; and Brett Gillis, director of business development Midwest/West Coast, CFC Print & Mail, Grand Prairie, Texas.

I read that paper check usage is declining, so how can fraud rates be up?

The "2022 AFP Payments Cost Benchmarking Survey" revealed that financial professionals are processing fewer checks, with the median volume of checks processed currently at 500-999 per month compared to the 1,000-1,999 reported in 2015. Gillis admitted that personal check use has dramatically decreased, but said business check usage remains strong — particularly in the automotive, oil and gas, construction and insurance verticals.

“[CFC’s] check business is defined two different ways: check shells and custom checks with MICR — neither have we seen a decline in,” he remarked. “Check shell business is typically larger in quantity [25M and up], and the end-user is applying their own MICR, numbering company heading, bank information and variable imaging. Check shell business has in fact grown over the years. Custom check orders remain consistent with little to no growth.”

For Litster, the more concerning trend pertains to ratio. That is, the percentage of small quantity orders (250-500) to larger orders.

“The smaller order ratio is lower than it’s ever been in our 25 years of business,” he observed. “We fear the pandemic and government-forced business shutdowns have destroyed many small businesses, especially in California, where SAFEChecks began and is headquartered.”

How can I protect my customers if it’s so easy for criminals to commit check fraud?

To keep up with old and new fraud attacks alike, suppliers are finding more ways to outsmart crooks. Designed by Abagnale himself, SAFEChecks’ checks contain multiple features that Johnson insisted cannot be replicated. Security measures include a dual-tone true watermark in a controlled paper and the reactivity of thermochromatic ink accompanied by properly worded warning banners.

Another product in the works is a new high-security paper — the only of its kind to have the SAFEChecks logo and Abagnale’s “signature” as the shape of the dual-tone true watermark, Johnson said. Ideal for all checks, but particularly banks’ cashier checks, the paper is expected to roll out just before summer. In addition to the dual-tone true watermark and thermochromatic ink with properly worded warning banners described above, the paper has UV and visible fibers, toner anchorage, chemical reactive ink and UV ink.

“The paper is chemically sensitive to dozens of chemicals, and an exciting new feature is that this sensitivity is embedded in the paper fibers themselves,” Johnson shared. “When ‘washed’ with chemicals by a criminal, the reaction produces black spots that cannot be washed out. This reaction will clearly show that the check has been tampered with and, along with our chemical wash detection box, acts as a strong warning to the recipient to not accept the check.”

CFC Print & Mail also prides itself on using the highest grades of check security papers, available with embedded features, such as security fibers, watermarks and chemical alteration indicators.

But Gillis has been most excited to bring to market V-Dot technology, digital void pantograph (DVP) technology and digital verification grid (DVG) technology. V-Dot technology can be a cost-effective way to provide an anti-copy feature as part of a layered security plan for documents containing color. Its anti-copy function can range from totally blacking out the page or streaking white bars through the image. DVP, on the other hand, causes invisible embedded words and graphics to pop out when the original document is photocopied.

What should I know about controlled stock?

Litster and Johnson agree that using controlled check stock is nonnegotiable. For this reason, all of SAFEChecks’ products have some identifying customization regarding the purchaser printed on the face.

“This is applied in such a way that does not interfere with any company’s check writing software, but ensures that it meets our controlled check stock policies,” Johnson said. “It can be something as simple as a website in small letters along the edge of the check, or a logo in the corner. Checks that are sold completely blank are known as uncontrolled check stock and are a huge contributor to fraud.”

Johnson has noticed a pattern of check manufacturers listing “controlled stock” on their websites. If it sounds too good to be true, it probably is, and SAFEChecks has gone so far as to purchase some of these checks, using a fake company name and a closed bank account, with a credit card, and shipping to a location with a different address than that of the billing address — with no questions asked.

“It doesn’t matter if a check is made out of gold, if anyone can get it in an uncontrolled way, the security features become a moot point,” Litster said.

How does budget play into how secure a check can be?

Johnson was frank about budget, saying, “To scrimp on getting high-security checks is truly penny-wise and pound-foolish.” She pointed out that the actual cost of the check itself is just a few pennies out of the entire remittance process (i.e., filling it out, mailing it, etc.).

That said, there is no blanket approach to fraud protection. Clients differ and so do their security needs. Experts recommend completing a risk-based analysis, which allows distributors to evaluate their customers’ workflows, find holes in their security and offer appropriate solutions. But there are a few best practices to keep in mind.

For example, implement a layered strategy that combines overt, covert, anti-duplication and anti-alteration features to deter duplication and manipulation. Gillis suggested a minimum of seven security features on a negotiable document:

• Chemical reactive paper
• Invisible fluorescent fibers viewable under a black light
• UV Dull (84 bright)
• Security pantograph
• Warning border
• Microprint signature line(s) or microprint border
• CFC chemical wash backer

Distributors should also do their homework when researching supplier partners. Let’s say you recommend a special ink to a client, and they agree to buy that extra peace of mind. If the manufacturer applies the ink in a suboptimal way, it won’t function effectively as a fraud deterrent.

“We have seen ‘security’ checks with thermochromatic ink that was very pale blue in color, almost impossible to see, and it was located on the back of the check with no instructions whatsoever for the recipient to find and test the reactivity of the check,” Johnson said.

Johnson mentioned another interesting — and often overlooked — point related to inks: The type of pen one uses when signing a check matters. “Mr. Abagnale highly recommends the Uniball 207, which has a special gel ink that is extremely difficult to ‘wash’ by criminals,” she added.

How can I best work with my clients to align security needs with the lifecycle of a secure check product?

It’s not all on suppliers. If you’re selling checks, you should be educated about check fraud — not just the types of fraud carried out or the fancy inks used to prevent it (though important). Storage should be part of the conversation because checks have an expiration date.

“Paper absorbs moisture over time, even paper that is shrink-wrapped,” Johnson said. “This absorption can diminish the effectiveness of toner anchorage. For this reason, we do not recommend ordering checks that will stay in storage for over 12 to 18 months. In a similar vein, the glue on pressure seal checks can become less effective over time, and we do not recommend buying pressure seal checks that will be stored for longer than 12 to 18 months.”