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Business Banking

Check Washing Fraud: A Growing Threat to Businesses Everywhere

June 24, 2024

Check washing fraud is a form of financial crime that poses a significant threat to businesses right here in our community. This deceptive practice involves altering checks by erasing or modifying the ink to change the payee’s name and/or the amount.

The Impact on Your Business

Check washing fraud can have devastating consequences for businesses of all sizes, especially small to mid-sized enterprises. Here are some ways it can impact your business:

Financial Loss: The altered check leads to immediate financial losses for the business, impacting cash flow and profitability.

Operational Disruption: Dealing with the aftermath of fraud, including investigating, reporting, and recovering funds, can disrupt day-to-day operations and divert resources.

Reputation Damage: Discovering that checks have been tampered with can erode vendors trust and damage the business’s reputation in the community.

2024: 80% of Businesses Fall Victim to Fraud

While we have omitted names to protect the identity and privacy of our customers, the following examples are recent real check washing incidents that unfortunately happened right here in our community.

Physical Payroll Checks

A local restaurant issued physical checks for payroll. Their banking information was stolen from one of these checks, the fraudster then fabricated checks using the restaurants account and routing number and proceeded to cash them at a local casino.

How: When physical checks are distributed you lose confidentiality of your banking information and control of who has access to it. With the convenience of mobile deposit, physical checks are now at risk for increased exposure as they are often not properly destroyed or kept in a secured environment.

Loss: Unfortunately the small family business didn’t have any safeguards in place and lost weeks of time picking up the pieces.

CCFBank Support: Our Treasury Management team assisted the customer with immediately subscribing to Positive Pay. By doing so, they were able to reject the future fraudulent checks that attempted to post to their account. Saving thousands of dollars.


Mailed Vendor Payment

A local agricultural services provider mailed payment to a vendor for over $130,000. The check was stolen from the mail and the fraudster simply washed and changed the payee name. The check was then cashed at a Chase Bank in Texas.

How: When physical checks are mailed it’s not just our friendly local USPS professionals that we know and trust who handle the envelope. It is passed through many facilities, in several states and transported on planes, trains and automobiles before reaching its rightful recipient. Unfortunately that means there are abundant opportunities for fraudsters to intercept your mail.

Loss: Sadly the agricultural services provider didn’t have any safeguards in place and is currently out the funds while they work with law enforcement to attempt recovery, though it is not guaranteed. Additionally, after contacting their insurance provider to file a claim they learned that this type of fraud is capped at an amount of $2,500 – a fraction of their loss.

CCFBank Support: Our Treasury Management team has since assisted the customer in subscribing to Positive Pay, and provided training on transitioning to ACH vendor payments for added security.

 

 Best Practices to Mitigate The Risk

  1. Positive Pay Services: CCFBank banks offer positive pay services, where you provide a list of issued checks to the bank. The bank then matches incoming checks against this list, flagging any discrepancies for your review.
  2. Use Security Checks: Invest in high-security checks that include features such as watermarks, micro-printing, and chemical protection. These checks are more difficult to alter or wash.
  3. Secure Mail Handling: Ensure that outgoing mail, especially containing checks, is securely sealed and sent through reputable postal services. Avoid dropping your checks in an unsecured mailbox and raising the flag for pick-up by your postal carrier. Consider using registered or certified mail for added security.
  4. Regular Reconciliation: Conduct regular reconciliations of your bank statements with your accounting records. Promptly investigate any discrepancies or unfamiliar transactions.
  5. Employee Training: Educate your staff on the signs of fraudulent checks, such as altered ink, mismatched fonts, or irregularities in the payee’s name or amount.

Regulations & Reporting Time Frames

When your business suspects check washing fraud, it is essential to act swiftly and follow proper reporting procedures. Here are some general guidelines and regulations to keep in mind:

Federal Regulations: Under the Uniform Commercial Code (UCC), businesses have 30 days from receiving a bank statement to report unauthorized or altered transactions. However, the sooner fraud is reported, the better the chances of recovery.

State Regulations: State laws may vary, so it’s crucial to be aware of your state’s specific reporting requirements and time frames.

Report to Bank: Immediately notify your bank of any suspected fraudulent activity. Provide as much detail as possible, including check numbers, dates, and amounts.

File a Police Report: In many cases, businesses are required to file a police report for check fraud. This official documentation is essential for investigations and potential legal actions.

Notify The Payee: If the altered check was intended for a specific payee, promptly inform them of the situation. Provide evidence of the fraud and work with them to resolve payment to minimize any unnecessary fees.

CCFBank’s Positive Pay Protection

A fraudster recently intercepted a $100,000 check from a local construction equipment supplier and attempted to wash and cash it.

Positive Pay For The Win: Thankfully the customer subscribes to Positive Pay and the system flawlessly identified the fraud attempt, returning the check before it posted to the customers account.

No Loss, No Interruption: Zero dollars were lost and their cash flow was uninterrupted. Business continued as usual.

Added Insurance, Peace of Mind

While there is a small fee to subscribe to the service (roughly $1,000 annually), it pays for itself when our system successfully stops fraud.

CCFBank is committed to helping businesses safeguard their finances and navigate the complexities of fraud prevention. Our team of Treasury Management experts is here to support you with tailored solutions and guidance to protect your business against check washing fraud and other financial risks.

Written by Rebecca Reinhardt

Rebecca Reinhardt is a Senior Vice President of Treasury Management in the Chippewa Valley and Mondovi communities.

Rebecca has worked in banking for the past 30+ years! She specializes in building relationships in the...

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