Check fraud covers a range of illegal practices, including insufficient funds, check kiting, and paper switching. Physical alteration of paper checks is another form of fraud. Modern banking practices have made some forms of check fraud more difficult to commit.
Considering the number of checks written every day around the world, it’s sometimes easy to forget that each one is a legally binding financial instrument. A paper or electronic check serves as a symbol of good faith between the parties, based on the trust that an equivalent amount of cash exists in a legitimate bank account. Any time that trust is breached, the result is known as check fraud. Check fraud covers a number of illegal and/or deceptive practices, from counterfeiting to kit checks to embezzlement.
The most visible form of check fraud results from checks written on accounts with insufficient funds. A store owner may accept a check from a customer for services or goods, only to discover that the check has not cleared the bank due to insufficient funds. Sometimes the problem is simply an oversight, and other times the check writer is fully aware that the check was invalid at the time of purchase. This check fraud scheme costs the store owner the original value of the merchandise, plus any additional fees charged by the bank. The same individual may continue to write bad checks in other areas until apprehended. It is not unusual for local law enforcement agencies to allow criminals the opportunity to comply with bad checks before making check fraud arrests.
Another form of check fraud is called check kiting or floating check. Some criminals will open two separate checking or savings accounts, then write fraudulent checks to local vendors or individuals. While the bank processes these checks, the criminals will transfer funds between the two accounts to temporarily inflate the balances. Prior to recent advances in electronic banking, there would generally be a short delay between receipt of a check and actual processing. This “float time” allowed criminals just enough time to keep each account viable until the checks cleared their bank. However, modern banking practices have made this form of check fraud much more difficult to commit. The amount of time between receipt and submission has been significantly reduced.
A form of check fraud similar to the non-sufficient funds scam is called paper switching. Role switching involves the deliberate use of a closed account to write fraudulent checks. The check writer knows the account is closed, or else they will use stolen checks from someone else’s closed account. The checks have not been physically altered, but the account information is no longer valid. Criminals who commit paper cash check fraud are typically hampered by a fixed number of checks, which means they often purchase large items and leave the area before discovery. Many are caught after trying to reorder checks on closed accounts.
There are other forms of check fraud that involve the physical alteration of a paper check. Some unscrupulous employees may forge an authorized signature on fake payroll checks or other company accounts, for example. A thief may attempt to cash a stolen check by forging the victim’s signature. Some recipients of a legitimate check may alter the amount by adding zeros or rewriting the amount entirely. Another form of physical check fraud involves the use of chemicals to remove the original ink, allowing the criminal to rewrite the entire check. Others may use high-end color copiers to duplicate a stolen payslip or personal check. However, the use of magnetic inks on legitimate checks has curbed the widespread use of photocopied checks. Experts also suggest using gel pens instead of traditional ballpoint pens, as the ink inside a gel pen is more likely to stick to the fibers of the check paper.
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