The name Frank Abagnale Jr. is synonymous with check fraud and counterfeiting. His story, which was popularized in the 2002 film “Catch Me If You Can,” starred Leonardo DiCaprio as the master imposter himself. Starting when he was just a teenager in the mid- to late-1960s, Abagnale managed to defraud banks and businesses out of more than $2.5 million by forging fraudulent checks. By the time he was finally apprehended by the FBI at age 21, he had cashed more than 17,000 bad checks across 26 countries.
Though times have changed nearly 60 years later, Abagnale’s schemes serve as a warning to banks and businesses to be on high alert for check fraud.
The Resurgence of Check Fraud
Check fraud is on the rise again, though today’s schemes look different than in past decades. Rather than relying solely on forging payroll checks like Frank Abagnale Jr., modern check fraud involves multiple players and more complex operations.
Criminals now target personal checks, business checks, tax refund checks and checks related to government assistance programs, such as Social Security or unemployment payments by mailbox-fishing and identifying specific envelopes likely to contain checks. Once acquired, fraudsters employ a technique called check washing in which they use common household chemicals to erase key details like the payee’s name and payment amount, while leaving the issuer’s signature intact. The checks are then dried and re-written for modest amounts to avoid suspicion and remain within the account balance.
In 2021, United States financial institutions reported more than 350,000 cases of potential check fraud to the Financial Crimes Enforcement Network, which was a 23% increase from 2020. The upward trend continued in 2022 with the number of potential check fraud cases reported reaching more than 680,000, almost double the reports from 2021.
Banks are struggling to keep up with the rising tide of fraud, a persistent issue that continues to evolve into new sophisticated forms. The three most prevalent check fraud schemes currently involve stealing canceled checks and statements to obtain new checks, check washing and stealing blank check stock. While banks used to reimburse defrauded customers within days, the surge in cases has significantly slowed the refund process. As times have changed, both banks and customers alike must remain vigilant against these evolving criminal schemes, particularly those targeting checks and mail theft.
Ways a Fraud Examiner Can Identify Check Fraud
A fraud examiner has several techniques at their disposal to catch check fraud in its tracks. One method is to verify check number sequences to see if any checks are missing or stolen. If suspicious activity is found, payment can then be stopped on those checks. Additionally, fraud examiners should closely analyze expense and payroll checks made out to employee names or simply “cash” to identify unauthorized payments disguising fraudulent activity.
The check register itself can provide key insights through careful examination — an investigator can look for duplicate check numbers, checks made out on the same date for the exact same dollar amount, but to different payees, or checks without any related invoices in the financial system. Making note of purchases without purchase orders can also help uncover bogus checks being cut.
By thoroughly employing these methods of validating check numbers, examining payee names closely, watching for duplicates, confirming document trails and identifying suspicious purchases, a diligent fraud examiner can catch many forms of check fraud and prevent further financial damage.
While check fraud has evolved over the decades, the underlying issue persists. Modern schemes show criminals continuously adapt their techniques to exploit financial systems. As in Abagnale’s time, ongoing vigilance and timely responses are key for banks and businesses to mitigate losses from the resurgence of check fraud.
Read More: The Evolution of Check Fraud
SOURCE: ACFE Insights – A Publication of the Association of Certified Fraud Examiners