What Is Check Fraud?
Check fraud in this context refers to a fraud perpetrated by a bad actor who uses checks, or images of checks, to make unauthorized purchases or withdrawals.
Business-to-business transactions, many of which still involve payment via check, are especially vulnerable to criminals looking to perpetrate check fraud. Losses due to check fraud affect consumers and businesses across all industries, with an estimated $21 billion in losses reported in 2023. Of those check fraud losses, $1.3 billion was estimated to be sustained by U.S. financial institutions.
Banks play a vital role in consumer and business transactions, with money typically flowing through banks before reaching fraudsters. Because banks are at the heart of most transactions, there is a heightened risk for banks when it comes to check fraud. Banks also face competing obligations to their customers. On the one hand, pursuant to the UCC, a bank is obligated to make deposited funds available for withdrawal; and on the other hand, the bank must have controls in place to detect and prevent unauthorized access to customer funds. This obligation can reside in either side of a money transfer — the bank that releases the funds or the bank that accepts the check (the depositing bank).
As a result, banks need to be diligent and proactive in detecting and preventing fraud, especially check fraud, which has increased significantly over the past few years. Since 2018, check fraud has been increasing steadily, with a significant uptick in reported fraud claims beginning in 2021 and continuing into 2022. The significant rise in this fraudulent activity began in the aftermath of the COVID-19 pandemic, when fraudsters began targeting relief check recipients. From 2021 to 2022, there was an increase of 330,000 check-fraud-related suspicious activity reports (SARs), which represents a 94.3% increase year over year. Over the past three years, reported check fraud has remained high, with an estimated 682,276 check fraud-related SARs filed in 2024, an increase of about 95% since 2020, which had an estimated 350,000 check fraud-related SARs according to reports published by the Financial Crimes Enforcement Network (FinCEN).
In May of 2023, the United States Postal Service (USPS) reported that mail carrier robberies were on the rise, with 412 letter carriers robbed in 2022. There was also an increase in theft from mail receptacles, from 38,500 in 2022 to more than 25,000 in just the first half of 2023. More recently, the U.S. Postal Inspection Service has reported that more than $1 billion in fraudulent checks and money orders have been intercepted annually.
Financial institutions sustained an estimated $1.3B in losses from check fraud in 2023. According to the American Bankers Association (ABA):
* The number of SARs specific to check fraud was not provided in 2019 reports; therefore, estimates were based on a percentage increase in total SARs in 2019 as compared to the prior year.
How Check Fraud Is Perpetrated?
In the wake of rapidly developing technology and the advancement of artificial intelligence, all industries are forced to adapt to new threats and protect themselves against fraudsters who are looking to make a quick buck. But while most companies are focusing on new trends, fraudsters have not wavered from traditional techniques, especially when it comes to check fraud.
There are three main methods used in check fraud schemes: check altering, check counterfeiting and fraudulent signatures.
Check Altering
One tried and true method used to perpetrate check fraud is check altering. This has historically been accomplished by stealing mail from mailboxes or robbing postal workers, then sifting through the mail in search of checks. Once the perpetrators have checks in hand, they use a method called “check washing,” whereby they use chemicals to remove the payee and other information from the checks, typically altering the payee and amount, leaving the account holder’s original signature intact. These altered checks are then cashed or deposited into an account owned or controlled by the fraudster. Many fraudsters who engage in check washing prefer person-less deposit options such as ATMs or mobile deposit applications, which make fraud harder to detect and potentially make it more difficult to catch the perpetrators.
As a recent example, in November 2005, an alleged fraudster pleaded guilty to conspiracy to commit bank fraud in Rochester, NY. The fraudster and his co-conspirators obtained hundreds of stolen checks, which were then altered via check washing. The fraudster later recruited individuals from social media to cash or deposit these checks in their own bank accounts for a small payment. The fraudster was caught with approximately 335 checks that had been stolen between April and June of 2023. There were approximately 227 individual and 36 business victims, in addition to financial institution victims, with losses of approximately $516,912.
90%
of forged checks are drawn on bank accounts that are less than one year old.
According to a FinCEN mail-theft trend analysis report from September 2024, check altering is the most frequently used method of check fraud, which accounted for approximately 44% of Bank Secrecy Act (BSA) reports. Check altering, specifically check washing, is simple enough to make it enticing for criminals. Technology can also be used to make these alterations appear legitimate.
Counterfeit Checks
Another common method used in check fraud schemes is creating counterfeit checks. With this method, fraudsters use bank information to print counterfeit checks that appear legitimate and then deposit those checks with bank tellers, at ATMs or through mobile deposit applications.
An example of a counterfeit check fraud scheme from 2023 involved a crime ring that called itself “Operation Homeless.” This multi-state operation involved persuading homeless individuals to cash fake checks in exchange for a fee. The members of this organized crime ring first obtained signatory names, account numbers and routing numbers for local banks and their businesses. Then, using a laser printer, counterfeit checks were printed with forged signatures of the check signatory for the business. The homeless individuals were then instructed to use their valid ID cards to open a bank account to deposit and withdraw the fraudulently obtained funds. They were even given a change of clothes by the fraudsters to appear more professional before approaching the banks. Many of the fraudsters who perpetrated this type of crime are caught; however, similar schemes are consistently popping up across the U.S. with near-identical processes.
88%
of mail theft-related check fraud reports were filed by banks according to a study by FinCEN between February 27, 2023, and August 31,2023.
Counterfeit checks ranked as the #2 most frequent method of check fraud, accounting for 26% of BSA reports according to FinCEN. The advancement of technology has made sensitive information more accessible, and laser printers are easily purchased at a relatively low cost, which makes the startup costs for this criminal network minimal.
Fraudulent Signature
The fraudulent signature method of check fraud involves the unauthorized use of another individual’s checks via forging their signature or improperly endorsing such checks.
Signature fraud is typically committed by an employee of a legitimate business who has access to their employer’s checkbook and begins issuing payments to themselves. One recent example from November of this year involves a woman from Buttendorf, Iowa, who was arrested on 26 counts of forgery stemming from her creating and cashing fraudulent checks in the name of her employer, the City of McCausland, between April 2022 and March 2025, allegedly obtaining about $61,800. Another situation that could result in signature fraud involves elderly financial exploitation, whereby adult children obtain their elderly parents’ checkbooks and issue checks to themselves from their parents’ account.
Whatever the case may be, the bank might be on the hook for releasing the money to the fraudster. Fraudulent signature was the third most frequent method of check fraud used, accounting for 20% of BSA reports according to FinCEN.
In addition, larger organized crime rings can use a combination of these tactics to perpetrate fraud. In July 2025, a criminal action was filed against a large fraud ring that was operating through the Telegram channel called “White House Vibez.” Four men were charged in connection with a check fraud scheme that netted over $53 million in washed checks, stolen checks and stolen identities. The complaint alleges that this scheme was nationwide and involved stealing checks, forging and altering them, creating false identities and selling checks to others, taking advantage of multiple financial institutions.
With so much fraud circulating through the banking system, banks may bear responsibility for paying out forged or altered checks. Banks are considered to be in the best position to verify signature authenticity and understand the transactions of their customers; therefore, banks must be vigilant and have procedures in place to address growing concerns surrounding check fraud.
How Banks Can Mitigate or Transfer Their Risk
Controls
Implementing controls can help mitigate some of the risks banks face from fraud, particularly check fraud.
- Positive Pay: This automated process matches the check payee with a predetermined list maintained at the bank. Payments to persons or entities not on the list are flagged and not cleared for payment.
- Training: Bank tellers are the first line of defense. Therefore, teller training and the development of relevant training programs are key to mitigating the risk of check fraud. This could include internal training or attending training conferences.
- Educating Customers: Educating customers about the risks of check fraud can also minimize some of these risks:
- Encouraging online transactions rather than mailing physical checks.
- Reminding customers to check their account activity regularly.
- Recommendations to clients, such as using black-gel inks, archival ink or oil-based ink when writing checks, because these inks are more difficult to alter.
- Recommend that clients set up different accounts for different functions, such as separating payroll accounts from accounts payable accounts.
- Requiring the client to follow up and verify when transacting business via check (or otherwise) with their vendors.
- Incident Reporting: Having a system for promptly and appropriately filing SARs and implementing internal incident-reporting protocols can allow banks to closely monitor trends and flag suspicious activity faster.
Similar to the ever-evolving tactics of criminals looking to defraud banks and their customers, the controls put in place by banks to mitigate fraud risk evolve over time as well. Banks can leverage existing methods of fraud prevention along with advancing technology as a means to combat check fraud, among other forms of fraud faced by the industry.
Insurance
As fraudsters improve their tactics, especially with the help of technology, which makes check fraud more difficult to detect, banks still face potential exposure to check fraud risks even with controls in place. Therefore, banks should also have a means of risk transfer to address check fraud and other criminal acts committed against banking institutions.
The insurance solution available for check fraud risk, among other risks, is a bank bond (aka the Financial Institutions Bond, Standard Form No. 24). While it is always better to avoid a loss, banks should be prepared in the event that they do suffer a loss. With respect to check fraud in particular, under a bank bond, the bank could potentially find coverage under forgery or alteration insuring agreement, which typically provides coverage, in relevant part, for loss of money transferred in reliance on forged or altered negotiable instruments, including checks. Additionally, depending on the specific policy language contained in the bond, there may be coverage under other insuring agreements as well.
As bank bonds are heavily negotiated, it is best to partner with a broker that specializes in insurance placements for financial institutions, and banks in particular, to tailor a bond program that meets your specific needs.
Conclusion
There has been a significant increase in check fraud over the past few years, and this fraud continues to cause substantial losses to all industries, including financial institutions. The increase suggests that fraudsters are still able to reap the benefits of their criminal activity. As a result, banks, which are the backbone of many transactions, must be more vigilant than ever. In order to aggressively combat this continuing risk, banks should implement appropriate controls to mitigate their exposure. Even with controls in place, fraudsters continue to push ahead and enhance their tactics using a combination of new and old-school methods to defraud individuals, businesses, and financial institutions. Bank bonds can help fill the gap and transfer some of that risk to insurance carriers.
