Check Fraud Rising to Critical Levels By Kurt D. Kelley

New data shows that check fraud is rising dramatically. According to the American Bankers Association, bank fraud losses rose 65% from $789m in 2016 to $1,300m in 2018. Check fraud has surpassed loan or debt fraud as the number one source of bank fraud losses. Driving the increase is theft of checks sent via the Post Office. In 2022, the Treasury Department saw 680,000 check-fraud reports. This is a 94% annual increase over 2021. It’s sparked a special government alert from the law enforcement division of the post office. 

The physical theft of checks is the most common method of check fraud. Thieves take checks from personal mailboxes, post office provided receptacles, post offices, and mail drop off locations. Next, they fraudulently endorse the check or alter the recipient’s name and or the amount of the check. Next, they deposit the altered check in another bank. Our business owner clients regularly report being victims of this fraud method. 

So Who’s Responsible? 

Having mistakenly accepted a fraudulently altered check, the accepting bank must generally make restitution to the account from which funds were drawn. However, beware. Exceptions apply. Banks can decline to cover the fraud if the account holder is slow to report it or if they have evidence the account holder was part of the fraud. Account holders may be accountable for delays in reporting check fraud. And confusingly, how long the delay must be before the account holder is responsible is unclear. I recently reviewed an account theft from Pentagon Properties and its iconic leader, Spencer Roane. Thieves hacked into a seldomly used bank account, issued themselves a debit card, and made $20k of transfers to themselves before the transfers were noticed. While investigating the theft, Mr. Roane reviewed his multiple company bank account agreements. The agreements are at best confusing, at worst self-contradictory. The account agreements list multiple different time periods during which account holders must report a theft. In Pentagon Properties’ case, since the loss, they’ve been transferred to multiple different departments within their own bank to no avail. Recently, they were referred by their bank to the Consumer Financial Protection Bureau. To date, they’re bank has declined to reimburse their account for the stolen funds. 

Best Business Practices to Avoid Check Theft

To limit your company’s risk of check theft, consider the following: 

1. Only place your mail in secure mail receptacles. After some concerns about theft from my office complex’s mailbox, we installed signs over the mailbox warning they were on video and we improved lighting around it; 

2. Monitor your company checking account daily. Confirm that neither the name nor amount on your checks has been altered; 

3. Notify your bank immediately if you suspect check theft; 

4. Reach out to the intended recipient of checks that linger uncashed to see if the intended recipient has them; 

5. Contact your bank about adding two-factor authentication and other loss prevention services such as positive pay, which has you confirm all checks issued electronically the next day, and; 

6. Add Crime Insurance coverage that can help protect against fraudulent account transfers

President of Mobile Insurance, an agency specializing in insurance for manufactured home communities and retailers. Named top commercial insurance agency by American Modern Insurance Group. Member of numerous insurance companies’ policy development and advisory teams. One of largest manufactured home specialty agencies in the country. 2009 - Present

Kurt D. Kelley, J.D. President Mobile Insurance