Combating Check Fraud with Effective Prevention and Detection Strategies
Preventing and detecting check fraud plays an important role in ensuring the continued trust, safety and security in the payment system. Check fraud creates financial and operational risks for financial institutions, businesses and individuals across the United States. It has led to billions of dollars lost to criminals and countless hours spent resolving check fraud claims.
Explore this module to:
- Learn about how people, processes and technology can work together to mitigate check fraud
- Become familiar with common practices for preventing and detecting fraudulent checks
Setting the Stage: Deposit Fraud Adds Up
This example highlights how even low-dollar fraud due to weaknesses in account onboarding procedures and insufficient transaction monitoring for new accounts can result in large losses and operational expenses.
Scenario: A financial institution had an influx of new account applications within a short time in an isolated geographic area. Within the first week after the new accounts were opened, customers began depositing hundreds of $200 paper checks in these accounts using ATMs. The funds made available from the deposit were quickly withdrawn as cash. Days later, the checks returned as fictitious, since they were drawn on a closed account.
Resolution: An investigation revealed the same group of individuals opened the accounts, initiated the deposits and then withdrew the funds. As a result, the financial institution reassessed its onboarding processes, adjusted its fraud monitoring models and imposed more stringent limits on ATM deposits for new accounts.
Downloadable Resources
Explore these resources for additional information on preventing, detecting and classifying check fraud.
| Document Title | Format | Reading Time |
|---|---|---|
| Combating Deposit Fraud: Considerations for a Financial Institution (PDF) | Document | 6 minutes |
| In-Clearing Check Fraud Prevention: Stopping Fraud at the Paying Bank (PDF) | Document | 5 minutes |
| Revisiting the Unauthorized Check Fraud Scenario from Toolkit Module 2 (PDF) | Document | 2 minutes |
| Revisiting the Authorized Check Fraud Scenario from Toolkit Module 2 (PDF) | Document | 2 minutes |
| Mitigate Fraud with People, Processes and Technology (PDF) | Document | 5 minutes |
Explore the toolkit modules below for resources to help prevent and detect check fraud.
The check fraud mitigation toolkit was developed by the Federal Reserve to help educate the industry about check fraud and outline potential ways to help detect and mitigate this fraud type. Insights for this toolkit were provided through interviews with industry experts, publicly available research, and team member expertise. This toolkit is not intended to result in any regulatory or reporting requirements, imply any liabilities for fraud loss, or confer any legal status, legal definitions, or legal rights or responsibilities. While use of this toolkit throughout the industry is encouraged, utilization of the toolkit is voluntary at the discretion of each individual entity. Absent written consent, this toolkit may not be used in a manner that suggests the Federal Reserve endorses a third-party product or service.