It may come as a surprise, but checks – which many consider to be outdated – have become the payment type most vulnerable to fraud and are affecting most financial institutions and their customers. According to the Association of Financial Professionals, 65% of organizations surveyed have fallen victim to check fraud.
The Financial Crimes Enforcement Network also noted a troubling pattern in 2023, with over 15,000 Bank Secrecy Act reports filed in just six months, highlighting an increase in mail theft-related check fraud totaling $668 million in potential and completed transactions. These alarming stats emphasize the need for heightened vigilance and enhanced security measures when handling check transactions.
“As criminal tactics evolve, so must our strategies to counter them,” warns Bailee Shipman, Pinion financial institution advisor.
Strategic Steps to Combat Check Fraud
To effectively counter the rising threat of check fraud, financial institutions must adopt a proactive and comprehensive approach. Here are three pivotal steps that can significantly enhance a bank’s ability to safeguard itself and its customers from fraudulent activities:
- Educate your employees. The first line of defense against check fraud is a well-informed and vigilant team. Banks should prioritize regular training sessions that educate employees on the signs of check fraud and the protocols to quickly deal with suspected fraud.
- Communicate risks to customers. Equally important is the role of customer education in preventing check fraud. Banks should create awareness among customers about the potential risks and provide guidance on how to recognize suspicious activity, report issues and safeguard their checks.
- Implement strong internal controls. To fortify defenses further, banks should enhance their internal controls with the following targeted measures:
-
- Verification procedures: Rigorous checks of signatures and amounts on checks should be mandatory, helping to catch discrepancies or unauthorized changes.
-
- Transaction limits: Establish limits for teller cashing and mobile or remote deposit captures to mitigate the risk of large-scale fraud.
-
- Technology verification: Leverage advanced technologies such as Positive Pay, which verifies each check and protects against altered, counterfeit or stale checks, along with software that can detect anomalies and red flags.
A United Front Against Fraud
Through education, communication, and technological advancement, banks and their customers can jointly fortify their defenses against the ever-present threat of check fraud, ensuring the security and integrity of financial transactions in the digital age.
“A united front against fraud not only protects your customer and institution assets, but also strengthens overall trust in the banking system,” shares Shipman.
Refer to the American Bankers Association’s Fraud Contact Directory to help combat check fraud and other types of financial fraud.
Contact a Pinion advisor today for assistance with mitigating your risk and protecting your assets against fraud.
