Check fraud isn’t restricted to the accounts payable and payroll checks of businesses. Virtually all types of checks are targeted for fraud. Some of the other types of checks targeted are: other corporate checks (T&E, commissions, claims, dividends, freight, refunds, etc.), money orders, cashier’s or teller’s checks, certified checks, traveler’s checks, postal money orders, pre-authorized drafts, personal, and government checks (federal, state and local). Regardless of the purpose for paying the check there is the potential for check fraud.

Some of the types of check fraud include:

Counterfeit
Altered
Forgery
Closed Account (Paperhanging)
New Account
Identity Assumption
Kiting

 

 

Counterfeit
Counterfeit checks are imitations or copies of genuine checks. They are drawn on valid bank accounts and the checks may or may not be a precise duplicate of an actual check it just has to have valid bank account information. This type of fraud can be committed with or without valid check stock or signatures.

Some criminals will order check stock through a mail order company with accurate company information printed on the checks, others will use computers, software and other tools to generate their own versions of a company’s checks.

Counterfeit checks, also includes checks that are presented for payment using fraudulent identification.
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Altered
Occurs when a legitimate check is issued by a valid drawer and is altered without the drawer’s approval. Either the payee or a criminal, who has illegally obtained the check, modifies the dollar amount or payee name and attempts to present the check.

Chemical agents or other means can be used to erase or alter the amount of the check or the name of the payee so that new, fraudulent information can be entered. Highly secure check stock can help guard against altered check fraud.
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Forgery
Forgery refers to stolen checks. Legitimate, and unused, check stock is acquired by criminals who then create bogus checks and forge the payor signature.

Forgery also includes forged endorsements, where a valid check is issued but the is lost or stolen before the payee receives it. The payee’s endorsement is then forged and a criminal represents himself as the payee.
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Closed Account (Paperhanging)
This type of fraud is based on checks being written against closed accounts and exploits the float time involved between depositary and paying banks. Criminals either obtain checks for the closed account or create their own and deposit the checks in an account at another bank. Criminals exploit the lag between the availability of funds provided by the depositary bank and the notification by the paying bank of the closed account status. Closed account fraud is helped when companies don’t destroy check stock from closed accounts or when they are lax in notifying banks of their account status.
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New Account
Criminals open bank accounts using either fraudulent identification or by assuming the identity of others and commit fraud by depositing bogus checks. Criminals exploit the lag between the availability of funds provided by the depositary bank and the notification by the paying bank of the returned bogus check.
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Identity Assumption
This type of fraud involves obtaining information on a bank customer such as account and company information, and then misrepresenting themselves as the valid bank customer. If successful in obtaining the necessary information and assuming the identity of the bank customer, criminals can change existing account information, open new bank accounts, change bank services, create fictitious transactions or prepare checks drawn on valid accounts. Kiting Kiting is the process that takes advantage of float to create fraudulent balances with two or more bank accounts at two or more institutions.
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Kiting
Kiting is the process that takes advantage of float to create fraudulent balances with two or more bank accounts at two or more institutions.
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