In a time of instant payments and digital wallets, you might assume checks are a thing of the past, especially when it comes to fraud. However, check fraud is still rampant.
In 2024, nearly two-thirds of organizations (63–65%) reported being hit by check fraud attempts meaning checks are still the most targeted payment method for fraud, beating out wires, ACH, and cards.
Why? Because checks are still widely used, especially in sectors like government, higher education, and nonprofits. These organizations often rely on checks for vendor payments, grants, and other disbursements, and fraudsters know it. From altered payee names to stolen checks rerouted through the mail, their tactics keep evolving.
In this blog, we’ll discuss how check fraud works, what happens when it’s discovered, the penalties involved, and how your team can stay protected.
We’ll also explore how DebtBook’s Fraud Detection feature, part of our Cash Management solution, helps you identify suspicious activity early before it turns into a costly problem.
What is Check Fraud?
Check fraud is the use of checks to commit fraud usually by stealing money that doesn’t belong to the person cashing or depositing the check. It can involve forging signatures, altering check details, or creating entirely fake checks from scratch. The goal is to trick your organization, or your bank, into paying out funds to the wrong person.
For decades, checks were the standard way of doing business. Vendors got paid by check. Employees got reimbursed by check. Rent and grants were issued by check. But as technology evolved, so did fraud schemes. And while many businesses moved toward electronic payments, a surprising number of organizations still use checks regularly, especially in the public and nonprofit sectors.
That continued reliance, combined with the manual nature of check processing, makes governments, higher ed institutions, and nonprofits more vulnerable.
Without automated controls or real-time monitoring, it’s easy for fraudulent activity to go undetected until it’s too late.
Common Types of Check Fraud
Fraudsters have gotten creative over the years but most check fraud still falls into a few familiar categories. If your organization uses checks, these are the tactics to watch out for:
Counterfeit Checks
These are completely fake checks designed to look legitimate. Fraudsters might copy your check layout, use your organization's name, or even replicate check numbers to pass them off as the real thing.
Altered Checks
In this case, a legitimate check is tampered with, often by changing the payee name or the amount. A check written for $500 can quickly become a $5,000 problem if you’re not reviewing your bank activity closely.
Forged Checks
These involve unauthorized signatures. Someone might steal a blank check and sign your CFO’s name or use imaging tools to fake a signature that’s “close enough.”
Stolen Checks
Unfortunately, many checks never reach their intended recipient. They’re intercepted in transit, sometimes from internal sources, but often through the mail. USPS mail theft is a growing concern, especially with checks being “washed” (chemically altered) and rewritten to fraudsters.
Even one fraudulent check can cause major disruption not just in terms of financial loss, but also in audit risk, reputational damage, and recovery time. That’s why staying aware of these schemes is step one in protecting your organization.
How Does Check Fraud Work?
Let’s say your organization writes a check to a vendor. Somewhere between your office and the vendor’s bank account, that check gets intercepted, maybe it’s stolen from the mail or swiped internally. From there, a fraudster might:
- Alter the check by changing the payee name and amount.
- Forge a signature to make it look like an authorized transaction.
- Deposit it through mobile banking or a fake account.
- Disappear before anyone realizes the funds are gone.
Sometimes, it’s even more sophisticated.
Fraudsters may pose as a known vendor, emailing your team to request a new mailing address or updated payment info. This type of scam, called Business Email Compromise (BEC), is one of the fastest-growing threats in finance. In fact, vendor impersonation is now the most common BEC tactic.
The worst part?
Check fraud is often discovered after the money has already left your account, and recovering those funds isn’t guaranteed. That’s why early detection and proactive monitoring are critical not just to stop fraud, but to speed up recovery if it happens.
How is Check Fraud Investigated?
The longer it takes to catch check fraud, the harder it is to recover the funds. But investigations typically follow a few common steps.
1. Spotting the red flags
Often, fraud is first discovered during routine reconciliation where something doesn’t match, a vendor calls about a missing payment, or a duplicate check appears on a statement. Sometimes, the fraud is only caught weeks later when a bank flags unusual activity.
2. Alerting the bank
Once fraud is suspected, your bank should be contacted immediately. They may be able to reverse the transaction, put a hold on the funds, or begin their own investigation. Banks have dedicated fraud teams and tools, like Positive Pay, to compare issued checks against those presented for payment.
3. Internal review
Next comes an internal look: Who authorized the payment? Was there a breakdown in approvals or workflows? Were any procedures bypassed?
This helps determine whether the fraud came from outside or inside your organization and whether additional controls are needed.
4. Engaging law enforcement or auditors
In many cases, especially those involving large sums or mail theft, your organization may need to file a police report or work with postal inspectors. If the fraud is severe or affects public funds, external auditors may also get involved.
Unfortunately, investigations can be slow, and full recovery isn't always possible. But the faster you catch it, and the more documentation you have, the better your chances of reclaiming the lost funds and preventing future attacks.
Check Fraud Penalties and Legal Implications
Check fraud is a serious criminal offense. Depending on the amount involved and the jurisdiction, the penalties can include significant jail time.
Here’s a general breakdown (although each penalty may differ by state):
- Small-dollar fraud (typically under $500–$1,000) is often charged as a misdemeanor, with penalties that might include fines, restitution, or short-term jail time.
- Larger fraud (over $1,000) usually qualifies as a felony, and the consequences could be multiple years in prison, significant fines, and long-term financial liability.
Additional charges may apply if mail theft, identity theft, or forgery are involved, especially in schemes that cross state lines or involve federal agencies like the USPS.
But it’s not just the fraudster who faces consequences. For organizations, especially those handling public or grant-funded dollars, falling victim to fraud can trigger:
- Increased audit scrutiny
- Reputational damage
- Lost stakeholder trust
- Costly recovery efforts
That’s why prevention and fast response aren’t just good practices but are essential for protecting your organization’s financial health and credibility.
How DebtBook Helps with Check Fraud Detection
Manual processes and delayed reviews create the perfect environment for fraud to go unnoticed. That’s where DebtBook’s Cash Management solution comes in, bringing visibility, automation, and control to your treasury operations so you can detect fraud faster and respond with confidence.
Here’s how our Fraud Detection feature helps you stay protected:
- Daily bank reconciliation
Instead of waiting for month-end surprises, you’ll get real-time insights into what’s clearing your accounts so you can spot red flags the moment they appear and prevent unauthorized transactions. - Automated transaction labeling
Transaction data from your bank accounts is automatically categorized, making it easier to detect unexpected or duplicate check payments without sifting through spreadsheets. - Centralized visibility
See all your cash activity across banks and accounts in one place. No more toggling between systems or relying on outdated reports. - Custom parameters
Review outflows that don’t fit pre-set parameters and quickly identify potential fraud. - Detailed bank records
If something does go wrong, you’ll have clean, timestamped records and workflows to support investigations and recovery efforts.
With DebtBook, you’re not just monitoring your cash, you’re actively protecting it.
Don’t Let Check Fraud Catch You Off Guard
For many organizations, check fraud is still a very real and costly threat. Whether it’s counterfeit checks, stolen mail, or forged signatures, the schemes are evolving and so should your defenses.
You don’t need to overhaul your entire payment system to reduce fraud risk. You just need better visibility, faster detection, and stronger internal controls.
DebtBook’s Cash Management solution gives you all three, helping you spot fraud earlier, respond faster, and safeguard your organization’s financial integrity.
Ready to take control of your fraud risk?
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Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk.
