Check Fraud Risk: What Business Leaders Need to Know

Over the last decade, check fraud has evolved from a common but manageable risk into a sophisticated, multi-layered threat that continues to challenge businesses of all sizes. In recent years, check fraud has surged as fraudsters adapt to emerging technologies and vulnerabilities. It’s critical that business leadership understands the current landscape, how fraud occurs, and the best practices that can be implemented to help protect organizations from costly and damaging attacks.

The rising tide of check fraud 

Despite the increasing adoption of digital payment methods, checks remain one of the most targeted forms of payment in commercial fraud schemes. According to the Association for Financial Professionals, nearly 79% of organizations reported experiencing some form of payments fraud in 2024, with checks being reported as the target of fraud by 63% of organizations1 . Additionally, the report noted a 40% increase in check-related Suspicious Activity Reports (SARs) filed with the Financial Crimes Enforcement Network (FinCEN) 2, 3 . This rise in fraud reflects the changing tactics of criminals, who are leveraging both traditional and new methods to exploit the weaknesses in check processing systems. Checks are seen as vulnerable due to their physical nature—making them easier to intercept, alter, or counterfeit. While checks may appear less common in an increasingly digital economy, they continue to be an essential method of payment for businesses, particularly in the context of B2B transactions.

What company executives need to know about check fraud 

As the custodians of their organization’s financial health, those at the top must be proactive in addressing the risk of check fraud. But it doesn’t stop at the boardroom. Senior leaders need to ensure that staff at all levels—from middle managers to front-line employees—are aware of issues like check fraud and take steps to keep the company safe. Check fraud involves the illegal use of checks to obtain money or property. Understanding it occurs, the tactics used by criminals, and the potential consequences of an attack are the first steps in building a solid, proactive defense strategy

This can occur in many forms:

• Check washing: Fraudsters alter the payee name or amount on a check using chemicals or digitally modifying check images (check cooking)
• Forged endorsements: Signing the back of a check made out to someone else and cashing it for themselves
• Check kiting: Exploiting the time it takes for checks to clear between different banks to fraudulently obtain funds
• Paperhanging: Writing checks from closed accounts or deliberately issuing checks without sufficient funds

In many cases, senior financial decision makers may not discover fraud until it is too late. This delay can lead to significant financial losses, damage to business relationships, and long-term reputational harm. Understanding the ways fraud can occur is essential in developing a proactive defense strategy.

Fraudsters often target checks in several ways: 

1. Mail theft: Stealing checks from your mailbox, collection boxes or even postal carriers
2. Counterfeit checks: Stealing account information and creating fake checks.
3. Internal fraud: Employees or insiders with access to company checkbooks or financial systems may be complicit in or carry out fraudulent activities.
4. Data breaches: Criminals may gain access to banking information or account numbers through data breaches, making it easier to create fraudulent checks 

Best practices for helping to protect a business from check fraud

1. Use Positive Pay and ACH Monitor: Positive Pay is a powerful fraud prevention tool that helps detect and reduce unauthorized check fraud. By comparing checks presented for payment against a list of issued checks, Positive Pay alerts the financial institution to discrepancies. Similarly, ACH Monitor helps mitigate unauthorized electronic transfers. Together, these tools offer a strong line of defense against fraudulent activity.
2. Implement Strict Internal Controls: Establishing internal checks and balances is critical. This may include segregating duties so that no single person has access to both the signing and processing of checks. Additionally, instituting dual approval requirements for check payments can help reduce the risk of internal fraud.
3. Use Secure Check Printing: Ensure that your checks are printed using high-quality, tamper-resistant features. This includes watermarks, microprinting, and other sophisticated security features that make checks more difficult to alter or counterfeit.
4. Educate Employees: A well-informed team is one of the best defenses against fraud. Regularly educate employees on how to spot fraudulent activities, recognize suspicious check activity, and follow procedures for reporting discrepancies. An organization-wide awareness campaign can help minimize the risk of internal and external fraud.
5. Monitor Accounts Regularly: Monitoring accounts daily enables staff to help catch discrepancies or fraudulent activities early. Use automated alerts to help notify you of possible suspicious transactions or check activity and reconcile accounts promptly.
6. Invest in More Secure Payment Technologies: Moving away from paper checks entirely may not be feasible for every business, but encouraging more secure digital payment methods can reduce your exposure to fraud. Tools like electronic funds transfer (EFT), ACH payments, and wire transfers offer more secure, traceable payment alternatives to paper checks.

Next steps: Partner with your bank

As check fraud continues to evolve, senior leaders must be vigilant and proactive in their efforts to protect their organizations. Understanding the risks, adopting best practices, and leveraging the latest fraud prevention tools are all essential steps in helping to safeguard a company’s financial integrity. By staying ahead of fraud trends and establishing secure payment processes, those at the helm—and at every layer below—have a responsibility to help their organizations remain more secure and resilient in an increasingly complex financial landscape.

Fraud mitigation is a partnership. Speak with your Relationship Team to learn more about what fraud protection services are right for your organization. 

If you suspect check fraud, immediately contact your financial institution and your local police department.

Author: Dharm Patel

Dharm Patel is the SVP, Fraud Product Management for the Commercial business. Dharm is responsible for the internal capabilities to help protect Commercial clients and the bank from fraud and the products and capabilities our customers can use themselves. Prior to joining M&T, Dharm has served in a variety of senior leadership positions across identity verification & authentication, fraud detection, financial crime compliance, credit risk, and associated data, analytics & technology.