How to Protect Your Small Business from Check Fraud

Over the past six months, several regional small businesses have fallen victim to check fraud with total losses reaching well over $1,000,000. Unfortunately, these businesses are not alone. According to the Mitek 2023 Mobile Deposit Benchmark Report, nearly one-third of all small businesses in the U.S. were victims of check fraud in 2023. Of those, 65% reported losses exceeding $50,000.

What you need to know about “check washing”

While check fraud can take many forms—fake checks, counterfeiting, forgery, etc.—the type of fraud that’s impacted local businesses is called check washing.

This type of fraud involves changing the payee’s name and/or the dollar amount on checks, often soaking checks in chemicals to remove the original information. Scammers then fraudulently deposit the checks in their own name and, once the money clears, immediately wire it out of the country.

In many cases, the washed checks are stolen from mailboxes. Scammers accomplish this by identifying unsecure or infrequently attended mailboxes. They then patrol the mailbox, looking for patterns in the drop-off, delivery and pick-up of mail. Checks left in unsecure and unattended mailboxes are ripe for the taking.

How to prevent check washing and protect your small business

There are number of things you can do to protect your business from check fraud. Here’s where to start:

1. Keep your mail safe
To begin with, take outgoing mail directly to the post office or hand it directly to your mail carrier for increased secure delivery.

If this is not an option, consider investing in a locking mailbox. However, scammers have been known to pry these open so this approach may not be fool proof.

In addition, don't let delivered mail sit in your mailbox. If you are going to be out of town for an extended period, contact your local post office to pause or even reroute delivery so mail doesn’t pile up in your mailbox. The USPS offers delivery pauses up to 30 days at no charge. 

2. Fill checks out completely using indelible ink
When writing out checks, do not leave any spaces blank for others to complete. The Better Business Bureau recommends only using black gel ink that is "indelible," or long-lasting, and difficult to remove if you aren’t printing checks out. Standard blue or black pens typically contain dye-based ink that can be easily washed off.

3. Review check activity daily
Using Business Online Banking review all checks that are clearing your account on a daily basis. Specifically verify the following is correct:
   •  The payee
   •  The amount
   •  The check number

Verifying the payee information is especially critical as often this is the only information scammers will change. So, while your check number and amount paid may match your records, if you don’t check the payee, you may unwittingly be making it easier for scammers to get away with fraud.

4. Report suspicious activity immediately
If in your review of check activity, you notice something amiss, contact The Co-op IMMEDIATELY.

As a bank, we only have 24 hours to submit a request for return from the time the check posts to your account. The receiving bank of deposit can only send the funds back if they are still on deposit. The faster you act, the more likely you are to get your funds returned.

Ultimately, if we are unable to get funds back from the bank of deposit, you will be out those funds with no further recourse options.

What is The Co-op doing to protect my business from fraud?

The Co-op is committed to protecting your assets and helping you bank safely.

Because checks are highly susceptible to fraud, we offer two non-check payment options that allow you to run your business as usual but more securely.

   •  Automated Clearing House (ACH) platform
   An ACH is a digital service that allows you to direct deposit into other bank accounts. It can be used to pay vendors, employees, and even service providers.

   •  Wire Transfers
    A wire transfer is an electronic transfer of funds via a network administered by banks and transfer service agencies. Wire transfers can only be sent and received by banks and transfer service agencies.  

In addition, small business customers of The Co-op are eligible for a service known as Positive Pay. Essentially a checks-and-balances system to help protect against fraud, Positive Pay compares the dollar amount, check number, and account number of each check presented against a list of the same information as provided by your company. If something doesn't add up, the check will not clear and will be returned for review. * Again, we cannot emphasize enough that check fraud is real. Whichever bank holds your checking account requires your cooperation on assisting a fraud victim to get their funds returned. Check your account daily so your bank has the opportunity to assist you in getting your money back.

If you have questions or concerns about how check fraud or scams in general may impact your business, Contact Us.