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municipalauthorities.org | 33 By Matt Conlin, Institutional Sales & Relationship Manager, PFM Asset Management, a division of U.S. Bancorp Asset Management It might seem like a challenge from a bygone era, but fraud surrounding the use of checks is still a dominant - and costly - issue in the financial markets. Americans write billions of checks each year, and despite the steady decline in the use of paper checks in the U.S., the physical handing of those checks, plus the ready availability of check manipulating information and technology, still encourages widespread fraud. While organizations have increased their allocation of resources to combat cybercrime, check transactions remain one of the most vulnerable financial activities when it comes to fraud. According to a 2023 NASDAQ Global Financial Crime report, losses to check fraud totaled close to $21 billion in North America. That same report noted the filing of 665,500 suspicious activity reports involving check fraud that same year – a 90% increase from 2021. 1 What has made a bad problem even worse is the added element of information sharing on the “Dark Web,” a part of the internet which is accessible only to specific browsers or network configurations, as well as other encrypted platforms. Criminals now have the option of altering checks from individuals, businesses, and organizations, and then selling the account information to others, which P rotECtiNg a gaiNst C hECk f raud Continued on page 60. A decline in usage does not mean a decline in damage adds the risk of identity theft to the list of threats. How did this problem get so severe? A number of elements have come together to make check fraud such a persistently big problem: The nature of checks: Unlike debit card transactions or electronic fund transfers (EFT), checks are paper- based, which requires both a slow clearing process and a greater degree of human involvement. This check- clearing process creates a comfortable margin between when fraud is committed and when it is discovered. Banking legislation: In 1988, Congress passed legislation requiring banks to process checks within a 72-hour period. While this regulation may have succeeded in making depositors’ funds more accessible, it also made passing fraudulent checks easier by giving banks less time to confirm the legitimacy of transactions. Technology: Today’s computer technology makes check fraud relatively simple. A counterfeiter requires only a laser scanner, a personal computer, and a quality laser printer, all of which can be obtained for a few thousand dollars. “Faceless” transactions: According to the American Bankers Association, bank customers used mobile banking from 64% to 77% in the U.S. since 2020. This innovation has given criminals just as much convenience as it has customers: perpetrators no longer have to show their faces at physical branches or ATMs to deposit fake checks. Access to information: The use of the Internet to silently access and steal personal and financial information has become an epidemic. Types of Check Fraud With all of these openings for potential fraud, it is no wonder that a range of check fraud schemes exist across the banking landscape. Although it is impossible to summarize all check fraud schemes here, a handful of the most prominent: Counterfeit checks are presented based on fraudulent identification or are false checks drawn on valid accounts. A person may open checking accounts, cash counterfeit checks, and file false tax returns, using fraudulent drivers’ licenses and other identification produced using computer software. Altered checks are a common fraud that occurs after a legitimate check is issued to pay a debt. A criminal takes the good check and uses chemicals or other means to erase the amount or the name of the payee, so that 1 Nasdaq. “2024 Global Financial Crime Report.” Nasdaq/Verafin. 16 January 2024.