Three in four organizations are still using checks, according to the 2024 AFP Payments Fraud and Control Survey, underwritten by Truist. This is despite 65% of survey respondents reporting that they were impacted by check fraud in 2023 — the most of any payment method.

Check fraud related to mail theft, in particular, has become a significant issue for organizations. The number of Suspicious Activity Reports (SARs) has increased by 40% for checks and by 57% for mail, as reported by FinCEN.

In February 2023, an alert issued by FinCEN warned financial institutions of check fraud schemes. Fraudsters targeting the United States Postal Service intercepted mail to steal checks and alter the payee information, thereby ensuring funds were transferred to the criminals’ accounts.

Resolving check fraud is complex due to the multiple banks and various clearing channels that need to be involved to ultimately get to the individual fraudster. “By the time research is conducted to find out who actually received it and what the funds were, oftentimes, those perpetrators have moved on, whether that’s because they’ve taken over an account somewhere or opened something up fraudulently,” said Chris Noe, Head of Wholesale Payments Product at Truist.

Recovery of lost funds is not guaranteed. Thirty percent of respondents to AFP’s survey reported that their organizations were unable to recover funds lost due to fraud.

Given all the vulnerabilities of checks, why are they still so prevalent? “I think it’s because of convenience,” Noe said. “And in the case of our wholesale clients, many have built processes around the processing of checks that have become deeply ingrained.”

Check Fraud Controls

For organizations that continue to use checks, safeguarding against check fraud is paramount. There are several controls that provide strong protection against check fraud.

Ninety-three percent of respondents to AFP’s survey reported that their organizations have implemented positive pay or daily reconciliation and other internal processes to curb check fraud. Nearly all (94%) survey respondents found positive pay to be effective or very effective in mitigating check fraud.

Eighty-five percent of survey respondents reported using payee positive pay, and 97% of respondents found it to be an effective check control. Reverse positive pay was also found to be an effective check control by 90% of survey respondents, though only 51% reported to have implemented it.

Other common check fraud controls include segregation of accounts by function for single purpose (cited by 87% of respondents) and tamper-resistant features on checks (85%).

An area for improvement at most organizations is around how checks are dispersed. Despite the increase in check fraud related to mail theft, over 80% of organizations continue to mail checks using USPS general mail — without tracking information.

Using a commercial carrier (such as FedEx, UPS or DHL), including tracking with mail sent via USPS, and using eChecks are ways to improve controls around how checks are mailed.

Making the Switch to Digital Payments

In the end, the best way to avoid check fraud is to stop using checks entirely. Digital payments — in any form — are more secure than paper checks. They are also faster and cheaper.

“Whether it’s clearing a check through your financial institution or having to deal with postage — and, of course, all the overhead associated with the processes to try to keep checks secure — the cost is pretty high,” Noe said.

If you have a vendor that is still using checks, start a conversation to get them to switch to a different payment method. “Talk about the challenges or opportunities for the payer in terms of fraud risk, speed of settlement and overall cost,” Noe said.

Advancements in payment rails mean there are many alternative ways to ensure payment is sent to the correct person in a timely manner.

“What’s unique about where we are today from a broader digital payments perspective is the multitude of ways that you can pay and get paid,” Noe said. “Now is a better time than ever to start looking at ways you can begin to move off of sending checks.”

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