Check Washing: The Invisible Threat
As a small business owner, you're constantly on the lookout for ways to protect your company from financial loss. You may have invested in top-notch cybersecurity measures, implemented strict accounting protocols, and even hired a team of experts to monitor your financial transactions. But there's one threat that may be flying under your radar: check washing.
Check washing is a growing problem that's becoming increasingly sophisticated. It's a type of financial scam that can have devastating consequences for small businesses, resulting in significant financial losses and damage to your reputation.
What is Check Washing?
Check washing is the process of altering or manipulating a check to steal funds from a business or individual. The criminal process often begins with the theft of checks from mailboxes or postal boxes.
Once the criminal has the check in their possession, they use a combination of common chemicals—such as acetone or bleach—to carefully remove the ink without damaging the physical check.
Once the check is washed, it's typically filled out with new information, redirecting the funds to the scammer’s bank account. For instance, a check originally meant for a supplier could be altered and cashed by the scammer instead, causing significant financial loss to the business owner.
The Dangers of Check Washing for Small Businesses
Small businesses are particularly vulnerable to check washing due to their often limited financial resources. A single fraudulent transaction can disrupt cash flow, potentially leading to missed payments to suppliers and employees.
In addition to the immediate financial loss, check washing can damage your business's reputation, as clients and vendors may perceive it as untrustworthy or poorly managed.
As a small business, every dollar counts. The effects of check washing can be devastating, impacting not only your financial stability but also the trust and confidence of your stakeholders.
How Check Washing Works
Scammers employ a variety of methods to acquire and manipulate checks. Understanding these tactics can help you safeguard your business.
Check washing is a multi-step process that requires a combination of technical expertise and audacity. While the exact methods may vary, the typical steps involved in check washing are:
Mail Theft
Often, scammers start by stealing checks directly from mailboxes or postal collection points. They target outgoing mail, looking for envelopes that might contain checks.
Scammers watch for businesses or individuals who receive high-value checks, such as real estate transactions, investments, or large commercial payments.
Check Tampering
Once in possession of a check, scammers have a variety of techniques to alter the payee, amount, or both. They may use mechanical or manual methods to alter its information. This involves sophisticated techniques to imitate handwriting and signatures. Alternatively, they may use computer software to create a duplicate check with new information .
Chemical Washing
As an alternative to tampering, some scammers use chemical washing to erase or remove the ink from the check. This can be done using a variety of chemicals and solvents, leaving the check blank and ready for fraudulent use. The scammer can then rewrite the check to a new payee for an amount of their choice.
Deposit
The final step is to deposit the altered check into the scammer's account. The scammer may deposit the check electronically or by mail, or they may use an accomplice to deposit the check in person.
Red Flags and Warning Signs: How to Spot Check Washing
While financial institutions work hard to spot altered checks, some still slip through the cracks. Be sure to check your statements and accounts to verify that your checks were cashed as written. There are several red flags that can indicate a check has been washed. By being aware of these signs, you can take steps to prevent check washing and protect your business from financial loss.
Changed Check Information
The most obvious sign is that the payee or amount do not match what you originally wrote. Carefully examine your check images and verify that no obvious changes have been made. If you see any suspicious changes, notify your financial institution immediately.
Unusual or Suspicious Endorsements
You should also check the endorsement on the back of the check. Unusual and suspicious endorsements can include ones that are not typical for the payee, or endorsements that appear to be altered or rewritten.
If possible, become familiar with how your checks are generally endorsed by your payees so you can spot any changes. For example, if a check is made payable to one of your suppliers, but the endorsement is in the name of an individual you don’t recognize, it should raise your suspicions.
Altered, Illegible, or Faded Writing
Another warning sign of check washing is altered or illegible writing. This can include writing that appears to be scratched out or rewritten, cramped and oddly spaced writing, or writing that is difficult to read. Be wary of checks with writing that appears to be intentionally obscured or altered, as this can be a sign that the check has been tampered with.
Unusual or Missing Security Features
Modern checks often include advanced security features, such as watermarks, holograms, and color-shifting ink. If a check is missing one or more of these features, or if the features appear to be altered or tampered with, it may indicate that the check has been washed.
Corrected or Rewritten Information
Check tampering often involves correcting or rewriting information on the check, such as the payee or amount. Be wary of checks with corrected or rewritten information, as this can be a sign that the check has been fraudulently altered.
How to Protect Your Business from Check Washing
While it’s difficult to completely safeguard your check once it leaves your hands, there are several steps your business can take to make check washing both more difficult and easier to detect. Following these protocols can significantly reduce your risk of check washing and protect your business from financial loss.
Use a Positive Pay System
One of the best ways to protect your checks is to sign up for Positive Pay. In a Positive Pay system, you create a file for your checks that includes important information like amounts, check numbers, dates, and sometimes payee information, then provide this file to your financial institution.
When your checks are presented for payment, they’ll be compared with your list and anything that doesn’t match will create an exception that will be sent back to you for review. You can then review the issue and choose whether or not to pay the check, or to reject it, giving you extensive control over the checks your business writes.
Implementing Internal Controls
Another important step in preventing check washing is to implement internal controls for check handling and processing. This includes:
· Establishing a secure check handling and storage process at your business.
· Limiting access to checks and check-related information to authorized personnel.
· Implementing an approval process for check issuance and processing.
· Conducting regular reviews of check transactions and account activity.
By establishing these controls, you can reduce the risk of checks being intercepted or altered, and ensure that checks are handled and processed securely.
Investing in Security Checks
Using checks with advanced security features is another effective way to prevent check washing. These features can include:
· Watermarks and holograms
· Tamper evident features
· Color-shifting ink and microprinting
· Security threads and foil strips
· Numbering and serialization
While these types of checks can cost a bit more, they also make it much more difficult for scammers to alter or manipulate your checks.
Educating Employees
Educating employees on check washing and its warning signs is also crucial in preventing this crime. This includes:
· Providing training on check-handling and processing procedures.
· Educating employees on the warning signs of check washing, such as altered or illegible writing.
· Encouraging employees to report suspicious activity or transactions
· Conducting regular reviews and audits to ensure compliance with check handling procedures.
By educating employees, you can empower them to detect and prevent check washing, and ensure that they are handling checks securely.
Regular Account Audits and Monitoring
Finally, regular audits and monitoring are essential in detecting and responding to potential check washing attempts. This includes:
· Conducting regular reviews of check transactions and account activity
· Monitoring for suspicious activity
· Conducting audits to ensure compliance
Stay Vigilant, Stay Secure
Check washing is a serious threat to your business, and it's essential to be proactive and vigilant in protecting against these scams. By taking proactive measures like safeguarding your checks, investing in Positive Pay, and training your employees in the signs of check washing, you can help your business stay secure and protect your financial future.
If you have any questions about Positive Pay or how we monitor for fraud, stop by your nearest branch to talk to us today. We’re happy to help!