Check tampering

What Is Check Tampering?

Check tampering is a form of occupational fraud that involves altering a check for illicit purposes or creating a fraudulent check. This type of financial crime falls under the broader category of asset misappropriation and typically occurs when an individual, often an employee, has access to an organization's checks and accounting records. Check tampering schemes can range from forging a signature on a blank check to altering the payee or amount on a legitimate check that has already been issued. The objective of check tampering is to divert funds for personal gain, causing financial losses to the victim organization or individual. Effective internal controls are crucial in preventing and detecting check tampering.

History and Origin

Check fraud and tampering have evolved alongside the widespread use of checks as a primary payment method. In earlier times, rudimentary alterations or forgeries were common. With advancements in printing technology and digital tools, the methods used for check tampering have become more sophisticated. Today, fraudsters can employ techniques like "check washing," where chemical solvents are used to remove ink from legitimate checks, allowing them to rewrite the payee and amount. The Federal Reserve Bank of Atlanta has noted that while the overall number of checks paid has declined, the value of possible check fraud grew significantly from 2018 to 2021, and the average value per check involved in fraud also rose substantially, highlighting the persistent threat check tampering poses.⁹

Key Takeaways

• Check tampering is a fraudulent scheme involving the alteration or creation of checks for illicit personal gain.
• It is a common form of occupational fraud, often perpetrated by employees who have access to an organization's financial instruments.
• Detection relies heavily on robust reconciliation processes and strong internal controls, such as separation of duties.
• The financial impact can be significant, with organizations losing substantial revenue to such schemes.
• Check tampering remains a prevalent issue despite the shift towards electronic payments.

Interpreting Check Tampering

Understanding check tampering involves recognizing the various ways it can manifest within an organization's cash management and payment systems. It's not always about a completely fake check; sometimes it involves subtle changes to a legitimate one. For instance, an employee might alter a check issued to a legitimate vendor after it has been signed, changing the payee to themselves or an accomplice, or increasing the amount. In other scenarios, an employee might create an entirely fictitious vendor and issue checks to it, then cash those checks. The ability to interpret the signs of check tampering requires careful review of disbursements, bank statements, and bookkeeping records. Red flags often include duplicate check numbers, missing check numbers, or significant discrepancies between the accounts payable ledger and the bank statement.

Hypothetical Example

Consider "Company A," a small business with limited staff, where John handles both invoicing and reconciling the bank statements. A common check tampering scenario could unfold here.

1. Opportunity: John notices that the owner, who is very busy, often signs checks without thoroughly reviewing the supporting documentation.
2. Execution: John prepares a check for a legitimate vendor, "Office Supplies Co.," for $150. The owner signs it.
3. Alteration: Before mailing, John uses correction fluid or a similar method (known as "check washing") to erase "Office Supplies Co." from the payee line and writes his own name, "John Smith." He then changes the amount to $1,150.
4. Cashing the Check: John deposits the altered check into his personal bank account.
5. Concealment: When the bank statement arrives, John, being responsible for reconciliation, alters the company's internal records to reflect a payment of $1,150 to "Office Supplies Co." This prevents immediate detection by simply comparing the ledger to the statement. The $1,000 difference is concealed, perhaps by inflating another expense or deferring legitimate payments.

This scheme could go undetected for months without proper auditing or oversight.

Practical Applications

Check tampering is a significant concern in financial reporting and corporate governance. Organizations, particularly small and medium-sized businesses, are often vulnerable due to less stringent internal controls compared to larger corporations. The Association of Certified Fraud Examiners (ACFE) reported in their 2024 "Report to the Nations" that check and payment tampering schemes accounted for a notable percentage of occupational fraud cases, with median losses that can be substantial.⁸ Financial institutions are also on the front lines, as they are often the first to encounter altered or forged checks. The Federal Reserve, through its Payments Study, tracks trends in payment fraud, including check fraud, and collaborates with financial institutions to mitigate risks.⁷,⁶ Law enforcement agencies, such as the U.S. Department of Justice Fraud Section, actively investigate and prosecute cases of check tampering and other forms of white-collar crime to protect the integrity of the financial system.

Limitations and Criticisms

One of the primary limitations in combating check tampering is the human element: the override of existing internal controls. Even with well-designed safeguards, a determined fraudster can sometimes find ways to circumvent them, especially when there is a lack of proper supervision or collusion among employees. The ACFE's 2024 report highlighted that over 50% of occupational frauds occurred due to a lack of internal controls or the override of existing controls.⁵ Another challenge is the sheer volume of checks still in circulation, particularly in business-to-business transactions, which provides ample opportunities for fraudsters.⁴

The ease with which criminals can obtain personal and financial data from checks, such as bank account and routing numbers, further exacerbates the risk, enabling other financial crimes.³ Furthermore, victims of check tampering, especially individuals, may face significant hurdles in recovering lost funds and resolving related identity theft issues. The IRS frequently warns taxpayers and businesses about various scams, including those involving fake or altered refund checks, underscoring the ongoing threat.²,¹

Check Tampering vs. Check Fraud

While often used interchangeably, "check tampering" is a specific category of the broader term "check fraud."

• Check Tampering: Refers to schemes where an individual alters a check that has been legitimately issued (e.g., changing the payee or amount) or creates a fraudulent check from scratch, often within an organizational setting. It typically involves an internal actor, like an employee, who exploits access to the payment process.
• Check Fraud: A much wider category encompassing all forms of illicit activities involving checks. This includes check tampering, but also extends to external schemes like check kiting (exploiting float times between banks), counterfeiting (producing entirely fake checks), and paperhanging (writing checks on closed accounts). Identity theft can also lead to check fraud, where an external party obtains banking information to forge checks. In essence, all check tampering is check fraud, but not all check fraud is check tampering.

FAQs

What are common signs of check tampering?

Common signs include duplicate check numbers, missing check numbers, alterations on the check itself (e.g., different handwriting or ink), unusual payees, checks made out to "cash," or discrepancies between bank statements and the company's ledger or financial statements.

How can businesses prevent check tampering?

Prevention strategies include implementing strict separation of duties (e.g., different people handling check writing, signing, and reconciliation), using positive pay services with banks, securing blank check stock, reviewing bank statements promptly, and conducting regular internal audits. Fraud detection training for employees can also be beneficial.

Is check tampering a serious crime?

Yes, check tampering is a serious financial crime. It falls under categories such as forgery, embezzlement, and fraud, and can carry significant penalties, including large fines and imprisonment, depending on the amount of money involved and the jurisdiction. The U.S. Department of Justice actively prosecutes such cases as part of its efforts against financial crime.

Who is most often involved in check tampering?

Check tampering is most commonly perpetrated by insiders, such as employees, who have access to an organization's accounting records and check-writing processes. Individuals in positions of trust, such as those responsible for accounts payable, payroll, or general bookkeeping, are often the perpetrators.

What is "check washing"?

Check washing is a method of check tampering where a legitimate check's ink is removed, often using chemicals, to allow a fraudster to rewrite the payee's name and the amount. The altered check then appears to be a legitimate document, making it harder to detect the fraud.