Office of the Comptroller of the Currency

Check Fraud: A Guide to Avoiding Losses


Check fraud is one of the largest challenges facing financial institutions. Technology has made it increasingly easy for criminals, either independently or in organized gangs, to create increasingly realistic counterfeit checks and false identification that can be used to defraud banks.

The scope of the problem can be shown by some recent statistics. According to the FBI's 1994 Financial Institution Fraud and Failure Report, 60 percent of all criminal referrals relate to check fraud. Further, a 1994 survey by the American Bankers Association found that 54 percent of community banks, 94 percent of mid-sized banks, and 88 percent of large banks sustained losses from check fraud in 1993. Between 1991 and 1993, the number of fraudulent checks submitted increased 136 percent, from 537,000 to 1,267,000. Over the same period, annual losses from those frauds increased to reach $815 million for 1993. That amounts to more than 12 times the amount banks lose annually because of bank robberies. Conservative estimates are that banks will lose $1 billion to check fraud in 1996; less optimistic experts believe losses may be double or triple that amount.

Thrifts, savings banks, and other financial institutions, retail merchants, government agencies, and large corporations are also victims of check fraud. A recent survey of more than 2,000 large U.S. corporations concluded that, on average, they lost approximately $360,000 a year to check fraud. The FBI estimates that if commercial banks and other institutions combined their check fraud losses, the total would be $12 billion to $15 billion annually.

To protect themselves and their customers from check fraud, banks need to become familiar with common check fraud schemes. This booklet describes some such schemes and presents tactics banks can use to combat check fraud. It cannot offer a comprehensive description of all types of check fraud or check fraud schemes because the variations are limitless. While this booklet is a general guide, banks should look to state and local laws for other guidance on limits. It can, however, get bankers, tellers, operations personnel, and security officers to think about the problem and how they can protect their institutions from check fraud.

Next: Significant Terms
Go to: Check Fraud Contents Home Publications List