Office of the Comptroller of the Currency

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Check Fraud: A Guide to Avoiding Losses

Check Fraud By Gangs

Some gangs have become actively involved in check fraud. These gangs typically go after corporate accounts and have received a measure of notoriety because of their successes and failures.

Example 1: Gangs have traveled throughout the country cashing counterfeit payroll checks obtained by gang members in targeted corporations or financial institutions. They use sophisticated counterfeiting techniques to capture the company's logo and a company executive's signature by scanning them and to prepare payroll checks using account information from a company check or a bank insider. They use the same information and techniques to prepare false identification for the people who will cash the checks.

If insider information is not available, such gangs sometimes call the targeted company's accounts receivable department, tell them that they have funds to wire into the company's account, and get the company's bank account number to accomplish the transfer. The deposit, of course, never materializes.

Such gangs move into a city or town around payday and cash the checks at local institutions which have check cashing agreements with the targeted corporation.

Example 2: A fictitious foreign company sends a letter to an individual or U.S. company claiming to have a large quantity of money that must be transferred out of the foreign home country immediately. The foreign company asks the targeted individual or company to help set up a bank account into which the money can be transferred. They offer a sizable commission, while asking for the target's checking account information. The foreign company's representative then uses the account information to withdraw money from the target's checking account using bank drafts.

Banks should remember that, although the individual or U.S. company acted negligently, the bank may be liable for honoring the fraudulent drafts.

Gang frauds can be successful when customers are careless and banks fail to secure account information.

To protect against such fraud banks should:

• warn customers about such schemes,
• check on new employees' backgrounds, and
• request proper identification from customers before cashing checks.

Next: Preventive Measures – General Internal Controls
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