Fraudsters Advance Check Fraud Tactics: AFS Study


Source: AFS

By Roy Urrico


Finopotamus aims to highlight white papers, surveys, analyses and reports that provide a glimpse as to what is taking place and/or impacting credit unions and other organizations in the financial services industry.


Despite a lower volume of checks in circulation, fraud perpetrators continue to advance their tactics and leverage the check in all of its forms as a low-hanging scam opportunity. That is among the top findings in Advanced Fraud Solutions’ (AFS) third annual Changing Landscape of Check Fraud report.


The High Point, N.C.-based AFS, which provides payments fraud detection software, also reported that while over the past two years, digital payments and deposits have become ubiquitous, fraudsters continued to track the money trail online as well. It also has never been easier for fraudsters to identify potential victims through the web, email and social media.


The Changing Landscape of Check Fraud white paper, developed by the fraud experts at AFS, explores how fraud has become a profitable, low-risk business with scam tactics becoming more sophisticated as well as scalable. In addition, fraud operators continue to take advantage of inexpensive technology, social engineering tactics, and any opportunity to fire up targeted campaigns to engage in deceptive scams. The AFS report referred to an Association for Financial Professionals (AFP) study, which found checks as the payment methods most impacted by fraud activity (66%).


Ted Kirk, AFS

"Advanced Fraud Solutions has been tracking check fraud for over 15 years, starting just before the 2008 financial crisis and through a global pandemic. Throughout, check fraud has remained persistent. Checks continue to be one of the most effective ways for fraudsters to deceive and inflict financial losses upon banks, credit unions and consumers," said Ted Kirk, vice president of strategic partnerships at AFS. "What is new in this report is how check fraud tactics have evolved and adapted to newer deposit channels as well as the methods used by fraudsters to target their victims.”


Credit unions are not immune either, points out Kirk, since check fraud schemes have long targeted them. “The responsibility to spot and prevent fraudulent checks has largely hinged on the abilities of tellers and back-office staff,” noted Kirk. He added, “With the introduction of advanced technology to design and print fictitious checks, coupled with newer deposit channels − including remote ATM, interactive teller machines (ITMs) and mobile deposits − credit unions need technology-driven solutions to confront this stubborn problem. This includes access to more and better check fraud data and integrations that make check decisioning faster and easier.”


Key Report Takeaways and Highlights


Changing Landscape of Check Fraud also covered the risks that checks pose to financial institutions, how check fraud has evolved, and what credit unions and banks can do to proactively prevent check-related fraud losses.


The report addressed some major deception issues affecting financial institutions:


· Impacts of check fraud. According to the Federal Bureau of Investigation (FBI), 70% of U.S. organizations reported check fraud for more than $18 billion in losses in 2019. Against financial institutions, check fraud remains extremely prevalent, making up 60% of attempted fraud against U.S. banking accounts. According to Aite Group, 59% of credit unions still cite check fraud as their primary fraud threat.

· Why do checks continue to present such an oversized risk? For starters, new check fraud tactics, bolstered by access to better printing technology and design software, have made fake checks cheaper and easier to produce. What is more, the average loss per incident can be significant. According to Wolters Kluwer, an information services company, the average loss for corporates as a result of check fraud is $150,000.

· With the popularity and convenience of mobile deposits, defrauding victims can also take place remotely. The confluence of new ways of reaching potential victims (via search and social media), along with exposed personally identifiable information (PII) available on the dark web, makes targeting victims easier. According to data from AFS, the average number of mobile deposits jumped 41% year over year between 2020 and 2021. The jump represents an increasing reliance on mobile and remote deposits.


Check Fraud Tactics


Often fraudsters use the obtainability of PII and social engineering tactics to coax victims out of their money through wire transfers or gift cards.


The AFS report listed a few prevalent check-based fraud tactics, according to the Federal Trade Commission, perpetrated against consumers:


Refund Scams. A refund or overpayment scam when fraudsters try to convince a mark they received an overpayment for some product or service, when in reality they did not receive any goods or service. The fraudster will then solicit the victim – through accusations or appeals – to send the fraudster the balance of the overpayment in order to settle the matter.


Mystery shopping scams. These often prey on those most in need of work. In this scam, fraudsters will offer victims “jobs” that ask them to pose as a real shopper, requesting they first open some sort of draftable account. The fraudster will then send the victim a bogus check, requesting they immediately wire that amount into a fraudster-controlled account. Before the victim knows what has happened, both the money and the fraudster are gone.


Assistant scams. Similar to a mystery shopper scam, these cons involve the “hiring” of an assistant through the internet. The assistant then receives a bogus check and instructions to use it to buy office or software-related gift cards – and send those details (PIN, etc.) to the fraudster. And again, before the victim realizes it, the fraudster disappears and the check bounces.


Prize scams. “Winners” receive a bogus check featuring a big cash prize. Victims, overwhelmed by their sudden luck, then must send money to cover taxes and/or processing fees related to their prize. While the prize money is fake, the money the victims send to the fraudster is real.


Businesses also continue to rely on checks to make transactions, from paying staff to vendor payments. They, too, face a litany of check-related risks, both from outside and from within. Here are a few fraud schemes aimed at business accounts:


Payroll fraud. This ranges from exaggerated time worked to disbursements sent to "ghost" employees, created by someone within the organization with access to account information. The company then starts issuing payments to the bogus employee – essentially redirecting funds into the fraudster’s account. This payroll scheme is especially difficult to detect in huge, dispersed operations with weak internal controls.


Fictitious vendor scams. These typically result from within, with an employee either falling victim to social engineering or acting on their own to change the endpoint on expected payments. Often internal controls do not flag these fraudulent payments since they look like legitimate invoices, resulting in long-running, heavy losses.


Business email compromise (BEC). Fraudsters typically deploy BEC, usually in payroll or vendor/billing fraud schemes, though socially engineering a business to misdirect funds. BEC is an increasingly common fraud tactic that accounts for $2 billion in fraud losses a year, according to the FBI. After the money transferal takes place, the business may not notice the errant payment for weeks.


Why Check Fraud Remains Relevant


Fraudsters, often early adopters of new technology, have become increasingly adept at weaponizing the digital tools at their disposal, frequently employing sophisticated, high-tech schemes to evade or impede detection. The schemes and personas they deploy have become more believable, yielding better results.


AFS suggested as deposit channels expand, from mobile remote deposit capture to ATMs and ITMs, financial institutions must stay ahead of fraud while taking a holistic, omnichannel approach. The report states, “To combat the billions in check fraud losses every year, FIs must implement an array of solutions that feature better, more accurate data, across their deposit channels. Fraudsters consistently target the weakest point, making it essential for FIs to have the same strategy across all deposit channels to reduce the risk of exposure to losses.”


Advanced Fraud Solutions offers two solutions: TrueChecks evaluates deposits across these channels by scanning check data against the TrueChecks database with over 10 years of historical data from thousands of banks, credit unions; and AFS Positive Pay, designed so that financial institutions, and their enterprise customers, can proactively monitor changes in payments information.

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