Check Fraud for Accountants: Detection, Prevention, and Response

Check fraud costs organizations over $24 billion annually, with 63% of organizations reporting check fraud attempts in 2024.¹ For accountants reviewing client bank statements and check images, this creates both a risk and an opportunity: you are often the first line of defense against fraudulent checks that clients miss.

Accountants doing bookkeeping and write-up work routinely examine check images to categorize transactions that bank statements do not explain. This routine review positions you to catch altered checks, suspicious payees, and fraud patterns before losses compound. Conto extracts payee information from check images automatically, making it faster to review transaction details and flag anomalies that warrant client attention.

This guide covers how check fraud works, what red flags appear in check images, how to advise clients on prevention, and what to do when you discover fraud during routine accounting work.

Table of Contents

• The $24 Billion Check Fraud Problem
  • Why Check Fraud Is Surging
  • Industries Most Affected
• How Check Washing Works
  • The Check Washing Process
  • Where Criminals Get Checks
• Mail Theft: The Pipeline for Check Fraud
  • The Arrow Key Problem
  • Scale of Mail Theft
• Red Flags Accountants Should Spot
  • Visual Indicators of Altered Checks
  • Transaction Pattern Red Flags
  • Behavioral Red Flags
• Prevention Advice for Clients
  • Ink and Check Security
  • Mail Security Practices
  • Positive Pay Services
  • Account Monitoring
• What to Do When Fraud Is Detected
  • Immediate Steps
  • Reporting Procedures
  • Documentation for Recovery
• The Accountant’s Role in Fraud Detection
• FAQs

The $24 Billion Check Fraud Problem

Check fraud has reached record levels, with global losses hitting $26.6 billion in 2023 and 80% of those losses occurring in the Americas.² The Association for Financial Professionals found that 65% of organizations experienced check fraud activity in 2023, making checks the most problematic payment method for fraud.³

This is not a declining problem. Suspicious Activity Reports (SARs) related to check fraud nearly doubled from 350,000 in 2021 to 680,000 in 2022.⁴ The FBI and U.S. Postal Inspection Service issued a warning in January 2025 that check fraud is rising, with reports nearly doubling from 2021 to 2023.⁵

Why Check Fraud Is Surging

Three factors drive the surge in check fraud:

Organized criminal networks: Check fraud has become industrialized. Criminals use platforms like Telegram to buy and sell stolen checks, with some channels advertising thousands of stolen checks for sale.⁶ This black market infrastructure means a single stolen check can quickly reach criminals equipped to wash and cash it.

Mail theft enabling supply: Over 8,000 USPS arrow keys have been stolen or gone missing since 2018, giving criminals access to collection boxes and apartment mail panels.⁷ This steady supply of stolen checks feeds the fraud pipeline.

Mobile deposit exploitation: Fraudsters increasingly use mobile banking apps to deposit altered checks, avoiding in-person verification. The digital nature of these deposits makes them harder to intercept before funds are withdrawn.

For accountants, this environment means check-heavy clients face real exposure. Industries that rely heavily on paper checks like construction, legal, and agriculture are particularly vulnerable.

Industries Most Affected

Check fraud concentrates in industries where paper checks remain common:

A construction client writing $50,000 checks to subcontractors faces different risk than a retail business writing $200 checks to suppliers. The potential loss from a single altered construction check justifies more aggressive fraud prevention.

How Check Washing Works

Check washing is the primary method criminals use to commit check fraud, accounting for over $815 million in annual losses.⁸ The technique involves using chemicals to erase ink from a stolen check, then rewriting the payee name and amount.

The Check Washing Process

The process works as follows:⁹

1. Theft: Criminals steal checks from mailboxes, mail collection points, or through mail carrier robberies
2. Protection: They apply tape over the signature to preserve it during washing
3. Chemical treatment: Acetone, bleach, or other solvents dissolve the ink from the payee and amount fields
4. Alteration: The criminal writes a new payee (often themselves or a “money mule”) and a higher amount
5. Cashing: The altered check is deposited via mobile app, ATM, or in person at a bank

The signature remains intact, making the check appear legitimate. The chemical process can be sophisticated enough that the altered fields show no obvious tampering to casual inspection.

Where Criminals Get Checks

Check theft follows predictable patterns:¹⁰

• Residential mailboxes: Outgoing mail with bill payments
• Blue USPS collection boxes: Accessed with stolen arrow keys
• Apartment mail panels: Cluster boxes opened with stolen master keys
• Mail carrier robberies: Direct theft of mail and keys from postal workers
• Dumpster diving: Discarded checks and bank statements

The most lucrative targets are business checks with higher dollar limits and less scrutiny on individual transactions.

Mail Theft: The Pipeline for Check Fraud

Mail theft has exploded, rising from fewer than 60,000 complaints in 2018 to more than 250,000 in 2023.¹¹ This surge directly correlates with increased check fraud, as stolen mail provides the raw material for check washing operations.

The Arrow Key Problem

Arrow keys are USPS master keys that open blue collection boxes and cluster mailboxes. These keys have become primary targets for criminals:¹²

• Arrow key thefts increased 27% in 2024
• Over 3,400 keys were reported stolen nationwide in 2024
• 82% of mail carrier robberies target arrow keys
• Stolen keys sell for $1,000 to $7,000 on the black market

The Postal Service does not maintain a national inventory of keys and cannot confirm how many exist or are missing.¹³ With approximately 9 million arrow key locks in use, replacing compromised locks is impractical at scale.

Scale of Mail Theft

The financial impact is severe. USPS mail theft led to $688 million in suspicious activity tied to check fraud in a single recent reporting period.¹⁴ In one case, a USPS mail processing clerk helped steal checks totaling more than $24 million, including $12 million posted for sale on Telegram and $8 million in stolen Treasury checks.¹⁵

For your clients, this means outgoing checks are vulnerable from the moment they enter the mail system until they clear.

Red Flags Accountants Should Spot

Accountants reviewing check images during routine bookkeeping can catch fraud indicators that clients miss. The key is knowing what altered checks look like and which transaction patterns suggest problems.

Visual Indicators of Altered Checks

When reviewing check images extracted from bank statements, watch for these physical signs of alteration:¹⁶

Ink inconsistencies: If the payee name appears in different ink than other handwritten fields (date, memo, signature), the check may have been washed and rewritten. Legitimate checks show consistent ink throughout.

Unusual spacing or alignment: Washed checks often show awkward spacing where new text was inserted. The payee name may not align naturally with the “Pay to the Order of” line.

Smudged or blurred areas: Chemical washing can leave subtle discoloration or texture changes around altered fields. Look for areas that appear lighter or have a different paper texture than surrounding regions.

Missing security features: Legitimate checks often have security features that become visible when chemicals are applied. If security ink was present, washing may leave visible distortion or color changes.

MICR line issues: The magnetic ink character recognition line at the bottom should appear dull and flat. Shiny or raised MICR lines suggest counterfeit checks rather than legitimate bank stock.¹⁷

These visual checks are harder to perform on low-resolution images from bank portals. When images are compressed or degraded, subtle alterations become invisible. This is one reason handwritten check OCR accuracy drops to 64% on cursive text, as the same image quality issues that affect automated reading also affect human fraud detection.

Transaction Pattern Red Flags

Beyond individual check images, look for patterns that suggest fraud:

• Duplicate check numbers: The same check number appearing twice with different amounts or payees
• Sequential checks to unfamiliar payees: Multiple checks in sequence to entities not in the client’s normal vendor list
• Round-number amounts: Legitimate business payments often have specific amounts; round thousands may indicate fabricated transactions
• Checks to individuals for business expenses: Business checks to personal names rather than company names warrant verification
• Gaps in check sequences: Missing check numbers may indicate stolen blank checks

Behavioral Red Flags

Internal fraud involving checks often shows behavioral patterns:¹⁸

• Employees who resist taking vacation or sharing duties
• Staff working unusual hours, especially around check runs
• Resistance to process changes or audits
• Lifestyle changes inconsistent with salary

For clients with in-house bookkeepers, these behavioral signals combined with check anomalies warrant deeper investigation.

Prevention Advice for Clients

Accountants advising clients on fraud prevention can significantly reduce check fraud risk. The most effective measures address both check security and mail handling.

Ink and Check Security

The simplest fraud prevention starts with ink choice:¹⁹

Use gel pens with permanent ink: Gel pens with “super ink” or “permanent” labels soak into paper fibers, making them resistant to chemical washing. Uni-Ball pens with Super Ink specifically advertise fraud protection. Avoid ballpoint pens, which sit on the paper surface and wash easily.

Order security checks: Commercial checks with built-in security features include:

• Watermarks visible when held to light
• Microprinting that blurs if photocopied
• Chemical-sensitive paper that discolors when solvents are applied
• Security backgrounds that distort if altered

Fill checks completely: Criminals exploit blank space to alter amounts. Write amounts starting at the far left of each field. Draw a line through unused space after the written amount.

Mail Security Practices

Mail handling changes reduce theft risk:²⁰

• Use secure drop points: Take checks directly to the post office counter rather than collection boxes
• Mail close to pickup time: If using collection boxes, time deposits near the posted pickup time
• Install locking mailboxes: For incoming mail, use USPS-approved locking boxes
• Consider USPS Informed Delivery: This free service emails images of incoming mail, helping detect theft
• Request mail holds during travel: USPS will hold mail for up to 30 days

For business clients with high check volume, dedicated courier services for sensitive payments may be cost-effective compared to fraud losses.

Positive Pay Services

Positive Pay is the most effective fraud prevention tool for businesses that write checks regularly. The service works by requiring the bank to verify each check against a list provided by the business before clearing.²¹

How it works:

1. The business submits a file listing each issued check (number, amount, payee)
2. When checks are presented for payment, the bank compares them to the file
3. Any check that does not match is flagged as an “exception item”
4. The business reviews exceptions and decides whether to pay or return each check

Payee Positive Pay adds an additional layer by also matching the payee name, specifically targeting check washing where amounts and payees are altered.

Costs: Monthly fees typically range from $25 to $100, with some banks charging per-transaction fees for exception handling.²² For businesses writing significant checks, this cost is minimal compared to potential fraud losses.

Accountants should recommend Positive Pay to any business client with regular check activity over $5,000 per month.

Account Monitoring

Active monitoring catches fraud before it compounds:

• Daily balance checks: Review account balances daily rather than waiting for monthly statements
• Transaction alerts: Set up automatic notifications for transactions over a threshold
• Reconcile promptly: Faster reconciliation means faster fraud detection; monthly reconciliation may discover fraud 30+ days after it occurred
• Review check images: Do not rely solely on transaction amounts; review actual check images for alterations

What to Do When Fraud Is Detected

When you discover check fraud during client work, speed matters. The sooner the client acts, the better the chance of recovery and stopping ongoing theft.

Immediate Steps

1. Document everything: Save copies of suspicious check images, note transaction dates and amounts, and preserve any evidence of alteration. This documentation supports both bank claims and potential law enforcement investigation.

2. Contact the bank immediately: The client must notify their bank as soon as fraud is suspected. Banks have specific timeframes for reporting fraud, and delays can limit recovery options. Under the Uniform Commercial Code, customers generally must report unauthorized transactions within a “reasonable time” after receiving statements.

3. Freeze the account if necessary: For ongoing fraud or compromised check stock, the client may need to close the account and open a new one with a new check series.

4. Inventory check stock: Account for all blank checks. If checks are missing from the sequence, those numbers should be flagged with the bank and monitored.

Reporting Procedures

Check fraud should be reported to multiple agencies:²³

Bank: File a fraud report with the account-holding bank. They will investigate and may file a Suspicious Activity Report (SAR) with FinCEN if the fraud exceeds $5,000.

Local police: File a police report to create an official record. This documentation supports insurance claims and bank investigations.

USPS Postal Inspection Service: If mail theft was involved, report to USPIS at uspis.gov/report or call 1-877-876-2455. The Postal Inspection Service investigates mail-related crimes.

FTC: Report identity theft aspects at IdentityTheft.gov, which creates a recovery plan and generates reports for creditors.

IC3: For significant losses, file with the FBI’s Internet Crime Complaint Center, especially if the fraud involved online elements like mobile deposit.

Documentation for Recovery

To support fraud recovery claims, gather:

• Original check images showing the legitimate check (if available)
• Altered check images from the bank
• Bank statements showing the fraudulent transactions
• Any correspondence with the fraudulent payee
• Police report numbers
• Timeline of events and discovery

Banks investigate fraud claims and may provide provisional credit while investigating. However, the burden often falls on the customer to demonstrate the fraud was not due to their own negligence.

The Accountant’s Role in Fraud Detection

Accountants occupy a unique position in fraud detection. During routine bookkeeping and reconciliation work, you see transaction patterns that clients do not monitor closely and check images that clients never review.

Your value in fraud detection:

Pattern recognition: You know the client’s normal vendors and spending patterns. An unfamiliar payee or unusual amount stands out in ways the client might miss.

Systematic review: Clients often glance at statements; accountants examine them. This methodical approach catches anomalies.

Third-party perspective: Internal fraud often goes undetected because the perpetrator controls the records. As an external reviewer, you are not part of any collusion.

Regular touchpoints: Monthly or quarterly bookkeeping creates consistent review intervals, preventing fraud from compounding undetected for long periods.

Practical implementation:

When processing client check images through Conto or manually, incorporate fraud review into your workflow:

1. Flag any payee you do not recognize from prior periods
2. Note check images with visible quality issues that might mask alterations
3. Compare check amounts to invoices when categorizing
4. Verify check sequences are complete
5. Ask clients about unfamiliar vendors before categorizing

This does not add significant time to bookkeeping work. It integrates awareness into existing processes.

For clients in high-risk industries or with past fraud exposure, consider explicit fraud monitoring as a separate engagement. Some practices offer quarterly fraud audits that specifically review check patterns, vendor verification, and internal controls.

Document fraud extends beyond checks. During tax season, watch for fake paystubs and fabricated income documentation that clients may bring for tax preparation. The same verification instincts that catch altered checks also help identify fabricated W-2s and paystubs.

The Bottom Line

Check fraud is a growing threat that accountants are positioned to help combat. The combination of mail theft, check washing, and mobile deposit exploitation has created losses exceeding $24 billion annually.

Your routine review of client check images and bank statements is often the first point where fraud becomes visible. Knowing what altered checks look like, which patterns suggest problems, and how to advise clients on prevention transforms bookkeeping from back-office work into active risk management.

Conto helps by extracting payee information from check images automatically, making it faster to review transactions and identify anomalies. When check processing takes minutes instead of hours, you have time to look more carefully at what the data shows.

See how Conto processes check images

FAQs

What is check washing?

Check washing uses chemicals like acetone or bleach to dissolve ink from a stolen check, allowing criminals to rewrite the payee name and amount while preserving the original signature. This technique accounts for over $815 million in annual fraud losses.

How can I tell if a check has been altered?

Look for ink color inconsistencies between fields, unusual spacing or alignment in the payee line, smudged or discolored areas, and security feature distortions. Altered checks often show subtle visual differences when compared to legitimate checks from the same account.

What is Positive Pay?

Positive Pay is a bank service that verifies each check presented for payment against a list of issued checks provided by the business. Any check that does not match the list in check number, amount, or payee is flagged for review before clearing. Monthly costs typically range from $25 to $100.

What should clients do if they discover check fraud?

Act immediately: document the fraud with check images and transaction records, contact the bank to report the fraud and potentially freeze the account, file a police report, and report mail-related theft to the USPS Postal Inspection Service. Speed improves recovery chances.

Why has check fraud increased so dramatically?

Three factors drive the surge: organized criminal networks using platforms like Telegram to trade stolen checks, widespread mail theft enabled by over 8,000 stolen USPS arrow keys since 2018, and mobile deposit apps that let criminals cash altered checks without in-person verification.

Can accountants be held liable for not detecting client check fraud?

Accountants are generally not insurers against client fraud. However, if fraud was obvious and missed during professional services, liability questions may arise. Incorporating reasonable fraud awareness into routine work demonstrates professional care and may catch fraud that protects both client and accountant.

What ink should clients use to prevent check washing?

Gel pens with permanent or “super ink” formulations resist chemical washing because the ink absorbs into paper fibers rather than sitting on the surface. Black gel pens are specifically recommended. Avoid ballpoint pens, which wash easily.