Check fraud costs financial institutions billions of dollars per year, and in the last few years, the threat has been increasing. To protect your financial institution, you need strategies designed to spot forged checks. Ideally, your tellers should know the signs of forgeries, and they should look at every check diligently. Beyond that, you should also consider using signature verification tools to automate this process and look for forgeries on checks that are presented electronically.
To get help now, contact us at SQN Banking Systems today. Or keep reading to learn more.
What Is a Forged Check?
A forged check is a check with a forged signature. A bad actor signs the account holder’s name on the check with varying levels of accuracy. Then, they cash the check or they may deposit it in a mule account or an account opened fraudulently.
Who Is Responsible for Forged Checks?
If the bank pays the check, they are typically liable for the losses, but there may be exceptions in cases where the accountholder’s negligence allowed the forgery to happen. Liability may also depend on when the accountholder notifies the bank about the forged check.
What Is the Penalty for a Forged Check?
Forging checks is usually a petty crime or misdemeanor, and the penalty for this type of check fraud tends to include fines and imprisonment. The exact consequences vary based on state law, the amount of the forged check, and whether or not any other crimes are involved.
Tips for Detecting Forged Checks at the Counter
Before cashing or accepting a check over the counter, your tellers should look it over using the Z-method. That means they should review the details on the check from the top left corner to the bottom right corner, looking for issues or errors with the check issuer, distorted images, incorrect dates, out-of-sequence check numbers, discrepancies between the written and numerical values, and the routing and account numbers at the base of the check.
But what about when they get to the signature? Spotting a forgery can be hard for untrained analysts, but tellers should keep the following tips in mind as they assess the signature and the likelihood of fraud.
Ask for ID
When cashing a check for a customer, you should always ask for identification. Even if the records show that a customer comes to that branch often, your teller should still ask to see their ID. If you deposit the check and give the recipient cash but find out later that a stranger actually forged your customer’s signature on the endorsement line, you will be responsible for the losses. Theoretically, you can hold the thief liable for the losses, but typically, by the time forged endorsements are found, the scam artist is long gone.
Look for the Criminal Tremor
The criminal tremor refers to the shaky writing of most forgeries. If you are processing a check for deposit and you see the hint of a tremor in the signature line, you may want to stop and take some extra steps to verify the check. In these cases, your financial institution usually won’t be held liable for the check.
However, if the owner of the account realizes the check was stolen before it hits their account, they will probably issue a stop payment on the check. At that point, you will need to reverse the amount that has been credited to your customer’s account. If the funds have already been withdrawn, that account will fall negative and if the customer doesn’t rectify the situation, your bank may end up with a loss.
Be Cautious of Stamped Signatures on Personal Checks
Businesses have used stamped signatures for decades, but most personal checks are not signed with a stamp. A stamped signature on a personal check is often a sign of fraud.
To see if a stamp has been used, feel the signature by running your finger gently over it. If it’s been written with a pen, it should have some texture. In contrast, stamps are usually smooth. Then, look at the signature with a magnifying glass. With stamps, you usually see more ink bleeding out on the edges than you do with a written signature.
Additionally, most stamp ink appears to have a slightly purple hue. Written signatures tend to have tunnels or ridges running through the ink. You don’t get that with stamps, autopens, or signing machines. These technologies are all highly used in scams which involve forging a high number of checks.
Hold the Signature Up to the Light
Looking at the check’s signature in the light of a banker teller lamp can also give you clues as to whether or not it’s a forgery. Usually, very faint pressure or equal amounts of pressure throughout the signature indicate that it’s a fake. Typically, people write their own signatures very deliberately (which makes them not appear faint), and most people use a variety of different pressure levels when signing their names.
For instance, they may put more pressure on downward strokes and less on the tails of letters, while a forger, in contrast, uses a static amount of pressure as they attempt to replicate the signature.
Talk with the Customer
A short conversation between your teller and the accountholder can also help you spot forged checks. If your customer is depositing a personal check, you may want to start by asking them if they were expecting the check. This simple question encourages customers to tell you if they received the check unexpectedly from a stranger online, and if so, you can dig deeper to help the customer figure out if the check is fraudulent.
Note that in some cases accountholders may be recruited as mules, and they may not even realize that they are doing anything wrong. Bad actors use mule accounts to cash forged checks, and they often pay the account holder a small fee for their help. Often, the bad actor accompanies the mule to the bank and watches them make the deposit. They may even communicate through phones and earbuds. Make sure that your tellers know to watch for this type of behavior.
Compare with the Signature on the File
If the check has been written from your bank, you can compare the signature on the check to the signature on file. Tools such as SENTRY: eSigning make it easy to capture your customer’s signatures and store them in a database where they can be found easily. As needed, you can simply pull up the reference signature and make sure it matches the signature on the check.
Invest in Signature Verification Tools
The above tips can help you spot forgeries in your financial institution when accountholders deposit checks over the counter, but you probably process a lot of checks electronically. How do you spot forgeries when you’re dealing with those types of transactions? To help with that process, consider investing in automated signature verification tools.
SENTRY: SigCheck can identify fraudulent signatures on on-us checks. The tool analyzes the form and fluidity of the signature. It also looks for other potential markers of fraud such as unusual behavior that is out of the norm for the account holder. If the check fraud tool assesses a high likelihood of fraudulent activity, the software will flag the transaction as potential fraud and request a manual review. At that point, the fraud detection tool will display the presented check and the reference signature in the workflow so that your tellers can compare the signatures and decide whether or not to approve the check.
FAQs About Forged Check Detection
How common is forging a signature on a check?
The government does not track numbers about check forgeries, but as of 2024, banks are reporting approximately 680,000 cases of check fraud per year. Analysts estimate annual losses to be about $24 billion per year, over double the value of losses from five years ago.
What is a forgery checker?
Forgery checker may refer to signature verification tools that look for signs of forgeries. These tools use sophisticated algorithms and machine learning to analyze the static and dynamic elements of a presented signature in comparison to a reference signature collected from the account holder when they open the account.
What is a check backside signature?
The signature on the back of a check is called an endorsement. Many banks accept checks without endorsement, but doing so can make you liable if the check is fraudulent or unauthorized.
Get Help Detecting Forged Checks
At SQN Banking Solutions, we offer SENTRY: SigCheck and a variety of other tools, solutions, and services. Our role is to make fraud protection as easy as possible for our clients. To learn more about our services and how they can help you, contact us. We look forward to helping you improve forgery detection and reduce check fraud at your financial institution.