Understanding Check Washing and Steps to Prevent It

What is Check Washing?

Check washing is a form of financial fraud involving altering a legitimate check to change its content. Fraudsters “wash” away specific details from a check—typically the payee name or the amount—and replace them with data that benefits them. This results in a genuine, signed check being redirected to the scammer instead of the intended recipient.

This fraud relies heavily on the availability of checks left in unsecured mailboxes, where they can be easily stolen. As an individual or a business, falling victim to check washing can result in significant financial loss and even damage your reputation. However, there are ways to combat this fraud and protect your assets effectively. One such method is through a process known as Positive Pay.

What is Positive Pay?

Positive Pay is a fraud detection system offered by most banks. Under this system, a company submits an electronic list of checks it has issued to the bank daily. This list includes details such as the check number, the account number, the payee, and the amount.

When a check is presented for payment against the company’s account, the bank’s Positive Pay system automatically compares the details of the presented check with the information on the list provided by the company. If the details match, the check is processed normally. If they don’t, the bank flags the check as an exception. It notifies the company withholding payment until the company approves. This system provides a strong defense against check fraud, including check washing, by adding a level of verification that ensures only legitimate checks are processed.

Steps to Prevent Check Washing

1. Use Positive Pay:

As discussed earlier, this is one of the most effective methods of preventing check fraud. Providing your bank with a list of issued checks enables them to verify every check presented for payment. It’s an extra layer of protection that could save your business from substantial financial losses.

2. Secure Your Mail:

If you’re mailing checks, do so at a post office or a secure USPS mailbox rather than leaving them in an unsecured mailbox. Consider using a lockable mailbox or a P.O. Box if you’re receiving checks. This can help prevent your checks from falling into the wrong hands.

3. Use Security Pens:

When writing checks, use a security pen filled with specially formulated gel ink that can’t be washed away with chemicals. This simple measure can make a big difference in protecting your checks from being altered.

4. Limit Access:

Limit the number of employees with access to checks and check-writing software. The fewer people who can issue checks, the lower the risk of insider fraud.

5. Regularly Review Your Bank Statements:

This is a simple yet effective way to keep track of your transactions. Any suspicious activity can be quickly spotted and reported.

6. Consider ACH Payments:

Switch to Automated Clearing House (ACH) payments. They are electronic and hence reduce the risk of check washing. However, they come with risks and should be handled with the necessary precautions.

In summary, check washing is a severe form of financial fraud that can significantly affect individuals and businesses. However, with suitable preventive measures—notably a Positive Pay system—you can drastically reduce the risk of falling victim to such fraud. Stay vigilant, adopt robust security measures, and protect your financial assets.