Fraud and Fraud Detection: A Data Analytics Approach, + Website

CHAPTER 9 Check-Tampering Schemes

A CHECK IS A CONTRACT TO PAY THE HOLDER of the check to be negotiated through a financial institution. It is the instrument by which the payor provides directions to the financial institution to provide the funds to the payee. In the event that the financial institution does not make the payment for any reason such as insufficient funds in the account or due to an error on the check, the check continues to be acknowledgment of the obligation of debt by the payor.

Even with today’s technology, with more and more payments being made electronically online, the physical hardcopy checks will remain as the business currency for some time to come. The sheer volume of business payments still made by check today will maintain this as the preferred method of payment. The traditional check-tampering fraud schemes will continue to exist as long as check payments exist. Electronic-payment systems open the door to new types of fraud that must be guarded against. Many organizations use both traditional checks and electronic transfer payments. It is not unusual that an organization would use electronic direct deposits for their payroll and checks as payments for everything else. It is also not unusual for a business to use a hybrid system for receiving payments. Checks sent into the organization are scanned and then deposited electronically into their account. The original checks are maintained for a period of time pursuant to the agreement with their financial ...