Considering the number of checks written every day around the world, it's sometimes easy to forget that each one is a legally binding financial instrument. A paper or electronic check serves as a good faith token between parties, based on the trust that an equivalent amount of cash does exist in a legitimate bank-based account. Whenever that trust is violated, the result is known as check fraud. Check fraud covers a number of illegal and/or deceptive practices, from forgery to check kiting to embezzlement.
The most visible form of check fraud results from checks written on accounts with insufficient funds. A store owner may accept a check from a customer for services or goods, only to discover that the check has not been honored by the bank due to insufficient funds. Sometimes the problem is merely an oversight, and sometimes the check writer is fully aware that the check was not valid at the time of purchase. This check fraud scheme costs the store owner the original value of the merchandise, plus any additional fees charged by the bank. The same individual may continue to write bad checks in other areas until apprehended. It is not unusual for local law enforcement agencies to allow offenders an opportunity to make good on bad checks before arrests for check fraud are made.
Another form of check fraud is called check kiting or check floating. Some criminals will open two separate checking or savings accounts, then write fraudulent checks to local vendors or individuals. While these checks are being processed by the bank, the criminals will transfer funds between the two accounts to inflate the balances temporarily. Before recent advancements in electronic banking, there would generally be a brief lag between the receipt of a check and the actual processing. This "float time" allowed criminals enough time to keep each account viable until the checks cleared their bank. Modern banking practices, however, have made this form of check fraud much more difficult to commit. The amount of elapsed time between receipt and presentation has been reduced significantly.
A form of check fraud similar to the insufficient funds scam is called paperhanging. Paperhanging involves the deliberate use of a closed account to write fraudulent checks. The check writer knows that the account is closed, or else he or she will use stolen checks from someone else's closed account. The checks have not been physically altered, but the account information is no longer valid. Criminals who commit paperhanging check fraud are usually hampered by a fixed number of checks, which means they often buy large ticket items and leave the area before discovery. Many are captured after attempting to reorder checks on closed accounts.
There are other forms of check fraud which involve the physical alteration of the paper check itself. Some unscrupulous employees may forge an authorized signature on bogus payroll checks or other company accounts, for example. A burglar may attempt to cash a stolen check by forging the victim's signature. Some recipients of a legitimate check may alter the amount by adding zeroes or rewriting the amount entirely. Another form of physical check fraud involves using chemicals to remove the original ink, which allows the criminal to rewrite the entire check. Others may use high-end color copiers to duplicate a stolen payroll or personal check. The use of magnetic inks on legitimate checks has put a damper on the widespread use of photocopied checks, however. Experts also suggest the use of gel pens instead of traditional ballpoint pens, since the ink inside a gel pen is more likely to bond with the fibers of the check paper.