BPM Analytics

Proactively tackling cheque fraud

The statistics for 2022 reveal that Indian banks faced frauds to the tune of ₹1.38 trillion , of which ₹1.58 billion was from cheque frauds. Paying by paper cheque makes people more likely to fall prey to fraud, and often, the culprit is someone they knew. In many cases, the money was never recovered, and even if the recovery happened, it involved a lot of time and additional expenses.

What is a cheque fraud?

Cheque fraud is an intentional attempt to gain money unlawfully by writing a bad cheque, forging a cheque in another person’s name, or fabricating a cheque. It is a criminal activity, and sophisticated frauds can go undetected for years. Here we discuss eight common types of cheque frauds.

• Cheque floating:

  In this type of fraud, a fraudster writes bad cheques to take advantage of the float time. For example, someone writes a cheque from bank A to bank B for $1,000 and withdraws the cash from bank B. The next day, the same person writes a cheque from bank B to bank A, which brings the balance in bank A to $1,000. This clears the original cheque. Although no money is lost, such patterns indicate a bigger fraud in the future.

• Cheque forgery:

  The forger takes someone else’s cheque and forges their signature or name and uses the cheque to buy goods or deposit it into their account.

• Cheque kiting:

  This involves two bank accounts of the same or different holders. Account A issues a bad cheque for account B. Before the bank of account B realises that the cheque is fake, the person withdraws the cash and disappears.

• Identity theft:

  Fraudsters gain access to someone’s details and open an account in their name. Then, they issue a series of bad cheques from that account and disappear. By the time the bank realises this, the fraudsters are untraceable, and the victim is left to deal with the repercussions.

• Counterfeiting:

  This involves producing a fully counterfeit cheque that imitates the original ones the bank issues. If the bank does not have sufficient systems to detect counterfeits, it could lead to heavy losses.

• Account takeover:

  The fraudster gains access to a person’s online account or pretends to be the account holder and gets cheques from the bank. They may use it for kiting cheques or drafting fake ones.

• Chemical alteration:

  Alternatively known as washing, it is a technique where the fraudsters use chemicals to wash the original information from the cheque. Then, they print new information to write the cheque in their name.

• Paperhanging:

  The account holder purposefully writes bad cheques from new accounts. These cheques could be from closed accounts or for an amount that exceeds the balance required to overdraw.

These red flags help distinguish genuine cheques from fake ones:

• The cheque does not have perforated edges.
• The fonts of the name and address are different.
• The addresses of the customer and the bank are missing.
• The security thread and/or the watermark are missing.
• The cheque has discolouration or stains from the use of chemicals.
• There is a residue of the original customer’s information.
• The cheque may be using E13B font for MICR code, or the code may be completely missing.

Challenges in detecting fake cheques

Banks, financial institutions, and businesses deal with hundreds of cheques daily, while facing several challenges in detecting cheque frauds.[4]

• Cheque frauds are widespread. It is challenging to place detection systems in both rural and metropolitan areas.
• Frontline staff/branch tellers do not have sufficient training to detect cheque frauds.
• The manual process of detecting cheque fraud is time-consuming and prone to errors.
• Most of the time, the institution finds out about the fraud after the loss.

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How can Infosys BPM help?

The fraud detection and prevention solutions are applicable to finance, banking, retail, telecom, and e-commerce sectors. Read about our fraud detection and prevention solutions.