Protecting Against Check Fraud During Tax Season: Essential Solutions for Financial Institutions

Tax season is upon us, and it’s a busy time for both consumers and businesses. Individuals are gathering their documents and receipts to file their returns, while anxiously awaiting their tax refunds, whether through direct deposit or by check. 

However, this time of year also brings an increased risk of check fraud, especially for those who rely on mailed refund checks. Scammers often take advantage of this period, targeting checks sent through the USPS. They employ various tactics, including intercepting checks from mailboxes or mail carriers, using information from the dark web to create counterfeit checks, and altering legitimate ones. These fraudulent activities pose a significant threat to both consumers and businesses, making it essential to remain vigilant and for financial institutions to strengthen their defenses against these types of crimes. 

As consumers and businesses navigate tax season, it's important to be aware of the risks associated with mailed checks and take steps to protect sensitive financial information. Here are some of the most common types of check fraud associated with tax season refunds:

Common Types of Check Fraud to Watch for During Tax Season

• Intercepted Checks: Fraudsters steal tax refund checks from mailboxes or mail carriers, then cash or counterfeit them.
• Check Alteration (Check Washing): Thieves steal and chemically alter tax refund checks to change the payee or amount, making them look legitimate.
• Counterfeit Treasury Checks: Criminals use technology to create fake refund checks that may pass undetected by the teller or a self-service channel like the ATM or mobile app.
• Duplicate Check Fraud: Fraudsters create and cash duplicate tax refund checks using stolen information, often evading detection.
• Identity Theft for Refund Claims: Criminals file fraudulent tax returns using stolen personal information to claim refunds, which are then mailed or deposited into their accounts.

Essential Solutions to Strengthen Check Fraud Mitigation

To address modern deposit challenges, banks and credit unions must adopt advanced technologies to strengthen their defenses against fraud. Here are a few essential solutions to enhance fraud mitigation strategies:

• Implement Image Quality (IQA) and Image Usability Analysis (IUA) Tools: Advanced image-based deposit solutions with IQA and IUA technology provide a powerful layer of fraud protection across deposit channels. These tools analyze various characteristics of checks, such as font size, field location, spacing, and watermarks. When discrepancies are detected, the system immediately alerts the teller or workflows, enabling quick action to mitigate fraud.
• Behavioral and Pattern Recognition: Enhanced processing software enables financial institutions to use data from every deposit that an account holder makes to build unique profiles or User Scoring Models. These models are based on the account holder’s banking history and deposit patterns. By monitoring these profiles, institutions can add another layer of defense to quickly spot unusual changes in transaction behavior, helping to detect fraudulent activity early.
• AI and Machine Learning Analysis: Advanced AI and machine learning tools can analyze vast amounts of transaction data in real-time, identifying patterns and anomalies that may indicate fraudulent activity. These systems continuously learn and adapt to evolving fraud tactics, providing a dynamic layer of protection for banks and credit unions.
• Leverage an Industry Consortium: A cloud-hosted consortium enables financial institutions to share insights and collaborate in the fight against fraud. By comparing multiple check attributes against stored profiles, fraud detection rates are improved, review times accelerated, and institutions stay ahead of evolving fraud tactics.

By leveraging these advanced technologies, financial institutions can safeguard their operations and offer enhanced protection for account holders year-round, and especially during tax season.  With tools like image analysis, behavioral recognition, AI, and machine learning, along with a cloud-hosted industry consortium, institutions can strengthen fraud defenses, improve detection rates, and respond quickly to emerging threats, ultimately fortifying trust and security in banking.

Alogent’s Advanced Check Fraud Mitigation: Discover Alogent Shield and Shield+*

Fraudsters are increasingly collaborating to improve their tactics and share information, making it harder for financial institutions to keep up. To stay ahead of these evolving threats, it’s crucial for banks and credit unions to partner with leaders in check fraud mitigation. Seamlessly embedded within Alogent’s item processing suite, Alogent Shield leverages comprehensive features to detect risky transactions across all full-and self-service deposit channels, as well as to detect anomalies in account holder deposit patterns. Alogent Shield+ offers the added protection of AI and computer vision-based capabilities, including an industry consortium that enhances fraud prevention. 

Learn More

Download: Alogent’s Fraud Mitigation Solutions document

Download: Real-Time Image & Data Validations in the Fight against fraud

Contact us: Learn more and request a demo

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* Alogent Shield+ is powered by Mitek Check Fraud Defender