Criminals Cash In On Stale Checks
ADMIT IT. You’ve received a check in the mail and then forgotten about it. Maybe you rediscovered it after it went “stale”—too late for a bank to honor it, you thought. Now ever-enterprising thieves have discovered that stale-dated checks issued by local governments can be turned into welfare for the wily.
Stale-dated check schemes work like this: A governmental body, such as a municipality, issues checks that must be cashed or deposited within the term specified on the check, perhaps 90 days. Thieves find out which checks have not been cashed, then request reissuance of a check, forging a power of attorney that authorizes them to collect the payment on behalf of the legitimate payee.
How do thieves get the information they need to carry out the scam? Often, all the data that is necessary to request another check appears right on the stale-dated check registry, which some jurisdictions make public; officials will furnish anyone with a list of stale-dated checks in this registry for a nominal fee, explains Robert D. Sheehy, a retired FBI agent and consultant with expertise in this area.
Typically, smaller jurisdictions don’t have the resources to verify the legitimacy of requests for this information. Some jurisdictions even post the information on the Internet.
Then, if the true payee requests the funds, the jurisdiction gets hit with a doublewhammy, Sheehy says. It loses the windfall of the uncashed check, and it has been bilked out of the same amount by the thief.
While it’s difficult to track the extent of this scheme, Sheehy says that cases have occurred across the country and in both city and county jurisdictions. “I’m sure the scam is going on everywhere,” says Sheehy, who began to learn about the extent of the problem while investigating a stale-dated check-fraud case for the U.S. Attorney in Baltimore in 2004 and 2005.
In fact, when Sheehy recently presented a session on the issue before the Government Finance Officers Association, he was inundated with requests for information on the topic and stories about suspicious requests for stale-check data. And he fears the problem will only grow, as more thieves learn of the scam. U.S. jurisdictions maintain stale-dated checks worth hundreds of millions of dollars.
Sheehy has also started to see fraudulent attempts to acquire funds owed to debtors whose property was foreclosed upon. Sales of the seized property sometimes yield more than the debtor owes. Unable to find these debtors to repay the surplus, jurisdictions list these accounts and amounts owed, leaving them vulnerable to fraud artists.
All levels of government vulnerable to stale-check fraud can minimize the threat through several practical steps, according to Sheehy. They can restrict access to stale-check registries, limit the information given about each check, require identifying information to be presented by the third-party requestor, and perform annual audits of check lists.