How Community Banks Can Reduce Risk from Altered Checks

Tess Bower

Jun. 4, 2026

Despite the growth of digital payments, paper checks continue to be a common target for fraudsters. One of the most persistent threats facing community banks is check alteration fraud.

Unlike counterfeit checks, altered checks start as legitimate instruments. Somewhere between issuance and presentment, a fraudster changes information on the check to increase the amount, change the payee, or otherwise modify the transaction for personal gain. The result can be significant losses, operational headaches, and difficult questions about liability.

As check fraud continues to rise nationwide, community banks should ensure employees understand the risks associated with altered checks and the controls needed to identify them before losses occur.

What Is an Altered Check?

An altered check is a legitimate check that has been changed without authorization after it was issued. In many cases, the fraudster modifies information such as:

The dollar amount
The payee name
Other key terms that affect the payment obligation

These changes may be obvious, such as different handwriting or ink colors. In other cases, the alterations can be sophisticated enough to escape detection until after the item has cleared. The challenge for community banks is determining where responsibility lies when an altered item enters the payment system.

Why Altered Checks Create Unique Liability Concerns

One reason altered checks are so complicated is that multiple parties may have touched the item before the fraud is discovered. The account holder issued the original check. A depositary institution accepted it. A paying institution processed it. Along the way, opportunities may have existed for someone to identify suspicious activity.

That is why liability often depends on the specific facts of the situation rather than a simple determination of who suffered the loss.

Questions frequently include:

Was the alteration obvious?
Did the account holder exercise reasonable care when preparing the check?
Were bank employees following established procedures?
Was the alteration detected within a reasonable timeframe?

The answers can significantly impact how losses are allocated.

Small Mistakes Can Lead to Bigger Problems

Many altered check losses begin with seemingly minor issues. A check written with large blank spaces can make it easier for a fraudster to increase the amount. Delays in reviewing account statements may allow fraudulent items to go unreported. Weak internal controls can make unusual transactions harder to identify.

None of these actions necessarily cause fraud. However, they can increase risk and complicate liability discussions when a loss occurs. That is why fraud prevention is often less about a single control and more about layers of protection working together.

Best Practices for Community Banks

Community banks can strengthen their defenses against altered check fraud by focusing on a few key areas:

Train Employees to Spot Red Flags: Front-line staff and operations personnel should understand common indicators of alteration, including inconsistent handwriting, unusual formatting, mismatched fonts, and suspicious changes to check amounts.

Encourage Prompt Statement Reviews: Customers and businesses that regularly review account activity are more likely to identify fraudulent transactions before losses escalate.

Review Check Processing Controls: Institutions should periodically evaluate procedures for handling suspicious items and ensure employees know when to escalate concerns.

Monitor Fraud Trends: Check fraud continues to evolve. Staying informed about emerging schemes can help institutions adjust controls before problems arise.

Fraud Prevention Requires Ongoing Vigilance

Check alteration fraud is not new, but it remains a significant risk for community banks. Criminals continue to look for opportunities to exploit weaknesses in payment processes, and even a single altered check can create substantial financial and operational consequences.

The good news is that strong procedures, employee training, and proactive fraud monitoring can significantly reduce exposure. Community banks that regularly review their fraud prevention strategies are often better positioned to identify suspicious activity early and respond effectively when issues arise.

Learn More About Check Fraud Liability

Altered checks are just one type of fraud affecting financial institutions today. To learn more about altered checks, forged endorsements, counterfeit checks, unauthorized electronic withdrawals, and other fraud-related liability issues, check out Who Is Liable? Forgeries, Remotely Deposited Items, Fraudulent ACH, Unauthorized Electronic Withdrawals & More.

This comprehensive training explores common fraud scenarios, liability considerations, and practical risk management strategies for community banks.

Be sure to explore all webinars presented by Shelli Clarkston.