Check Fraud
You Are At Risk

Did you know that the UCC (Uniform Commercial Code) regulations place responsibility for forgery losses partially on bank customers, rather than solely on the banks? But in addition to this exposure, there can be significant expenses and lost time investigating the crime, not to mention damage to your credibility and reputation.

Your only defence is to show that you have taken due diligence. One way to demonstrate this is by implementing careful practices regarding your checks. Another is to use checks with well implemented security features.

HOW BAD IS THE PROBLEM?

The problem is so serious that the banks don't like to reveal the extent of the problem. Estimates range from hundreds of millions to 10 billion dollars annually.

In 1991, the FBI tracked over 26,000 cases, but this is just the tip of the iceberg, because the FBI mostly focuses on cases where the amount exceeds $100,000. Just one example comes from The Green Sheet (a publication to the Financial Services Industry), reporting an incident where a family had allegedly stolen more than $1 million from area merchants since 1993 by writing checks on closed and non-existent accounts at 11 financial institutions in Indiana and Chicago under 25 different names.

In just 4 years, Northern Trust Bank has detected more than 3 million dollars worth of counterfeit checks.

WHAT KIND OF THINGS DO CRIMINALS LOOK FOR?

It is an endless list, but here are some of the types of things that someone looking to counterfeit or tamper might look for:

• High volume bank accounts where a fraudulent check can easily slip through.
• Checks that are easy to reproduce using a color copier.
• Checks that are easy to tamper with.
• Easy access to checkbook or check stock.

WHAT CAN I DO TO PROTECT MYSELF?

By protection, I mean reducing the chance of someone counterfeiting or altering your checks, as well as reducing your liability when it occurs.

Be aware that is is impossible to prevent fraud. But you can significantly minimize the risk using a two-prong approach. It is critical that good procedures related to your check processing are put in place, and that you use a check that is difficult to counterfeit or alter (see sidebar).

• Reconcile your bank statement promptly. Now that bank statements are available online, you can do this as frequently as you feel is necessary for your situation.
• Restrict access to your checkbook/check stock. Ensure that only trusted staff that need access have it.
• Audit your checks. However, this can be difficult because often checks are removed from the bottom or middle of the book or stack.
• Use a custom design. While this isn't an affordable option for many businesses, look into it. The next best thing is to ensure that your check supplier uses comprehensive security features. Remember though that a custom design is not a substitue for security features.
• Advise your bank branches' officials of the security features in your checks .. in person or in writing (and keep a copy of the letter on file!).
• If you issue a large number of checks, particularly with a low amount (eg. rebate checks), open a separate account and alert the bank staff of an upper limit for that account.

THE BOTTOM LINE

Don't take unnecessary chances. The more security you have through procedures and choice of check form, the less likely that someone will tamper with your checks.

Les C. Cseh is the owner of ASAP Checks, Forms & Supplies, a check printer operating out of Alexandria Bay, NY and Gananoque, Ontario. He has been involved in financial documents since 1985, and had participated in ANS X9B standards work. He can be reached at info@asapchecks.com and at 888-85-CHECK. In addition to a variety of secure checks, the ASAP web site (http://www.asapchecks.com) offers a non-commercial section related to check processing issues called the MICR Repository.

CHECK SECURITY FEATURES - A PRIMER

There are numerous security features available today, with new ones coming available all the time. While it would not be practical to include all the features on a single check form, the more security features your check has, the better you are protected against fraud and liability.

The best approach is to combine "overt" and "covert" features. The overt approach makes it clear to anyone looking at the check what features you have implemented, with the effect of deterring criminals and providing bank staff and your staff with an easy method of identifying tampering. Covert features are deliberately hidden to surprise and fool most would-be tamperers.

TAMPER DETECTION

A common approach to fraud is to alter the amount or other information on the check by erasing or using various chemicals. Some inks used on backgrounds and some papers react to these chemicals by disappearing, fading or staining in a very obvious way.

BEATING THE COLOR COPIER

The most recent wave of fraud was brought on by the color copier. They can do such a good job, that security features beyond the copier's abilities have been developed. These include:

• Flourescence is one thing that color copiers have trouble reproducing. Secure checks may include some printing using flourescent ink, and/or have flourescent fibers woven into the paper. This is effective because many banks have UV lights which can be used to detect that the check does not glow.
• Visible fibers are also used for the same purpose. A close examination of a copied check will reveal that the fibers are only copies.
• Depending on the type, watermarks can be viewed from one or both sides of the form when held up to light at a 45 degree angle, something that cannot be photocopied or scanned and is very difficult to duplicate.
• A void pantograph is a special way of printing a message in the background that is not obvious to the naked eye. Because of the resolution used on many copiers, this printed message becomes very obvious when copied.
• Microprinting is a technique where signature lines or borders are printed using such tiny text that it looks like a line, but magnified you can see the text. The text is so small, however, that current copiers cannot reproduce the text.

WARNINGS

Several types of warnings can be used to discourage criminals and to raise alarms that something is wrong.