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Corporations
and the banks that serve them are working hard to keep up with the increase
in check fraud attempts against commercial accounts. According to the American
Bankers Association (ABA), banks in 2003 experienced $5.5 billion in attempted
check fraud, up from $4.3 billion in 2001.
Additional risks are on the horizon due to Check 21, the new law that
allows banks to use specially formatted check copies, called "substitute
checks," for processing and settlement purposes. Substitute checks
will render some check stock security features and signature verification
processes obsolete and potentially subject banks
and corporations to even higher degrees of risk.
But the most recent ABA check fraud survey had some good news in it,
too. The ABA reports that despite the higher level of attempted fraud in
2003 versus 2001, actual dollar losses in 2003 were $677 million compared
with $698 million in 2001. This shows that banks and corporations can work
together to effectively fight check fraud and protect corporate assets.
Take Internal Precautions
Treasury managers can take a variety of steps internally to help secure
their commercial accounts against check fraud. Some common check fraud
prevention steps include:
- Incorporating security features into your company's check
stock such as embedded watermarks that do not duplicate.
- Instituting
dual controls to separate major financial duties like check origination,
approval and reconciliation.
- Setting up video surveillance to monitor
employees and deter criminal activity.
- Reconciling bank accounts daily.
Payee Verification
Most experts agree, however, that one of the most powerful weapons available
today to fight check fraud is a bank service, "positive pay." A
traditional positive pay service allows a bank to validate checks presented
for payment against your accounts using MICR line data and issue information
that your company provides. The bank alerts you to exception items for a "pay" or "return" decision.
"Payee name verification" is an emerging enhancement that
will allow a company using positive pay to include payee name information
in the check issue file it sends to its bank. The bank can then verify
the payee on a check presented for payment using optical character recognition
(OCR) or intelligent character recognition (ICR) technologies.
Seal Encoding
To tackle the increased fraud anticipated from substitute checks, banks
are also evaluating the viability of other promising new technologies.
Security seal encoding, for example, embeds check issue information within
a company logo or other non-numerical design on the face of the check.
When the check is presented for payment, this data is scanned and verified
against the information provided in your issue file. Such micro printed
information has survived the check substitution process in trials.
Bar coding
Bar coding is another promising check security feature that can survive the
substitute check process. This technique will allow companies to print a
bar code with issue data on each check. The receiving bank matches this digitized
and encrypted bar code with the original check.
Bar coding may also help banks with extensive branch networks that are
growing increasingly concerned with check fraud at the teller line. Tools
developed in the future may enable a teller to read a check's bar
code to confirm its authenticity.
Cooperative Teller Network
Finally, banks are considering the creation of a teller network across several
banks to validate checks. Conceptually, a teller at one bank could research
a signature on file at another bank and compare it to the signature on the
check being negotiated at the window for cash.
View other articles in this edition
 Banks Develop ‘Decision Gateways’
to Expedite Check Clearing
Want to Minimize Fraud Losses?
Focus on Curbing Employee Crime
Online Paid-Check Research Provides
Fast Answers, Reduces Fraud Risk |
