Banks and Business Search for New Ways To Fight Check Fraud

CHECK fraud has more than doubled in recent years, costing banks $815 million in 1993.

The number of check-counterfeiting cases jumped from 537,000 in 1991 to more than 1 million in 1993, according to the Check Fraud Task Force of the American Bankers Association (ABA) in Washington, launched in 1991. Bruce Brett, task-force chairman, attributes the rise to attacks by small criminal organizations of check cashers.

Americans write 50 billion checks each year. ``The sheer volume favors career criminals,'' Mr. Brett says.

Just as technology has facilitated the counterfeiting of currency, technology has made duplicating checks easier. Desktop publishing, image scanners, color copiers, and laser printers enable counterfeiters to reproduce fraudulent checks that are nearly undetectable from the originals, Brett says.

For a few thousand dollars, a person can buy the software and equipment (all legal) to produce a ``check that looks fantastic,'' says James Loomis, vice president of Bottomline Technologies. ``All you have to do is get somebody to accept it.'' His company, based in Exeter, N.H., markets antifraud software.

For example, a counterfeiter may try to duplicate payroll checks. The counterfeiter offers to pay a company employee to ``borrow'' his check and then copies the check with an image scanner, a process that takes only seconds. The counterfeiter can match the paper and alter the name and amount on the check on a computer, while retaining the legitimate preprinted account number. The counterfeiter can then ``issue'' checks and cash them either at the company's bank (where the payroll check may pass undetected), or at grocery stores, which offer customers the convenience of cashing payroll checks when they have a ``courtesy card.''

The same methods of fraud are costing nonbank businesses some $11 billion a year, says Mr. Loomis, who is also a member of the ABA's task force. ``Banks pay about one-tenth the total cost of fraud,'' he says. Sometimes the issuer of the check, rather than the bank, gets stuck with the cost of a fraudulent check. A business accepting a check for cash, a product, or service may also bear the burden.

Frequent targets of fraud are corporate checks to individuals for rebates, insurance claims, or payroll payments, Loomis says. Companies and banks often do not prioritize protection against check fraud until ``after they get hit, or someone in the company becomes aware of how severe the problem is.''

New methods are becoming available to both banks and businesses to prevent and detect check fraud:

* Many checks will soon be printed with security features, such as microprinting (tiny words), special patterns, watermarks, and holograms that cannot be photocopied.

* ``Positive Pay.'' This automated system matches checks a corporation has issued against checks being cashed. The system could detect a bogus check at the time a customer presents it to a teller by checking a database formed from records that the company submits to the bank. The system is ``widely available but not widely used,'' Loomis says. Many banks offer this service as part of an account-reconciliation system.

8 Security features on payroll functions. Software is available that, if needed, would require up to eight people performing separate functions to issue checks. This reduces the chance of employees colluding to commit fraud.

But no single method of prevention is foolproof, Brett says. ``There is no document that cannot be counterfeited if the counterfeiter is determined enough.''

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