FORGERY
Check fraud is a multi-billion dollar epidemic that shows no immediate signs of slowing. The American Bankers Association estimates that check fraud - a category of crime that includes forgery, counterfeiting and other attacks upon the demand deposit accounts at banks and other financial institutions - is growing at astounding rates.
In 2002 alone, banks and their customers are believed to have lost in excess of $20 billion to check fraud. And as many of the largest banks adopt technologies and techniques to help combat this problem, fraudsters increasingly are training their sights on smaller banks.
Further complicating the situation, a succession of changes to banking laws and regulations over the last decade - from the Federal Reserve’s Regulation CC to the federal Check 21 Act - has forced banks to implement changes in check acceptance and processing practices that often create new vulnerabilities to fraud.
Between 1997 and 2001, check fraud losses nearly tripled at community banks (those with less than $500 million in assets). During that same period of time, losses nearly doubled at mid-sized banks (those with $500 million -$4.9 billion in assets).
Understanding the Challenge
For as long as there have been banks, there have been criminals intent on figuring out ways to steal monies deposited in banks. The famous bank robber Willie Sutton gave voice to this propensity for lawlessness when he once explained, “I rob banks because that’s where the money is.” But Sutton - who also went by the nickname “Willie the Actor” because of his use of disguises when plying his trade, and who died in 1980 - may never have imagined a day in which high-tech gadgetry would render the tools of his trade superfluous.
With the introduction of sophisticated color copiers, laser printers, scanners and desktop publishing software over the last two decades, bogus and forged checks are rapidly surpassing armed robberies as the preferred tools of thieves. In 2001, financial institutions reported 8,496 robberies nationwide, according to the Federal Bureau of Investigation (FBI). That same year, commercial banks alone identified 600,085 instances of fraud involving customer checking accounts, the ABA says. $4.3 billion in check frauds were perpetrated against commercial banks in 2001. Further, the threat of check fraud against commercial banks doubles every two years.
Losses at community banks are rising at a particularly alarming rate - 51% on an annualized basis between 1999 and 2001. Losses at mid-sized banks grew at an annual rate of 35% during that same period, compared to a 6% annual decline in losses charted by those same banks between 1997 and 1999.
More than one-third of check fraud losses today can be tied directly to forged and counterfeit checks. Add to this mix of trends the Check 21 Act - a new federal law intended to accommodate the electronic presentment and clearing of checks - and it’s clear that community banks today face the potential for even more staggering check fraud losses. While Check 21 is expected to improve the efficiency of inter-bank check clearing - e.g., compressing clearing times, thereby improving odds that a fraudulent check deposit is identified before mandatory check hold limitations expire - the legislation also compounds bank efforts to control check fraud.
Inspect the original paper check:
● Manually inspecting the signature on the front of a check or the endorsement line with the signature on record.
● Look for modified amounts in the legal and/or courtesy amount fields.
● Examine the check stock for authenticity and/or various physical security features, such as ultraviolet fibers and micro-printing.