Banks Upgrade Check Fraud Detection

To the banking industry, check fraud is a problem of image. Not the public-relations kind, but the technology kind. Banks are finding themselves arrayed against a small army of criminals using laser printers to create authentic-looking checks ranging up to millions of dollars. As the tools of the trade have become ubiquitous, check counterfeiting has gone downmarket, with amateurs edging out professionals.

"Fraud permeates the industry," says Tony Gandolfo, head of product management at Bank of New York. "Although the tools used to fight fraud have gotten more sophisticated, so, too, have the tools used to perpetrate fraud."

Stolen checks also pose a significant fraud threat. In the typical "positive pay" system, businesses provide a daily list of their payment amounts, against which banks match incoming checks. If a match is found, the check gets paid; if not, the check gets flagged as a suspect item and the customer is notified. But if check forgers steal a legitimate check and alter the payee line, the forgery can go through-to the wrong person.

FRAUD FIGHTERS

To fight back, banks have begun to use the check images they've been capturing for other purposes. Banks capture check images for a variety of reasons: as an alternative to transporting paper checks between banks, something the newly passed Check 21 law aims to eliminate; to create new sources of revenue such as statement imaging for consumers and businesses; as a way to speed adjustments and other tasks; and to help comply with the Bank Secrecy Act, USA PATRIOT Act, and other regulations.

To identify checks that have been altered, banks have begun to use optical character recognition to read not only the account number and amount of the check, but the payee line as well.

Bank of New York is implementing one such positive-payee system, called Positive Pay Plus, from Imagesoft Technologies Inc. (Lake Mary, Fla.). The bank will test the system with a customer in November and plans to go into full production next year.

It also plans to implement another FraudGuard product that will allow it to read a computer-generated signature at the bottom of a check and compare it to a dynamic electronic file "rather than a stale signature card," says Gandolfo. In yet another enhancement, the bank will notify the customer about suspicious checks immediately instead of the following morning, giving company finance officers more time to determine whether fraud is actually involved.