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Check Fraud Detection and Prevention

by : Stan Jaslar

A 2018 study conducted by American Bank and SourceMedia Research reveals that the majority of senior level executives from banks, credit unions, and other financial institutions report that they are more worried about fraud now than they were a year ago. They deal with multiple types of fraud, including check fraud. Account takeover alone accounts for over $5.1 billion losses per year.

90% of surveyed executives report that it takes over a day to deal with most cases of fraud and less than a quarter of respondents were able to clear up fraud incidents in less than a day. Fraud costs money, takes time, and can threaten a financial institution’s reputation. To protect your financial institution, you need check fraud detection and prevention tools in place. For best results, you need a multi-pronged strategy which involves the following elements:

Automated Check Image Analysis

Automated check image analysis uses powerful software to detect small alterations that may not be visible to the human eye alone. These tools look at fixed information on the check such as payer’s details, signature line placement, font, layout, check size, and serial number. They can also look over the content of the check, scanning for signatures, stale or future dates, amounts, and MICR data.

When the software detects a problem, it flags the check for manual verification. At this point, your bankers can visually assess the check, look at the account, and decide on the next steps to take.

Secure Barcodes

Some banks offer their customers secure barcodes or seals to print on the checks. This technology largely takes the place of watermarks or special inks, and it works perfectly for business clients who print their own checks. Essentially, the software allows the account holder to generate a check with a special barcode or seal.

Then, when the bank receives the check for processing, the bank’s software reads the seal or barcode and ensures that the encoded information matches the rest of the check. If a scam artist steals the business account and routing number and generates a fake check, the software notices the lack of a seal or barcode, and it flags the check as suspicious.

Ultraviolet Technology

To utilize UV fraud detection software, financial institutions have their customers print checks with special UV ink. Typically, they use the ink in sensitive areas such as the amount line, the signature, and the bank logo. Then, when the bank processes the check, it runs it under a UV-scanner which can detect if any of the UV ink has been altered or tampered. This type of technology is especially useful for fighting chemical alteration or check washing.

Signature Verification Tools

Signature verification tools allow you to collect and store your customers’ signatures in a database. Then, special software scans checks and other documents for discrepancies in the signature. When issues arise, the software displays the signature on the check next to the signature in the file, allowing your employees to make a manual comparison. These tools speed up processing times, without compromising bank security.

Transaction Analysis

Sometimes checks look perfect. The stock details are correct, the content is okay, and the signature is a match. But the customer may be kiting checks, drafting bad checks on a new account, or committing other types of check fraud. To uncover these issues, you need transaction analysis tools that can look for troublesome patterns or other potential red flags, such as out of range check or duplicate numbers.

Quality transaction fraud analysis tools look at on-us checks, but they also analyze ATM withdrawals, debit and credit card transactions, repetitive deposits, and spending amounts that don’t fit with the customer’s usual patterns. They can also help you monitor loan transactions, wire transfers, mobile banking, and a variety of other banking transactions.

Employee and Customer Education

On top of the above tools, you also need to train employees how to detect fraud, and you need internal safeguards in place to help prevent internal theft and fraud. Additionally, you need to educate your customers.

Consider sending newsletters or emails to individual and business customers to let them know about the lasted check fraud scams and how to avoid them. Also, hang infographics and posters in your branch locations to spread the word on check fraud. When your customers are savvy about fraud, your financial institution reaps the benefits.

At SQN Banking Systems, we have the products, services, and solutions you need to protect your financial institution from fraud. To learn more, contact us today.



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