How to Protect Your Clients' Checks

In 2000, checks were used in more than 40 billion transactions. Fast-forward 12 years and that number dropped to 20 billion, according to a recent report from the Federal Reserve’s Cash Products Office.

It’s no secret that checks as a payment system have plummeted in favor of instantaneous online and mobile transactions. What is surprising, however, is that while there may be half as many checks today, their decline has been offset by a higher frequency of fraud. The 2016 AFP Payments Fraud and Control survey provided some perspective. Findings revealed that payments fraud has been on the uptick since last year—and at the same level as it was in 2009 after steady declines from 2009 to 2013. Furthermore, checks remain the payment type most vulnerable to fraud attacks, with 71 percent of respondents experiencing actual or attempted check fraud.

John Hodgson, president and general manager of TROY Group Inc., Wheeling, W.Va., believes that advanced imaging and printing technology are partly to blame here. “Laptop computers are now capable of running programs that can easily manipulate and reproduce practically any unsecured document,” he said. “Desktop printer technology also has evolved to the point where these devices are able to produce convincing forgeries. Inexpensive PC and printing hardware is easily accessible for purchase–both are available via retail and online purchase.

“Fraud networking also has reaped the benefits of technology as fraudsters are now able to communicate globally and share their forgery and fraud techniques via the internet,” Hodgson continued. “This includes discrete communications via hidden forum sites and even mainstream social media.”

As long as fraud exists, distributors are needed, not just for selling secure solutions, but for helping customers regain confidence against the bad guys. To help, we have the answers to your frequently asked questions.

WHAT ARE COMMON WAYS DEFRAUDERS TAMPER WITH VALUE DOCUMENTS?

Printed checks can be targeted in different ways. Fraud favorites, include:

• Forgery: The criminal steals blank checks and forges signatures and amounts.
• Check Washing: The criminal uses chemicals found in common household cleaning products to erase the ink on checks. He or she can then rewrite the amount payable, for example, increasing it by hundreds or thousands of dollars.
• Counterfeiting: The criminal uses copiers or scanners to reproduce fake copies of checks.

DFS High-Security Custom Check. Image courtesy of DFS.

Wes Carrington, senior product manager of business checks and banking products for DFS, Groton, Mass., said that while counterfeiting and forgery remain two of the top ways to commit check fraud, defrauders also use blank check stock that easily can be “over printed” to look like a legitimate check. “It is for this reason that DFS does not offer blank, high-security checks,” he remarked.

Instead, DFS is growing share in the high-security check market through new technologies, like CheckMate, an exclusive feature designed to help banks and payees determine the validity of a check. “A series of check marks on the left border of the check will actually disappear if the check is photocopied, alerting recipients to look further to validate the authenticity of the check,” Carrington explained.

WHAT ARE SOME OF THE WEAKNESSES OF CHEAP CHECKS THAT MIGHT LEAD TO FRAUD?

What passes for “cheap” is subjective, said Diann Bertsch, senior product manager of Broker Forms, Grand Rapids, Mich. “The most asked for security feature is a void pantograph and it is widely known as the most unreliable security feature,” she shared. “So, a customer may feel that any check without a void pantograph is cheap when other security features actually trump a void’s effectiveness.”

According to Bob Diamond, CEO of FTI Group, Redmond, Wash., cheap checks themselves are a misconception. “The cost of the check does not always refer to the value,” he said. “Many other things should be considered: Do you use a stock check when the vendor produces cost-effective quantities? Do you need any custom features because of aesthetics, and what is the quantity? Customization for 5,000 costs considerably more than that of 100,000. Can you use the check without the bank MICR information because your software and printer handle the MICR? This software is now very inexpensive and easy to use, so why not use blank stock?”

ARE THERE ANY OTHER MISCONCEPTIONS OUT THERE?

Absolutely. Hodgson pointed to preprinted check stock. Not only is it expensive, it poses a major security risk, thereby requiring extensive chain-of-custody procedures to protect. “Many companies believe standard pressure seal or basic preprinted stock produces a secure check, but the unfortunate reality is that forgers are able to easily reproduce or alter checks which are on stock that is readily available to anyone,” he warned.

Purchasing a custom, high-security check has other benefits, as well. “A small business [can] add security features ‘a la carte’ to the checks they use, only adding features that fit their business,” Carrington said. “DFS customers may have the need to be able to make a copy of their checks for their records so while this cannot be done using a predesigned document, the anti-copy feature can be removed on a custom product.”

Bertsch agreed, adding that it is easier to build in extra features during the design stage. “While you could add features, such as microprinting or an artificial watermark, you would not be able to add a void to an existing document if the panto was already printed,” she said.

WHAT ARE SOME BEST PRACTICES FOR CHOOSING SECURITY FEATURES?

When it comes to security features, it is important to consider quality over quantity. All too often, Carrington sees printers get stuck on a number, which could end up costing them big. “Many [printers] will actually call out the exact same feature used in several different areas of the check as several different features,” he said. “Many also only use covert (visible) features as they do not have the expertise to develop or produce covert (invisible) features in their process.”

But that’s not to say businesses should stop with two or three options. Carrington recommended multiple layers of both covert and overt features. “Resellers should be asking clients if their checks contain overt and covert features and identify the role each plays in stalling a criminal’s efforts,” he instructed. “A check with many layers deters criminals because of the work involved in dealing with them.”

Businesses, regardless of size, also need to pay attention to the content printed on the check. “Some (MICR) toners do not adhere well, making lifting, scraping or washing very easy,” Hodgson noted. “Once a forger discovers a live check, which can easily be altered, a case of check fraud for a substantial amount is almost certain.”

He went on to say that TROY Group Inc. resellers and distributors provide additional recommendations for check paper, patented MICR toner and ink, and software that can print multiple security features on every check. “Beyond the check paper, we also recommend the use of a particular font, signature and logo treatment to personalize each business check,” Hodgson commented. “In addition, we offer TROYMark, which prints variable data diagonally across the front and/or back of each check, and is extremely difficult to forge or alter.”

MY CLIENT IS CONCERNED ABOUT BUDGET. WHAT DO YOU SUGGEST?

Of course, budget plays a role during the decision-making process—but it shouldn’t. A single case of fraud can cost a company upwards of $20,000. For a small business, in particular, that can result in missed vendor and payroll payments, and even pose a risk to its livelihood. “It really becomes clear that saving a few pennies per check is really not the best budgeting decision,” Hodgson said. “We’ve also had many situations where switching to a secure print-on-demand system for producing checks is not only more secure, but also less expensive.”

FTI Group’s checks offer different security options, including an amount line SEL ink/void feature, rainbow prismatic versions, microprinting, fingerprint hologram, back heat sensitive ink, ABA check endorsement, dual watermarks, fluorescent fibers and more. Image courtesy of FTI Group.

Understanding the difference between overt and covert features is another way to save money. “Overt and covert get a little confusing because some vendors will use less expensive overt features that are actually covert,” Diamond explained. “For example, a customer may want an artificial watermark, which can be printed at a far less cost than using a security paper that has the same feature, usually at a much higher cost. There are many of these features from security papers that can be printed; thus, covert becomes overt.”

Bertsch shared this sentiment. “Inert security features are added when the paper is manufactured, making the base cost of the check more expensive,” she noted. “Then, adding security features with ink, such as microprinting or a prismatic pantograph, may increase the cost of the check beyond a customer’s comfortable level of spend.”

Broker Forms offers three levels of security checks as a way to meet security and budget needs. The level a customer chooses should be in line with the level of risk the check undergoes, Bertsch urged. “If you write checks to employees and others that are consistent and well-known, a high level of security probably isn’t as necessary as it is for a customer [who] is writing checks to an unknown entity,” she said.