6 Common Check Myths Busted

Frank Abagnale, a consultant in document security and expert in methods of fraud and forgery, once quipped: “There’s no such thing as a foolproof system. That idea fails to take into account the creativity of fools.”

And he should know. In Abagnale’s past life, he was a confidence trickster, a check forger and an imposter. His feats, which included forging a Federal Aviation Administration pilot’s license and a Harvard University law transcript, respectively, eventually landed him in prison, where he served fewer than five years before starting to work for the federal government. They also provided the inspiration for Steven Spielberg’s 2002 film, “Catch Me If You Can,” starring Leonardo DiCaprio.

Many criminals strive to model Abagnale’s old playbook, circumventing new fraud prevention features or strategies, particularly as they pertain to checks. “From a sociological viewpoint, many young criminals who probably have never actually written a check are getting into the check fraud business because it is easy, more lucrative and less dangerous than selling drugs,” observed Greg Litster, president of SAFEChecks, a Canoga Park, California-based “check fraud prevention specialist” that works closely with Abagnale.

“It’s easy,” John LaBrant, regional sales director of value document inks for SICPA Securink Corp., Springfield, Va., said of the efforts criminals need to make. “Even an amateur can counterfeit a check and get away with it. Verification is done by bank tellers who are many times high school and college students with limited education on the security features in use and [who] don’t know what to look for.”

That’s why constant vigilance, deterrence and continuing education are necessary. Distributors, did you know that there are liability factors, such as Holder In Due Course, the Check 21 Indemnity clause and Mobile Banking Deposit Fraud? In regard to the last item, fraudsters will photograph the front of an unsigned check and the back of a different check that has been signed, and upload the pictures for deposit via Mobile Remote Deposit Capture (mRDC), explained Robin Johnson, who handles marketing for SAFEChecks.

“They will then take the unsigned check and cash it at a check cashing store, getting paid twice,” she continued.

Now, did you know that this could’ve been prevented with Positive Pay, a banking service that notifies the company when the check number, amount and issue date on a given check don’t match information on a list of checks previously authorized and issued by the company?

“If the company issuing the check [were] using Positive Pay, the check cashed at the check cashing store [would] be rejected by the bank, causing the check-cashing store to become a Holder in Due Course,” Johnson explained. “They can sue the maker of the check for the value of the check, and they will win.”

As trusted distributors, it is not only your job to provide secure solutions, but to reignite confidence among customers for whom fraud is a very real threat. Although there’s plenty of information on the topic, it’s important to understand what is just hype versus fact. To set the record straight, Print+Promo caught up with Litster, Johnson and LaBrant, along with John Hodgson, vice president and general manager of TROY Group Inc., Wheeling, W.Va. Read on as they debunk six popular check security myths.

Myth No. 1: Check usage is dropping, so the rate of fraud is, too.

This is arguably one of the most popular misconceptions out there. Hodgson acknowledged that while consumer check usage is dropping, business check printing remains strong. In fact, checks are the payment method of choice for businesses and organizations, according to the Association for Financial Professionals (AFP).

“Old-school check fraud [is] a payment fraud leader for a few reasons: First, businesses are not upgrading their equipment to MICR encode at the time of issuance,” Hodgson noted. “Second, software [that] is not updated, and doesn’t include Positive Pay, can leave holes in security. Third, there is a belief that MICR toner is no longer needed since the rise of OCR machines. But, the truth is, OCR does not address security. Standard toner significantly opens up a business to fraud risks. Fourth, implementing secure check printers, with additional capabilities to add security at the time of issuance, helps prevent check alteration.”

LaBrant said personal checks are the easiest to counterfeit because they aren’t overflowing with security features. They also get pushed through easier since the dollar amounts are generally lower. Business checks, on the other hand, tend to have more security features, making the job somewhat more difficult for fraudsters.

“The biggest mistake I see with business checks security is that the features used are meant to deter duplication, and not so much to prevent alteration,” LaBrant shared. “Counterfeiters then just have to make an alteration to the amount, the pay-to or the signature line, and they have a perfectly good ‘original’ check to present.”

A recent AFP Payment Fraud Survey backs LaBrant’s observations, indicating that 52 percent of check fraud attempts involved altered payee names, and 37 percent involved dollar amounts.

Myth No. 2: All clients are equal—they simply need fraud protection.

Wrong. There is no blanket approach here, which is why distributors must perform a risk assessment with each client. “Exploratory questions should delve into [the client’s] current process and if the company has experienced check fraud in the past,” Hodgson instructed. “Distributors should ask about their accounts payable system and its capabilities for printing checks that MICR encode at the time of issuance. Then, it’s really looking at their processes, finding the holes in their security and offering a solution that covers all those holes and provides secure, fraud-resistant payment output.”

Layered overt and covert security features help create fraud-resistant checks. Shown are variable data TROYMark and TROY MICR Toner Secure printed on blank check stock. Image courtesy of TROY Group Inc.

LaBrant agreed, adding that printers, their clients and security providers need to understand what the danger of fraud is to the specific document at hand before deciding on the appropriate security features. His list of questions that should be covered include:

• Where is it going?
• How many verifiers will be handling it?
• Who will the verifiers be?
• How will the verifiers be trained, or, even, will the verifiers be trained?
• What is the planned life cycle of the document once it has been issued? Is it a check that will be in and out of the system in days, or a vital record or a title that will be around for years?
• What is the method that the counterfeiter will use?

Myth No. 3: If it says “controlled stock,” on a website, it must be true!

Litster didn’t mince words. “Many companies are ignorant regarding how unsecure and uncontrolled their checks really are,” he said. “They simply reorder what was used in the past, without thinking. We have been shocked at the poor quality of checks that some organizations use. Some checks really offer no more protection than using a plain piece of copy paper!”

When it comes to keeping checks secure, using controlled check stock is nonnegotiable. Litster has noticed a pattern of check manufacturers listing “controlled stock” on their websites. If it sounds too good to be true, it probably is, and SAFEChecks has gone so far as to purchase some of these checks, using a fake company name, a closed bank account, with a credit card, and shipping to a location with a different address than that of the billing address—with no questions asked.

“Even if the check itself had 50 security features, this is not a controlled stock, regardless of what it says on the website,” Litster stressed. “SAFEChecks always verifies with the bank that the name, account number and shipping address on a check order are legitimate; we independently re-verify the address on any reorder with a change in shipping address. We never sell any check stock that is totally blank. Every check order has something unique and identifiable to that company printed on the face of the check.”

Myth No. 4: If a check has a lock and key icon, that means it’s secure.

Johnson pointed out that the only requirement to use the lock and key icon is to have three security features built into a check. “Also, many people are enamored with holograms, but we have duplicated holograms using hologram wrapping paper, an Exacto knife and a glue stick,” she said. “... The best security features are those that cannot be duplicated, such as dual-tone true watermark, the chemical reactivity of thermochromatic ink and controlled stock.” LaBrant said another misconception is that companies believe checks with microprint, backside drop-out and standard void pantographs make a secure check unsusceptible to fraud.

“While these are all good design features that do present a limited amount of security, by no means are they to be considered a real deterrent to fraud,” he commented. “These features are all meant to prevent duplication by means of a copier or scanner; however, today’s copiers and scanners—actually, for the last 20 years—are good enough to defeat standard void pantographs and backside drop-outs, [and] can reproduce microprint. There are more sophisticated void pantographs out there that would have a better chance, but without additional ink and paper security features, this cannot be considered a secure check.”

Myth No. 5: For a check to be protected, it needs only a couple of security features.

All document security experts understand the importance of a layered strategy to protect checks. Hodgson recommended a combination of overt (visible) features and covert (invisible) features. “We recommend additional layers beyond just basic check and copy prevention,” Hodgson said. “Beyond the check paper, we also recommend the use of a MICR-specific font, digital signature and logo treatment to personalize each check. 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.”

The use of overt and covert features harkens back to what is discussed in the risk assessment stage—particularly, as it pertains to the type of application and who will be authenticating the check. “Overt features can be good for the general public to verify visually with limited to no education, but the flip side is the fraudsters see and can try to copy these features,” LaBrant explained. “On the other hand, covert features are invisible and not publicized, with generally only the clients, their agents and law enforcement able to verify as genuine.”

There is no exact number of features that fit every case, but for high-security checks, Litster suggested a minimum quantity of 10. Distributors should keep in mind, however, that if a “high-security” check can be purchased completely blank, or purchased with a company’s name and bank information, but shipped to a fraudster’s address, as Johnson mentioned earlier, that check is uncontrolled and any security features become pointless.

“A criminal won’t need to copy, chemical wash or peel off printing from a check if he can easily buy an original, blank check stock to use for fraudulent purposes,” Litster warned.

Myth No. 6: Budget influences how secure a check should be.

In fact, it should be the other way around. Consider how much saving a few pennies per check could cost your client. According to a recent AFP Payments Fraud and Control Survey, one incident of check fraud can cost a company more than $20,000.

“If there is a tangible problem that is known to the issuer, the question is how much does it cost in lost revenue when the fraud occurs?” LaBrant said. “For example, a currency exchange was experiencing a problem with altered checks being presented and cashed. The problem was so bad that the percentage of checks counterfeited was about 20 percent of all checks presented.

“An anti-alteration security feature was implemented on the check that caused the background of the check to be defaced and unpresentable when alteration was attempted,” he continued. “The counterfeiter moved to something else and the incident of counterfeited checks at this currency exchange dropped to zero.”