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Addressing the Rising Cost of Check Fraud

Despite of the steady decline in the general number of checks written annually, organizations still make 74 percent of their payments by check, according to some estimates. It is not news that check fraud is a prevailing form of fraud. Check fraud takes numerous forms, covering the gamut of illegal and/or deceptive practices from forgery to check kiting (drawing against balances credited to uncollected checks) to ">embezzlement. Signat

Despite of the steady decline in the general number of checks written annually, organizations still make 74 percent of their payments by check, according to some estimates. It is not news that check fraud is a prevailing form of fraud. Check fraud takes numerous forms, covering the gamut of illegal and/or deceptive practices from forgery to check kiting (drawing against balances credited to uncollected checks) to embezzlement. Signature forgery, counterfeit checks and physical alteration of the paper check itself are all prevalent methods of check fraud.Check fraud results in the loss of billions of dollars a year for banks, financial institutions and retailers, regardless of size or location. Identity falsification, in particular-formerly the specialty of professional forgers-has become widespread. Advances in technology are partly to blame. Highly-sophisticated and inexpensive technology is now available to criminals, allowing them to access basic personal or corporate account information and produce hundreds of authentic-looking counterfeit or forged checks in a matter of hours. This new level of perpetrator sophistication requires an increased level of alertness for institutions looking to protect themselves from check fraud losses. Banks and financial institutions are now turning to advanced fraud protection tools for assistance.

Today, there are a variety of efficient fraud prevention solutions that are cost effective for both large banks and smaller organizations. The goal for any organization is to first identify the main areas of fraud risk, define the scope of the fraud prevention measures that can be supported and use the most advanced, efficient and cost-effective technology available to detect and combat it.

Here are two examples of popular check fraud prevention technologies and some of the advantages they can bring when properly incorporated into a comprehensive fraud prevention strategy.

Automatic Signature Verification State-of-the-art automated signature verification is a technology that can be easily adapted and efficiently applied to a financial institution's needs to detect and prevent fraud, regardless of the organization's type and size.

Manual signature verification has been one of the most common fraud prevention methods and has remained unchanged for many decades. Meanwhile, signature forgery has become one of the biggest security problems challenging financial institutions. According to recent studies, 27 percent of all fraudulent checks are signature forgeries, and over 500 million checks are forged annually in the United States.

Clearly, with 30.6 billion checks written each year in the U.S., it is neither practical nor cost-effective to visually compare signatures on the number of checks processed daily. Nor has visual comparison proven to be reliable; many banks have found that due to the increased volume of lower dollar checks and higher quality of forgeries, many pass through a visual review undetected. Consequently, as the need to guarantee the authenticity of each document remains urgent, this task requires more efficient, controlled and reliable methods of signature verification.

New signature verification systems leverage the latest in artificial intelligence and exploit the most comprehensive and advanced methods available for automated signature verification. New systems employing advances in pattern recognition technology and biometric authentication techniques outperform both automation products of previous generations and visual verification in their abilities to detect signature forgeries, providing a bridge between the long recognized practice of signing a document and the "reliable authentication and authorization." This performance breakthrough also allows financial institutions to automatically and accurately process up to 99 percent of suspect checks, substantially reducing the number of signatures that have to be manually reviewed.

Such systems can contribute significantly to solving many check fraud-related business challenges faced by banks and other financial institutions. Their benefits include: · Ability to process images of checks, along with image replacement documents (IRDs), quickly and efficiently to identify suspicious signatures on a broader stream of images. These solutions allow financial institutions to lower the amount threshold for verified checks or inspect all daily presentments instead of just high-dollar items. · Ability to reduce the number of false positive answers, i.e. when the system identifies a fraudulent signature that really isn't one. · Adaptability to existing environments and the ability to integrate with other fraud detection systems to create a centralized application that serves unique business needs. · Opportunity to further improve customer service and satisfaction, enabling financial institutions to proactively inform customers, not only about potential fraud, but also about missing signatures, dates or other important information. Automatic Check Stock Verification Check stock verification software protects financial institutions against the fastest-growing source of fraudulent activity surrounding checks today-counterfeit checks. According to recent industry studies, banks incur 28 percent of all check-related losses due to counterfeit checks.

Modern products for automatic check stock verification use secure filters for detecting the most sophisticated counterfeit checks and image replacement documents (IRDs). These systems can confirm the validity of a check stock even with scans performed on various image capture devices with different resolutions. They go far beyond merely examining each individual preprinted object on a check and comparing them against the corresponding objects on a reference check stock. Advanced systems scrupulously verify the full image of a check as well as preprinted objects on a check including headers, such as: check number, date, payee, dollar amount, dollar sign, memo, payor block and payor bank field. Combining multiple forgery detection algorithms analyzes elements' content, font type, font size, font spacing, the placement of each item and relative distances between pairs of blocks, allowing banks to immediately identify even the slightest variations of a given check. Multiple methods of verification-including quantitative analysis, pattern recognition, analytical and geometrical analysis and neural networks-ensure accuracy. As a result, banks and financial institutions can automatically detect copies or imitations of checks passing through the system.

Banks and financial institutions, now more than ever, are required to implement the latest fraud detection tools as the adoption of image exchange becomes more prevalent. Combining signature and check-stock verification technologies presents an effective arsenal of reliable and cost-effective tools to maintain the highest level of account security. Lessons learned from larger financial institutions that have already used such technologies show that the benefits are numerous and include timely fraud prevention, mitigation of fraud losses, protection of bank's assets and improved customer loyalty. Michael Fenton is VP of sales and operations for image processing solutions provider Parascript (Boulder, Colo.) and has more than 25 years of experience in the industry.

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