Comments or suggestions?

about this or future e-newsletters.

Check up on check fraud and forgery

According to the Federal Reserve, check fraud affects every financial institution, every business and every individual throughout the United States and around the world.

A Strategy One Small Business Fraud report from October 2007 lists check fraud as one of the most common frauds victimizing smaller business owners. Most employers have experienced check fraud. Those who have not most certainly will experience it in the future.

It isn't just professional criminals who are guilty of check fraud schemes. Financial worries and a tight economy have made check fraud more attractive to a growing number of people.

Fighting against scandals and schemes
The most frequent impact of fraud on businesses is altered or duplicated checks. Several methods are used.

One common low-tech scheme employees use is to claim a lost or stolen check then cash both the original and duplicate checks issued by the financial institution. Many businesses are vulnerable because they do not have fraud safeguards in place to detect such practices.

Direct deposit payroll checks provide a safety measure against this type of fraud. Employees either receive a nonnegotiable copy of the transaction or they can access the information on their employer's Web site. Pay cards work in a similar way for employees who do not have a bank account or do not use direct deposit. Most employees appreciate the convenience of their paychecks being deposited into their accounts -- even while they are on vacation. A positive pay plan provides added protection to the banking institution. Information is verified prior to the bank releasing the funds.

A scheme that payroll employees may use is to set up a bank account for a nonexistent employee. They then deposit paychecks to that fraudulent account and access the funds for their own use. To protect against this type of fraud, create a system of checks and balances with different people handling payroll processing and bank statement reconciliations. Ensure that at least two people examine the bank statement and returned checks each month. (1)

A checking account managed by a third party is an alternative to traditional banking products. The payroll provider collects the funds from a client's account with a single debit and provides employees with checks that are paid from a payroll provider's bank account. The third-party managed checking account eliminates check reconciliation expenses and reduces exposure to check fraud incidents among employees who handle payroll accounts. The payroll provider manages the process and provides a monthly report identifying outstanding checks.

According to an Ernst & Young study reported by the National Check Fraud Center, over 500 million checks are forged annually. Losses total more than $12 billion, not counting those incurred by other types of document forgery. (2) Some of the most recent advances in computer software, those that make it possible to manipulate images and text, have made check forgery a much easier crime to commit.

Protecting your company against check fraud
Ceridian can help your organization fight off fraudulent check activities. We provide multiple security features on all of our checks to deter counterfeiters. "Nothing is assumed at Ceridian," said John Calkins, senior director of Operations. "We take check processing seriously." The following safeguards are standard features from Ceridian:

• The check face contains a void pantograph. If someone attempts to photocopy the check, the paper will read "VOID" several times when reproduced on most color copiers.
• Iridescent printing in the check extends into the warning band, which makes it more pronounced.
• The check background contains microprinting. Text can be seen when viewed through a magnifying glass, but prints as a blurred line when copied.
• The signature line is microprinted; the signature line contains a logo to highlight the presence of this feature.
• Warning bands on the front of the checks read: "The back of this check contains a security mark-do not accept without holding at an angle to verify security mark."
• A fluorescing security mark on the back of the check cannot be copied or scanned to create a counterfeit copy. It can be viewed with the naked eye by holding the check at a 45-degree angle of vision.
• The payee endorsement area is limited to one and one-half inches from the check edge with the Ceridian logo placed in that area. It is positioned there for better visibility after the Depository Bank Endorsement is stamped.
• Text near the Ceridian logo by the payee endorsement area reads: "Blue Ceridian logo printed with ink that responds to warmth. Hold between thumb and forefinger or breathe on it." The Ceridian logo disappears when heat is applied by breath, touch or friction and reappears after the source of heat is removed to indicate the check is good.
• Custom alpha lines (also called laid lines) are an irregular line pattern printed on the back of the check in the depository bank endorsement area. When checks are cut and two or more are pieced together, these lines will not line up. Tampering will be obvious.
• A padlock icon and security feature description box printed vertically on the back right edge of the check describes security features.

Knowing the specific security features to look for on a Ceridian check is the next step to protecting our customers against check fraud and forgery. Ceridian provides information to customers and our banking partners to help them verify Ceridian checks.

"Check fraud is an everyday event, but because of the high level of security we use at Ceridian, I don't recall ever having a breech in our system." said Dan Jasper, Ceridian Corporate Security Department.

Ceridian checks are created under strict guidelines. Banks and employers know the exact number of checks that are printed in a run and the check verification software prints bar codes on all checks. Any discrepancies are resolved immediately. If checks are damaged during printing, Ceridian follows strict guidelines for handling the destruction of damaged checks.

"It's not enough to protect our businesses by keeping up with check fraud and forgery. We work to stay one step ahead of the newest criminal techniques," explained Calkins.

For more information about Ceridian's Payment Solutions, contact your Ceridian representative.

Sources:

1. SHRM: The Five-Finger Bonus, by Robert J. Grossman, HR Magazine, October 2003.
2. The Norton Group, An Expert Looks @ Check Fraud, http://thenortongroup.net/nnotes1.html.