Analysis of Behaviour may prevent check fraud

Explore:  Banks Fraud

[author: Stephanie Mau]

Check fraud is still a problem

According to the upcoming 2014 Faces of Fraud survey from the Information Security Media Group, check fraud is still the third most prevalent source of losses for financial institutions.

2012 6 27 checkSince the passage of the Check Clearing for the 21st Century Act in 2004, check imaging has been the method used to defend against some types of check fraud. For clarification, check imaging is a process through which a machine takes a digital image of the check, analyzes the handwriting on the checks, and reads the MICR information on the bottom. (For further clarification, MICR stands for magnetic ink character recognition – the numbers at the bottom of checks that serve as a type of bar code.)  

However, despite how sophisticated this process may seem, the introduction of check imaging – while reducing some types of fraud – has given to new, more complex types of check fraud. Since check imaging uses images, it became easier for fraudsters to create copies of real checks.

Behavioural analysis may be the key

However, fraud expert Wesley Wilhelm has a suggestion – one that isn’t quite as high-tech as check imaging, but one that he argues is fast and useful.

According to Wilhelm, using behavioural analytics can be the key to mitigating the risks of check fraud.

By simply keeping track of anomalies in customers’ behaviour in check deposits, withdrawals, and the frequency of new checks being written – whether it be through manual analysis or system alerts – financial institutions can effectively protect themselves from risks associated with check fraud.

In accordance with this suggestion, Wilhelm also encourages that banks and credit unions should protect themselves by investing more time and resources into familiarizing themselves with their users’ behaviour and patterns – in order to effectively catch anomalies that might actually be conducted by fraudsters.

According to Wilhelm, the most common type of check fraud scheme is the “depositing of duplicate items.” Basically, it’s when one takes a picture of a single check and then deposits that same check into two different banks at once. Fraudsters can also sometimes take that check image and slightly alter the MICR, for example, by one digit.

Take extra steps to prevent fraud

Since, again, this type of simple fraud is made even simpler through the use of check imaging, fraud experts encourage banks and credit unions to use multiple methods to counteract check fraud. Simply using technology is not enough anymore; backing it up with such methods as behavioural analysis makes it much more difficult for fraudsters to get away with their crimes.

The same goes for your own workplace. While you may already be taking steps to protect yourself and your employees from fraud, backing it up with an independent ethics reporting system makes you that much safer.


Topics:  Banks, Fraud

Published In: Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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