Combatting Check Fraud at the Printer Level
At a time when financial institutions are focusing on the new dangers of mobile fraud, an old enemy keeps rearing its head: check fraud, as seen in the recent discovery of a three-year, $15 million check-kiting scheme.
According to the Federal Reserve’s 2013 payments study, paper check writing continues to persist as a significant portion of noncash payments, but interbank processing and clearing of these checks are virtually all electronic. As in 2009, almost all checks in 2012 were either cleared by electronic image exchange or converted to ACH payments.
For this reason and the fact that there remains a persistent challenge with check printing, checks continue to be targeted by fraudsters. In fact, the Association of Financial Professionals found that checks remain the payment type most vulnerable to fraud attacks. Potential problems include check stock pilfering, forged checks, altered checks, counterfeit checks and duplicate checks.
Fortunately, there are ways to reduce the risk of check fraud, starting with integrating distinct security measures at the printer level.
First, a secure magnetic ink character recognition (MICR) feature with password protection is critical to prevent unauthorized access to MICR and secure fonts, user-specific signatures and form overlays. MICR is a special toner used to print fonts at the bottom of checks and is required by the Federal Reserve for ease of processing. If checks are printed with regular toner or remanufactured cartridges, the risk of check rejection increases, ultimately costing the institution time and money.
Additional security beyond password protection can include a front panel security lock, requiring the user to enter a combination prior to printing. Then there are encryption and decryption capabilities. Financial institutions must be able to encrypt the print data stream, protecting it while it is being transmitted to the printer, where it is decrypted just before being printed – one of the highest levels of security technology available.
Financial institutions should also have a way to ensure that the printer prints the job only once. This prevents fraud by disallowing the printing of multiple copies of a single document. An auto jam recovery disable function is also important, enabling institutions to automatically turn the jam recovery function off when checks are being printed. This also prevents multiple copies of a check from being printed.
Data stream tray protection limits the ability of non-MICR jobs to print from specific trays, protecting the check stock from being used for regular office document printing. This capability also mitigates waste and saves costs. And by implementing secure tray locks and drawers, companies can protect and manage their resources, such as checks or any information-sensitive documents.
Audit trails are helpful in creating user-defined reports of check printing activity for auditing purposes, providing the user a written record of check printing activity. Financial institutions should also be able to account for minor variations between printers to prevent bank rejection of checks; therefore, being able to fine tune the position of the MICR line is essential.
Fonts are key to mitigating fraud, with the two most common being the E-13B and CMC-7 fonts. The MICR E-13B font – named for the 0.013-inch grid used to design it – is widely accepted and used in printing MICR-encoded documents in the United States, Canada, Mexico and the Far East. The CMC-7 font – a 15-character set, including the 10 numeric characters, plus control characters – is an alternative MICR font used to print MICR-encoded documents in many European and most Latin American countries. Both fonts meet international standards.
Beyond these two industry standards, a secure numeric font should be leveraged as an additional layer of security at the document level. This type of font is very difficult to alter because of a special background and very small text and numeric print embedded in the amount line of the check. A microprint font adds yet another layer of security at the document level. The extremely small type font allows one to embed micro text and numbers inside lines of print on the MICR document.
Finally, an ICR numeric font – a readable secure font designed to be read by imaging equipment utilized by many financial institutions – should be used. The ICR numeric font is designed for use in the convenience amount area of a check. This area contains the numeric dollar value and is located on the right side of the check approximately two inches up from the bottom edge. The imaging recognition features available in today’s check reader/sorter equipment can optically read it. Financial institutions should note, however, that the secure numeric font should not be used in this area of the check. It is a reverse image font and cannot be read automatically by the equipment. To fully minimize the risk of check fraud, financial institutions should consider using all of these fonts.
As long as check fraud persists, financial institutions should explore all of the security measures listed above.
Ms. McNicholas is the vice president of Marketing for Charlotte, N.C.-based Source Technologies, a leading provider of integrated solutions for managing financial transactions and other secure business processes. She can be reached at [email protected].