Rapid innovation in mobile and remote deposit technologies means members today have more choices when it comes to how, when and where they interact with their credit union or other financial service providers. While the dramatically more efficient remote deposit technology offers credit union members greater convenience and flexibility, it also magnifies potential risks. The potential for human error and fraud — such as a check being altered or deposited multiple times on different dates or at different credit union locations — are real and persistent challenges.
How do credit unions uncover common vulnerabilities — such as checks being altered or deposited into multiple accounts? What measures do they put into place to ensure optimal performance and security? Common areas for risk exposure in rolling out remote deposit delivery systems are: multiple or duplicate deposits, CAR/LAR mismatches, counterfeit checks, poor quality deposits, and signature forgeries. There are five key steps CUs can take in fraud prevention to offer greater security and better monitoring of remote deposit transactions.
1. Combat Multiple or Duplicate Deposits
Combating fraud such as multiple and duplicate deposits is an ongoing problem. If a check is scanned or photographed for remote deposit, the hard copy still exists and could potentially be deposited into another account. To avoid this, the industry is increasingly looking to restrictive endorsement where the individual writes on the back of the check where the check is endorsed with a number or statement (e.g., "e-deposited at XYZ CU") so if another institution receives the same check, it will be treated as invalid. The complexity is that the financial institution needs to have the ability to automatically detect that these statements are on the back of the check when there's an acceptance of a mobile or other remote deposit. That requires detection of handwritten script and actual recognition of the characters. Automating this review process allows the financial institution to provide better member service by more rapidly recognizing valid deposits, preventing fraud and reducing overhead.
2. Identify CAR/LAR Mismatches
When adopting remote deposit as a new and necessary service to members, credit unions evaluate the service to ensure it is in alignment with their existing business strategies and that the service is integrated as part of their risk management processes to fully measure, monitor and protect each new deposit delivery system. Despite these risk management processes, the potential for someone depositing a check remotely to alter the amount of the check is a persistent issue.
Typically in check automation and recognition, CUs focus on the numeric amount or "courtesy amount" (CAR). The written amount is only secondary because it is difficult to decipher. Altering the CAR is simple and prone to fraud. Comparing the CAR with the written legal amount (LAR) is necessary. ATMs and other forms of remote deposit require deposit validation that can require a labor-intensive, time-consuming review. With advanced validation, it's possible to automatically detect CAR/LAR mismatches with higher accuracy than manual processes.
3. Evaluate All Check Components
Any validation of remote deposits requires putting protections in place to guard against business check and personal check forgeries. This requires inspecting pre-printed objects individually for instant comparison against the valid reference check stock. Technology such as automated check fraud detection can help to identify even the most sophisticated forgeries. Evaluating the size of the documents and the distances and complex relationships between different check stock components is also critical.
4. Address Data Quality Early
Poor quality check deposits and missing data are hidden costs that amount to millions of dollars lost each year. Poor quality documents with critical errors may be less than one percent of the overall volume of remote deposits, but these can require manual intervention and employee research time to resolve, costing $15-$25 per document. Costly related activities include member communications, return document fees and low value check writing-offs. Credit unions can look to specific processes and technology to verify checks, minimize risk and costs for poor quality checks by analyzing a comprehensive list of items that detect anomalies. False alarm rates can drop to as low as 0.1%.
5. Verify Signatures Cost Effectively
The fraud-prevention strategy is only complete if it deals effectively with signature forgeries. Automated signature characteristics differentiate between natural irregularities in a signature and true variances that indicate fraud. It is also important to dynamically identify missing signatures and support business rules such as dual signature requirements for large checks over a given amount.
Credit unions that have adopted strategies incorporating these five steps have a greater opportunity to offer optimal security and better monitoring of remote deposit transactions.
Greg Council is vice president of Parascript, specializing in automating data-intensive image and document processing activities. He can be reached at firstname.lastname@example.org