The Art of the Steal (8 page)

Other worthwhile antifraud techniques include artificial watermarks, messages that are visible only when the check is held at a 45-degree angle and aren’t picked up by copiers and scanners; warning bands, which are statements printed on checks that point out design elements to look for (no warning band is any good unless you add the words, “Do not cash,” “Do not accept,” or “Do not negotiate” before or after the warning); and microprinting, a technique where words or phrases added onto the check in letters so small they are legible only under a magnifying glass. It used to be that microprinting could only be done in a straight line, but circular microprinting is now possible so you can put messages in as logos, or pictures.

Companies always ask me, “Well, we buy two hundred thousand checks a year, or a million checks a year, or two million, how much more will these things cost me if I incorporate them?” The answer is very little. With that kind of volume, adding these features won’t add much cost. One other thing that I tell businesses is you need to secure all of your checks, not just some of them. All the time, I encounter companies that use secure features in payroll checks and accounts payable checks, but not in refund checks.

“Why not?” I ask them.

“Oh, they’re always for small amounts,” they say.

Their policy should be the exact opposite. Payroll checks go to employees who you know. Accounts payable checks go to vendors who you know. But refund checks go to complete strangers. They’re the checks most in need of protection. Unfortunately, what criminals do today doesn’t enter a comptroller’s mind until his company suffers a loss.

BUT DO THEY WORK?

Believe me, these features really work. In 1993, Imperial Bank in California hired me to redesign its company check. The bank was having big problems with check fraud—to the tune of $3 million a year. I came in, and working with the printer, gave them some security features and helped them tighten their internal controls. The bank began to offer the new check to its customers at the same price as its regular check. It looks just like a regular check, and comes in a lot of colors and styles. The check-fraud losses fell to about $120,000 by 1996, a 96 percent decrease after three years of using the new check. This check is called SafeCheck, and is manufactured by a company that goes by the same name.

People often come up to me and say, You design these secure checks for corporations, why don’t you design a check for me, the consumer? So I’m working to produce a secure consumer check. It will have twelve security features, including paper that reacts to twenty-four different chemicals, high resolution borders that are difficult to duplicate, white “chemical-wash detection boxes” that change colors with chemical tampering, and embedded fibers that glow under ultraviolet lights. But I’ve also told the manufacturers that whenever it takes an order, it has to verify the order with the person’s bank. If someone changes his address, that has to be verified. It makes no sense to create a secure check if any criminal can order it.

When I design a check, I follow a little routine. I send a sample to three places: a graphics house in Australia, an Australian forensic document examiner, and a U.S. institute of technology. I ask each of them to create their best replica, so I can test how secure it is. At the institute, they select a smart student and give him access to the most sophisticated computer equipment, literally millions of dollars of gear. The last check I sent there, the student took a month’s worth of manhours to produce a good replica. That told me I had a great check. As I’ve said, nothing is foolproof, but if it takes a clever student a month with millions of dollars of equipment to produce a counterfeit, I know few criminals have a prayer.

The other thing I learn is which features work best. Lately, I’ve been working with prismatic printing, which puts a multicolored, rainbow-like background on the check. It’s very difficult to photocopy.

YOUR FIRST LINE OF DEFENSE IS YOU

If we’re ever going to stop fraud, everyone has got to become a bit more vigilant. My guess would be that half of all Americans don’t bother to reconcile their bank statements. They don’t even open them. And what they don’t realize is that they’re liable for errors, because they generally have thirty days to notify their bank of a discrepancy, and sometimes less than that. Let’s say I did get hold of your check and I filled it out for $2,000, and you never bothered to look at your bank statement. A month or two later, your husband says, “Hey, we’re overdrawn at the bank.” You say, “That’s impossible. I’ve got $2,000 in the account.” The bank says, “Oh no you don’t, you’re overdrawn.” Now you go back and open that envelope and discover a check for $2,000 that you didn’t write. You didn’t sign it. Guess what? It’s too late. The bank is not going to restore your money. But most people don’t realize this until it happens to them.

A Wisconsin man named Borowski had two checking accounts with Firststar Bank. One was his personal account and one was for his father’s estate. Borowski said that his fiancée stole $50,000 from his account, and $100,000 from the estate account. She did it with forged checks and unauthorized telephone transfers. She even left forged handwritten notes in the bank’s night depository box requesting cashier’s checks. When the monthly bank statements and $20,000 in cashier’s checks were sent to Borowski, his fiancée intercepted them. When Borowski discovered the theft, he sued the bank to get his money back. Presumably, he also called off his impending marriage.

The case went to court. The bank pointed out that Borowski’s signature card agreements required notification to the bank of unauthorized checks within fourteen days of the statement date. Borowski said he hadn’t received the statements, because his fiancée got hold of them and lied about them.

The court ruled in favor of the bank. It said that as long as the bank had mailed the statements to the customer’s proper address, it had upheld its part of the bargain. The court did rule in favor of Borowski on the $20,000 in cashier’s checks, however, because the bank didn’t include the handwritten notes with the bank statement.

GET GOOD BACKUP: POSITIVE PAY

There is a product out in the marketplace, and already about 60 percent of the nation’s major banks offer it. It’s called positive pay. I feel that positive pay is the greatest concept available to deal with the problem of forgery or fraud. In most cases, the bank provides it for a minimal fee. If it doesn’t, look on it as an insurance premium to guard against losses from fraud.

The product is really quite simple. Say I’m a company and I write fifty checks a day. I could write five a day or five thousand a day, it doesn’t matter. At the end of each day, I download a list to the bank over my modem of all the checks I wrote that day and sent out in the mail. The list, called an issue file, simply runs through each check number and the amount of the check. The bank doesn’t want to know who I wrote the check to.

The file goes down to the bank and is stored in a program called positive pay. The checks go out in the mail and, lo and behold, a forged check shows up. I wrote a check to a guy for $250 and he color-copied fifty of them. I don’t care. I’m on positive pay. I wrote a guy a check for $200 and he altered it to $2,000. I don’t care. I’m on positive pay. The point is, when the forger goes to cash that check, it will go to the first bank of deposit, and then it will come to your bank. But because that check doesn’t match a check on your list, it will be rejected. No match, no pay. If you didn’t write it, the bank isn’t going to pay it. The computer will say, I have one refund check for $250, but I don’t have fifty, so I’ll pay one and return forty-nine. I have one check for $200, but I’ve searched the file and I don’t have one for $2,000, so it returns the check unpaid.

Now there are some small businesses that love the idea of positive pay, but they don’t have a computer. I ask them, Do you have a fax machine? Yeah, they have that. Well, your bank can put you on reverse positive pay. At eight-thirty in the morning, your bank will fax you a list of all the checks written by you that came into the bank last night to be paid today. You’ll have until two-thirty that afternoon to look over that list. If everything looks fine, you don’t have to do anything, just throw the list away. But if you find a discrepancy, you call the bank and tell them to fax you that check. If you look at it and it’s not your check, you tell the bank not to pay it.

This product literally does away with the threat of forged checks, altered checks, stolen checks, and counterfeit checks. And positive pay is also on the bank’s teller line. So if I had taken your checks and they were drawn on, say, the Chase Bank, I would obviously go to a Chase branch to try to cash it. But when I go up to a teller at a Chase Bank and present a check, the teller would pull it up on the screen and say, “Sir, this check was never issued as of noon today. The company never wrote this check, so what is this?” So you’re stopped cold right at the teller.

One of the most common questions I get about positive pay is, what if I send Frank Abagnale a check for five thousand dollars but a postal employee steals the check and Frank Abagnale never gets it? The employee types above my name, Bill Clark, and goes and cashes the check. The check number is the same and the amount of the check is unchanged. How will positive pay catch that?

It won’t, but it’s not meant to. That’s because that is an altered payee, and under banking law, altered payee checks are the liability of the first bank of deposit, not your liability or your bank’s liability.

Like any technology, positive pay is not foolproof. I recommend companies use both positive pay and a very secure check to close the loop, lock the lock, and throw away the key.

WAITING FOR THE PAPERLESS TOILET

A lot of companies and consumers figure, why worry too much about checks? With computers and debit cards, they won’t be with us that much longer. Well, anyone who thinks that checks are going away is dead wrong. People are always asking me, “When are we going to see the paperless society?” I tell them, “When you see the paperless toilet. No time soon.”