In February of this year, a California hospital chain was defrauded of more than $2 million from its accounts held at Wells Fargo. How was this done and why wasn’t it detected? In this age of Check 21 adoption, how could a large bank be susceptible to something that is seemingly so low-tech?
The answer is simple: the crooks had access to the signatures of senior officials, who were authorized signers at the hospital chain, and proceeded to fax wire transfer orders with these forged signatures to the bank. They gained access to these signatures through a public information website that posted actual documents with signatures.
Adoption of new capabilities, to improve efficiencies and reduce expenditures, can also unintentionally increase costs associated with one of the most common types of bank fraud: signature forgeries.
Check 21 and Fraud
The adoption of check truncation brings with it the loss of physical check inspection, and as check imaging gets pushed to non-branch locations such as ATMs, retail kiosks and mobile apps, the risk of fraud increases through these channels.
Additionally, a combination of Regulation CC mandates with check imaging expediency gives an advantage to the paying institution. Those with strong on-us check fraud technology simply return potential counterfeits, irregular signatures (forgeries) and alterations to the bank-of-first-deposit. The paying bank has protected itself while the BoFD takes the loss.
In this environment it is not enough to focus fraud detection on transaction patterns. Image and biometric indicators of fraud need to be considered. Speed and comprehensiveness should also be addressed.
Signature Fraud on Other Financial Documents
As in the Wells Fargo case, checks are not the only vehicle for fraud. Any type of transaction that relies on a signature for authorization can be an avenue for fraud. A growing type of theft involves adding a name, or names, as a registered user on an account. This accounts for 25% of non-card fraud and is often accomplished initially through signature forgery. Once complete, the criminal uses his/her own “authenticated” signature.
As account, loan and other signature-required documents are spread across channels and are allowed to be accepted by a variety of technologies, the need for quick and comprehensive review has become a necessity. A good fraud mitigation strategy should also cover processes involved with outbound document flows, but this area is rarely considered part of the fraud strategy due to a siloed approach to how financial institutions think of business and associated documents.
Solutions in Practice
Given the accelerated pace at which financial institutions are adopting new ways of interacting with customers, the notion of developing a comprehensive inspection strategy of checks and other transaction-oriented documents can seem overwhelming. But there is hope and, more importantly, real solutions are available.
For fraud detection strategies, “edge-based” solutions allow an image of a document to be inspected for presence of signatures and then evaluate those signatures against a central database. These technologies can manage image stream input from any channel: teller, ATM, kiosk, online and mobile. When a check is received by a bank or retailer, technology is able to look up reference images in a centralized database to examine the authenticity of the check and prevent signature forgery or counterfeits in the same way check guarantee and check verification services look up information in databases.
For fraud prevention strategies to remove potential for abuse of sensitive information, automated document analysis and redaction solutions are available. Most often used within government or legal markets, “automated redaction” solutions can provide a financial institution with the ability to inspect 100% of documents within its system, or prior to transmission, and remove or render unreadable signatures or other sensitive information that could be used to commit fraud.