In February of this year, a California hospital chain wasdefrauded of more than $2 million from its accounts held at WellsFargo. How was this done and why wasn't it detected? In thisage of Check 21 adoption, how could a large bank be susceptible tosomething that is seemingly so low-tech?

The answer is simple: the crooks had access to thesignatures of senior officials, who were authorized signers at thehospital chain, and proceeded to fax wire transfer orders withthese forged signatures to the bank. They gained access to thesesignatures through a public information website that posted actualdocuments with signatures.

Adoption of new capabilities, to improve efficiencies and reduceexpenditures, can also unintentionally increase costs associatedwith one of the most common types of bank fraud: signatureforgeries.

Check 21 and Fraud

The adoption of check truncation brings with it the loss ofphysical check inspection, and as check imaging gets pushed tonon-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 checkimaging expediency gives an advantage to the paying institution.Those with strong on-us check fraud technology simply returnpotential counterfeits, irregular signatures (forgeries) andalterations to the bank-of-first-deposit. The paying bank hasprotected itself while the BoFD takes the loss.

In this environment it is not enough to focus fraud detection ontransaction patterns. Image and biometric indicators of fraudneed to be considered. Speed and comprehensiveness should also beaddressed.

Signature Fraud on Other FinancialDocuments

As in the Wells Fargo case, checks are not the only vehicle forfraud. Any type of transaction that relies on a signature forauthorization can be an avenue for fraud. A growing type of theftinvolves adding a name, or names, as a registered user on anaccount. This accounts for 25% of non-card fraud and is oftenaccomplished initially through signature forgery. Once complete,the criminal uses his/her own “authenticated” signature.

As account, loan and other signature-required documents arespread across channels and are allowed to be accepted by a varietyof technologies, the need for quick and comprehensive review hasbecome a necessity. A good fraud mitigation strategy should alsocover processes involved with outbound document flows, but thisarea is rarely considered part of the fraud strategy due to asiloed approach to how financial institutions think of business andassociated documents.

Solutions in Practice

Given the accelerated pace at which financial institutions areadopting new ways of interacting with customers, the notion ofdeveloping a comprehensive inspection strategy of checks and othertransaction-oriented documents can seem overwhelming. But there ishope and, more importantly, real solutions are available.

For fraud detection strategies, “edge-based” solutions allow animage of a document to be inspected for presence of signatures andthen 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 bya bank or retailer, technology is able to look up reference imagesin a centralized database to examine the authenticity of the checkand prevent signature forgery or counterfeits in the same way checkguarantee and check verification services look up information indatabases.

For fraud prevention strategies to remove potential for abuse ofsensitive information, automated document analysis and redactionsolutions are available. Most often used within government or legalmarkets, “automated redaction” solutions can provide a financialinstitution with the ability to inspect 100% of documents withinits system, or prior to transmission, and remove or renderunreadable signatures or other sensitive information that could beused to commit fraud.

GregCouncil is director of product management atParascript inLongmont, Colo.