FASTER CHECK PROCESSING STOPS COUNTERFEITERS

By Karen Dumond

Since Check 21 was a glimmer in a congressman’s eye, bankers have heard that image capture and exchange would reduce fraud due to faster processing. We now have proof.

On Wednesday, October 5, 2005, a customer entered the main office of North Brookfield Savings Bank in North Brookfield, MA and deposited postal money orders totaling $11,000. Nothing appeared suspicious about the instruments. Routing and transit numbers and MICR all appeared to be in order. There was even a faint watermark printed on them. The customer received an $11,000 credit to her checking account.

Shortly after the customer left the bank, however, the money orders were scanned into the bank’s new image capture equipment. “That’s where the irregularities surfaced,” said Vice President and Chief Technology Officer, Kirk Burnham. “None of the MICR line fields would read.” 

The bank’s staff called the woman and informed her that the money orders were counterfeit and the $11,000 credit had been withdrawn from her checking account.

Pretty slick!

In the old days, the counterfeits would have been bundled and sent via courier to the Federal Reserve where sorter equipment would most likely have detected the fraudulent MICR. Burnham reports that previous incidents of deposited counterfeit money orders took several weeks to be returned. By that time, she and the $11,000 would have been long gone.

Processing speed is a major factor in protecting financial institutions and their customers from potential fraud. Connectivity is another factor. The happy ending to this incident was helped by the connection between the bank’s image capture device and its image exchange processor.

As each item goes through the image capture device, its MICR information is transmitted to the image exchange processor. There, the information is compared against routing and transit tables. Legitimate items have legitimate routing and transit entries and MICR ink.  The counterfeits did not.

Bottom line: without connectivity, the counterfeit money orders would not have been caught until much later in the process.

Financial institutions are currently tiptoeing into the image world, first with statements, then with capture devices, and now with outgoing image exchange. This last step provides the connectivity needed to uncover the counterfeit items.

Going forward, the inclearing and returns process will go image, further increasing the anti-fraud capabilities of the banks’ checking systems. North Brookfield Savings Bank is anxiously awaiting those steps.

In the meanwhile, following his discovery and recovery of the $11,000, Mr. Burnham gleefully complained to his processor: “My new equipment and software is having a hard time reading counterfeit Postal Money Orders…It saved me $11,000 today!”

More to come!