Credit Union Check Fraud: A Growing Concern and How to Address It

As a global leader in check fraud detection and prevention, we at OrboGraph understand the growing concerns credit unions have regarding check fraud. With various fraudulent schemes continually adapting, it’ss essential for credit unions to keep up with the latest techniques and measures in detecting and combating check fraud.

As senior executives in the fraud department of a bank, it’s crucial for us to evaluate our current processes, resources, strategies, and technologies that deal with this critical issue. Our commitment to remaining at the forefront of fraud detection and prevention ensures that we deliver the best possible solutions and strategies to address the ever-evolving landscape of check fraud.

One of the best ways to fight against check fraud is by understanding its various forms. These include counterfeits, forged, and altered checks – all of which are becoming increasingly prevalent within the financial industry. By incorporating advanced fraud prevention measures and keeping up-to-date with the latest industry insights, we can effectively address this growing concern and mitigate risks to our credit union and its members.

The Prevalence of Check Fraud in Today’s Landscape

Check fraud continues to be a significant issue, with a steady increase in fraudulent schemes and techniques Despite the rise of digital banking and alternative payment methods, checks remain popular – and a target for criminals. From 2020 to 2021, 66% of financial institutions experienced high rates of check fraud.

A few factors that contribute to the prevalence of check fraud include:

• Ease of access: Check fraud is often seen as a low-effort, low-technology vehicle for fraudsters, who exploit both paper and digital checks.
• Evolution of fraud schemes: Fraud tactics have evolved over time, with newer schemes incorporating checks in online scams to deceive and transfer funds.
• Digital banking vulnerabilities: The average number of mobile deposits jumped 41% between 2020 and 2021, exposing more opportunities for criminals to exploit remote deposit processes.

This growing threat underscores the importance of evaluating your institution’s current processes, resources, strategies, and technologies. No organization is immune to the risks of check fraud, and failure to address this challenge effectively can result in substantial fraud losses.

In combating check fraud, implementing best practices can make a vital difference for your organization. Some effective strategies include:

1. Employing machine learning and artificial intelligence to efficiently analyze check images and detect anomalies.
2. Collaborating with other financial institutions, sharing information on recent fraud attempts, and learning from each other’s experiences.
3. Educating customers on the common indicators of check fraud and empowering them to be vigilant and report suspicious activities.
4. Continuously updating and refining risk models in response to emerging schemes.

By understanding and addressing the complexities of check fraud, we can better equip ourselves to minimize financial fraud exposure and protect our institutions and customers from such risks. Partner with us to stay at the forefront of fraud detection and prevention.

Impact on Small Regional Banks and Credit Unions

In recent years, the number of reported check fraud schemes has surged. According to the Financial Crimes Enforcement Network, credit unions and banks filed more than 680,000 check fraud-related suspicious activity reports (SARs) in 2022, with early reports detailing similar levels in 2023.

Small and regional banks and credit unions are particularly vulnerable to check fraud threats due to limited resources. These financial institutions often lack the extensive risk management systems and technologies available to larger banks, significantly increasing the probability of check fraud going undetected. The result is substantial financial losses, reputational damage, and erosion of trust among customers.

To address the growing concern and effectively combat check fraud, i’s crucial for financial institutions to evaluate their current processes, strategies, and resources. 

Here are a few key measures that can be implemented:

1. Enhance employee training: Ensure that your staff is well-trained and aware of the latest check fraud schemes. This will allow them to recognize potentially fraudulent checks and report suspicions promptly.
   
2. Leverage advanced technology: Utilizing advanced technologies, such as image forensic AI, can help identify altered or counterfeit checks with accuracy and speed, reducing the likelihood of fraud losses.
   
3. Regularly review and update policies and procedures: Financial institutions should maintain a robust framework to identify, monitor, and mitigate potential check fraud risks. This includes regular assessments and necessary adjustments to internal controls, policies, and procedures.
   
4. Improve collaboration with authorities: Establishing a strong relationship with law enforcement and regulatory authorities will allow for better information sharing, leading to a more effective response to check fraud incidents.
   
5. Follow best practices in customer education: Encourage your customers to be vigilant by providing them with essential information on check fraud prevention, account monitoring, and reporting suspicious activity.
   

By adopting these strategies, small and regional banks and credit unions can significantly enhance their risk management capabilities and successfully address the growing concern of check fraud. At OrboGraph, we remain dedicated to providing the most up-to-date and effective solutions to ensure the safety of financial institutions and their customers.

Partnering with Fintechs

No financial institution can handle check fraud alone – particularly smaller financial institutions and credit unions which typically do not have the internal resources to develop their own technologies. This makes it increasingly important for them to partner with established fintechs that enable them to utilize the latest innovations for check fraud detection. 

There are many new entrants into the market — technology vendors who see a need in the market and try to get a piece of the pie. However, many of these vendors are new to the field and come from different industries. Can you trust they have sufficient industry knowledge? Are you confident that their technologies are tailored to the challenge you are facing?

It’s important for smaller financial institutions and credit unions to vet a potential fintech partner from both a technology and reputation perspective. 

Check Washing and the Need for Image Forensic AI

Check washing involves fraudsters stealing a check, erasing or altering the payee’s name or the amount on the check, and then cashing it for their benefit. The use of advanced technology, such as Image Forensic AI from OrboGraph, can help us stay ahead in detecting and preventing this type of fraud.

This technology utilizes a multitude of analyzers to detect check fraud, including:

• Check Stock Validation (CSV-AI): Analyzes the attributes, layout, and relative coordinates and dimensions of select preprinted fields as “anchor points” on the check. It does not include aspects of the check that are traditionally completed by the check writer or payor/maker.
• Automated Signature Verification (ASV-AI): Identifies signature variations by comparing the signer on the check presented for payment against the signature in cleared checks drawn on the same account. 
• Writer Verification (WV-AI): Handwriting analysis leveraging OrbNet Forensic AI to identify differences in writing styles.
• Alteration detection using check style comparison and amount discrepancy: Detecting alterations is composed of two sub-analyzers: Check Style Analysis and CAR/LAR Discrepancy.

Addressing the growing concern of check fraud, particularly check washing, requires embracing innovative solutions. Implementing Image Forensic AI into our fraud detection and prevention strategies enables us to protect our financial institutions and the interests of our valued customers effectively.

Reporting Fraud Challenges

As we continue to adapt to the evolving landscape of check fraud, it’s essential fto consider our strategies in detecting and mitigating these risks. A critical aspect of our efforts includes reporting fraud challenges and addressing them effectively.

One of the challenges we face is maintaining a balance between ensuring customers’ confidence and delivering efficient services while executing robust fraud detection measures. Implementing comprehensive compliance risk management solutions can help extract valuable data from checks, allowing us to identify potential threats more effectively. This will enable us to strengthen our risk management and respond promptly to emerging threats.

Another challenge in addressing check fraud is determining liability and managing fraud losses. We must have a clear and concise policy outlining the responsibilities of all parties involved, including the bank, account holders, and third-party service providers. By doing so, we can make informed decisions about liability and minimize the financial impact of fraud losses on our institution.

In addition, reporting suspicious activity and staying up-to-date with the latest fraud trends and techniques are essential aspects of combating check fraud. By fostering an environment where employees are encouraged to report any signs of potential fraud, we can proactively mitigate risks and reinforce our commitment to protecting customers and upholding the integrity of our institutions.

To address these fraud challenges more effectively:

• Evaluate current processes, resources, strategies, and technologies
• Remain vigilant in identifying suspicious activity and repor it promptly
• Implement advanced compliance risk management tools to fortify our fraud detection efforts
• Clearly define liability policies to manage fraud losses responsibly
• Foster a culture of transparency and encourage employees to report suspected fraud

By taking a proactive approach and continuously refining our strategies, we can effectively navigate the challenges of check fraud and safeguard our customers and institution.

Reputation Management

Reputation management is vital to financial institutions, as fraudulent activities can significantly impact the business and its member experience.

To help banks stay ahead of fraud risks, we provide tools and solutions that can effectively address the increasing concern of credit union check fraud. By developing advanced technologies and strategies, we contribute to reinforcing the trust that bank members place in their financial institutions.

When it comes to check fraud, our solutions identify and flag potential fraudulent checks – ensuring that banks can quickly detect cases where checks might have been modified. This proactive approach can significantly lower the risks associated with check fraud and provide a more secure environment for members.

To ensure optimal results and maintain a bank’s reputation, we recommend the following steps for senior executives in the fraud department:

1. Evaluate current processes for fraud detection and prevention
2. Allocate appropriate resources to address check fraud threats
3. Continuously update strategies to stay ahead of emerging fraud techniques
4. Implement cutting-edge technologies to keep up with evolving fraud trends

By following these recommendations, banks can maintain a strong reputation through effective fraud prevention, ensuring a positive member experience and minimizing the financial risks associated with check fraud. As a partner in this journey, we remain committed to offering the most advanced solutions and support to those at the forefront of the financial industry.