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Mark Meloy:
Hello. I'm Mark Meloy, CEO of First Business Bank. I'd like to welcome you to another episode of The First Business Bank podcast. Today's topic is check fraud, an issue that seems to be occurring with more and more frequency. However, it's something that can be prevented through attention to the details. We're going to hear some eye opening statistics and ways to stop it from happening. Today I'm joined by my colleagues, Alicia Buttchen, Treasury Manager Expert with First Business Bank, and Theresa Wiese, Managing Director of Compliance and Risk Management. So, let's get started. Alicia to you, how prevalent is check fraud?
Alicia Anderson:
Unfortunately, check fraud is still one of the largest challenges facing businesses and banks today. With the advancement of computer technology, we have found that this has made it increasingly easy for fraudsters to manipulate checks. The Association for Financial Professionals puts on an annual payment survey. Last year, numbers based off of 2019, 74% of organizations experienced check fraud, which is up from 70% in 2018. Total attempted check fraud increased to $15.1 billion, and accounted for 60% of attempted fraud against deposit accounts. Banks' prevention measures have stopped 13.8 billion, or 91%, of the attempted check fraud. Check fraud accounted for 47%, or 1.3 billion, of industry deposit account fraud losses.
Alicia Anderson:
We within the bank have found that the most common types of check fraud are forgery, theft, counterfeiting and alteration, also known as check washing, paperhanging and check kiting.
Theresa Wiese:
And really, just to add to what Alicia has said, from a First Business Bank perspective, uh, check fraud continues to be the number one fraud that we see. We have multiple clients that continue to see check fraud, and part of it is, is our commercial clients especially issue a lot of checks, which opens up a lot of opportunity for fraudsters to steal account numbers and re- and reissue or counterfeit those checks. So, it's certainly something that is, uh, ongoing for sure.
Mark Meloy:
Theresa, what trends are we seeing in check fraud and how has it changed over the last five years?
Theresa Wiese:
Yeah. So, thank you, Mark. Uh, check fraud is, like I said before, First Business Bank is seeing it as the most common fraud, and just industry-wide, it continues to be the most common method of business-to-business payments. And although check writing is, uh, slowly, um, decreasing, um, it still remains very common, primarily because it's so easy to commit. It's easy to, um, steal checks or steal account numbers and then replicate a check. The Association of Financial Professionals note that 74% of businesses experienced check fraud in 2019, and that was up 4% from 2018.
Mark Meloy:
So, are attacks on businesses different than consumer check fraud? Alicia, I'll start with you.
Alicia Anderson:
Absolutely. For businesses, we find that the monetary loss are much higher than on the consumer side. Many financial institutions, including First Business Bank, have commercial client standards within the terms and conditions of their deposit account agreement. These agreements are provided to the clients at account opening and signing. Uh, commercial client standards of care generally state that the bank offers products and services and security procedures that serve as precautions that the business must take to decrease the risk of unauthorized transactions. Uh, these services include, uh, ACH Positive Pay, Payee Positive Pay, and account reconciliation. The terms and conditions also note that should a commercial client fail to take reasonable precautions to mitigate the risk of fraud, they hold First Business Bank harmless, and they assume all liability. Again, keyword here, they assume all liability resulting from any losses or damages.
Alicia Anderson:
Uh, businesses must also notify the, their banks, First Business Bank, within 14 days of the statement being available. The most common scenarios that we are finding right now include check fraud, payroll diversion, and BEC.
Mark Meloy:
Theresa, what about the consumer?
Theresa Wiese:
Well, the most common attacks for consumers are ID theft, uh, which is where someone receives, uh, or steals an account number, uh, or other identifying information and, um, and if they don't have the account number, they may call the financial institution and try to obtain the account number information. Um, the other, uh, scenario that is fairly common is elder abuse, in which an elderly person, um, again, has, has someone that pretext calls, which is calling them and, and pretending, um, that they are either a relative or, um, that they are, uh, a trusted, um, vendor like a bank or a doctor's office and ask for personal information, and then the fraudster is able to create, uh, checks, um, and um, purchase, uh, goods illegally off of a, an elderly person's account.
Theresa Wiese:
Um, the dollar losses are lower. Um, typically, uh, you know, they're, they're smaller, but they may be much more detrimental to a consumer because, um, it may impede someone from being able to pay, uh, a mortgage or a rental payment or, uh, paying, uh, for medical bills or utilities or things like that. So, um, the dollar amount may not be as large on the business side of things, but it may be more devastating to consumers.
Mark Meloy:
Good. Alicia, talk about how the pandemic has changed the way businesses pay third parties.
Alicia Anderson:
Yeah. Thank you, Mark. Interestingly enough, we have found that more of our clients at First Business are starting to move towards digital or digitized payments. As a matter of fact, the Association for Financial Professionals, paired with American Express, has noted, uh, in the 2019 AFP Electronic Payment survey that check usage for business-to-business transactions continues to decline, with only 42& of the respondents making payments by check. Uh, the survey also notated that the decline was not surprising, given checks have a slower processing time and a higher transaction cost.
Alicia Anderson:
As mentioned before, uh, those of us within treasury management at First Business Bank have also seen a change in way our clients would like to make their payments to more of a digital method. Um, we have found that cutting a physical check has become more challenging due to the manual process, and more and more employees are working remotely. Advantages to digitizing accounts payable include increased efficiencies and time savings, improved payment accuracy, realizing longterm cost savings, and improved cashflow management. According to the American Express survey published in July of 2020, more than 35% of the respondents to the American Express survey stated that the impact of the pandemic has made them consider changing how they process payments.
Alicia Anderson:
I know speaking personally, as well, for my colleagues at First Business Bank on the treasury management team, we also during the months of March, April, May, June and on did notice an increase of meeting with our clients virtually to discuss ways that we can help them find efficiencies within their payment methods. Uh, you know, routine conversations about moving towards ACH origination as a payment method. Um, turning on bill payment is another option that many of our clients did take that route as well.
Mark Meloy:
Yeah, I know, we've had unprecedented growth in really all the electronic payments-
Alicia Anderson:
Mm-hmm (affirmative).
Mark Meloy:
... services that we offer.
Alicia Anderson:
Right.
Mark Meloy:
Alicia, what should someone do if they suspect payment fraud on the business side?
Alicia Anderson:
Yeah. I'm gonna talk about a couple of best practices, but business clients should really be monitoring their account activity daily, due to the quick return times. They, if they suspect fraud, they should absolutely contact their financial institution immediately. [inaudible 00:09:52] from there, we help them realize additional steps that they need to take, such as filing a police report. Um, for online crimes involving counterfeit checks and money orders, they will need to file a complaint with the Internet Crime Complaint Center, also known as IC3. Um, they will likely need to file an insurance claim with their insurance company.
Alicia Anderson:
And then we al- always stress implementing best practices if they don't already have in place. Um, first step, review account activity every day. I know I have already mentioned that. Segregation of duties, dual controls, setting up business e-banking and mobile banking alerts, and sign up for bill pay or ACH origination. Go electronic as much as possible to reduce the number of paper checks that you have floating out there.
Mark Meloy:
Good. Thanks. Theresa, what, what about the consumer?
Theresa Wiese:
Well, it's really very similar to the business side of things that Alicia already mentioned. Um, I can't stress enough that the, the best thing that a consumer and a commer- and a commercial client can do is monitoring their account, so reviewing account activity every day, contacting the bank, uh, as soon as possible if there's something that's unusual, um, on the account, reconciling their, their monthly statements. Uh, I encourage clients, uh, consumers and businesses, to go electronic as much as possible, so, uh, bill payment, uh, is a good way to go. Also, uh, for reoccurring payments, uh, typically your third parties, like your utilities, credit cards, will all offer, um, to have your account debited every month. I would encourage people to do that.
Theresa Wiese:
Um, the FTC, so the Federal Trade Commission, has really good resources and has a place to file a complaint if you are a victim of check fraud, and the use, the US Postal Inspection, uh, Service, uh, USPIS.gov website also has good resources, especially if you know that the check was sent through the mail. The, the US Postal Service can help with that kind of crime. And then, um, Alicia mentioned this as well, but if it's an internet, um, crime involving like a counterfeit check or money order, IC3.gov, uh, is a really good resource. Um, so those are the primary ones, but again, just monitoring your account on a daily basis and contacting your financial institution if there's anything that's out of the ordinary is really best practice.
Mark Meloy:
Good. Good, thanks. Great information. So Alicia, what are some of the early warning signs of fraud?
Alicia Anderson:
Yes. Uh, so, one thing we always recommend for business clients is to scrutinize, uh, not only checks that they are sending, but also received for payment, to deter, uh, deposit fraud. Um, does the address on the envelope match the maker of the check? Was it an expected check? Are there any other red flags on the physical check that you've received? Um, bills or statements unexpectedly stop arriving in US mail. This could mean that an identity thief has taken over your account and changed your billing address. Uh, checks are significantly out of order on your bank statement. A notification that you've been denied a credit or you didn't apply for a credit. Debt collectors contact you about merchandise that you didn't buy. Receiving notice from a vendor that you are past due on a payment that you know you sent. Notifications about address, password, or information that you didn't make. Those are all great signs of fraud on your account.
Mark Meloy:
Good, thanks. So I know we talked about this a little bit before, but I want to kind of circle back to it. What are some of the tools that are out there to help businesses and individuals prevent check fraud? Let's start with on the business side, Alicia.
Alicia Anderson:
Yes. Um, I know we cannot stress this enough, but get enrolled in business online banking and make sure you're reviewing your account activity daily. Uh, set up account alerts. Uh, download the business online banking app. Uh, implement fraud protection tools, such as Check Positive Pay or Payee Positive Pay, or even post no checks restriction on deposit only accounts. Uh, implement account reconciliation. Uh, make sure you have the business e-banking and mobile banking alerts. Convert reoccurring paper payments to electronic, and black box is always an option as well.
Mark Meloy:
Good. Theresa, on the consumer side?
Theresa Wiese:
Yeah. It's, um, it's, it's very much what Alicia said. It's online banking, looking at your account on a daily basis, setting up alerts. Um, there's typically with online banking, there's many different kinds of alerts that you can get, whether it's low balance or a particular, um, debit or a particular check, things like that. Also mobile banking. Um, you know, looking at areas of activity through mobile banking, um, is a good example of, uh, ways to just monitor your account. And then, um, credit monitoring service. Uh, looking at your credit report. Um, you can get it at least annually, and I know that now during the pandemic, um, you, you can get a free credit report from the three reporting agencies on a monthly basis. So, looking at your credit, making sure that you understand, uh, what is on there, and notifying any one of the credit bureaus if there's something that, that doesn't belong to you are good examples.
Mark Meloy:
Good. Thanks. So we talked about bank products or services that can help, but what are practices or actions that individuals, either as, uh, representative of business or as a consumer, can do to mitigate risk as well? Alicia, I'll go to you first.
Alicia Anderson:
Thank you, Mark. I like to more, um, ask it as a question for businesses. This is something we like to review quite often with our business clients. Um, first one, does your company review your transaction activity daily? Does your company have up-to-date controls in place to prevent fraud? Do you have First Business Bank's Payee Positive Pay service in place? Do you order checks and deposit slips wisely from a reputable business? Does your company maintain adequate fiscal security of checks and deposit slips? Does your company consistently review issued checks and reconcile them within a timely manner? Does your company practice segregation of duties? Do your employees participate in ongoing fraud education to stay on top of the latest trends? Does your company test its fraud health, and how often?
Alicia Anderson:
Does your company have the appropriate, appropriate financial institution provided fraud protection solutions in place, as previously mentioned for checks, Payee Positive Pay or post no checks? Uh, does your company have cy- a cybersecurity insurance policy in place to transfer the risk? When was the last time you reviewed your insurance coverage? And lastly, what's your incidence response plan? Is it up-to-date?
Mark Meloy:
Good. Thanks. Theresa, what would you say to the consumer?
Theresa Wiese:
Oh, um, one is to keep your checks stored in a secure location. Lock them up, or at least put them so that they're out of sight. Um, reconcile your bank statements within 14 days of receiving your statement, um, and contacting your bank if there's any anomalies on that bank statement. Uh, never give your account number out to, uh, someone that's calling or emailing you, uh, for that information. Um, you know, be aware of unsolicited phone calls or unsolicited email inquiries. Uh, when you receive, if you reorder checks, and you receive your check order, make sure that, um, there are no checks that are out of sequence, out of order. Um, you know, if, God forbid, your home is burglarized, uh, make sure that your checks have not been stolen, and um, that there isn't any num- check numbers that are out of order.
Theresa Wiese:
Um, don't mail bills from your mailbox. We've, I've already talked a lot about the, that, and, and it's best if you're mailing checks, if you just take those payments directly to the post office. Limit the amount of personal information on your check. Um, you know, never include your date of birth, your social security number, driver's license, uh, telephone numbers, anything like that. Don't leave blank spaces on your checks when you're writing the checks. Uh, if you do, people could add their names, um, to the front of the checks as a payee. Um, don't make a check payable to cash. Um, if a check is lost or stolen, make sure you contact the bank to put a stop payment on the check. Um, and then just, you know, always be alert to keeping your account number private and secure and not giving it out to anyone that's unauthorized.
Mark Meloy:
Well, Alicia and Theresa, thank you for taking the time to share your thoughts and, and experiences with our audience today. And to all of you, our audience, thanks for listening in on the conversation. We hope you found the topic helpful and applicable to your company and to your own mitigation of the risks associated with check fraud. Let us know if there are other topics or information you'd like to hear about, and please join us the next time on the First Business Bank podcast.
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