Session 40: Are Your Valuable Documents Vulnerable to Fraud?

Transcription

1 Session 40: Are Your Valuable Documents Vulnerable to Fraud? Ellen Carter Product Manager The Relizon Company 1

2 Table of Contents INTRODUCTION... 3 OVERVIEW WHAT ARE VALUABLE DOCUMENTS... 3 THE NEED FOR PROTECTED DOCUMENTS (FACTS/FIGURES)... 4 FUTURE OF PAPER CHECKS... 5 FRAUD ON THE RISE... 5 INDUSTRY ISSUES PADLOCK ICON... 6 LEGAL LIABILITY AND ISSUES... 7 CHECK LAW METHODS OF FRAUD... 9 COMPLETE DOCUMENT PROTECTION LAYERING SAFEGUARDS DOCUMENT SECURITY FEATURES PRINTING AND DESIGN BASED FEATURES INKS SECURITY PAPERS POSITIVE PAY REFERENCES

3 Overview Any corporation or individual that issues checks or other valuable documents is a possible target for document fraud. An organization cannot be too small, or too large, to be a victim. In fact, many small- to medium-size businesses are prime targets. However, one thing is certain no matter what size the company; fraud represents both a financial loss and an affront to the victim. Because recovery of losses are rare, prevention is generally seen as the only viable course of action. This manual will highlight not only the various types of document security, but will also: Clarify industry issues concerning checks and other secure documents. Define image-friendly technology. Detail the requirements for Padlock Icon usage. Highlight a variety of secure documents. Provide industry facts and figures. What Are Valuable Documents? Valuable documents can be any document that has monetary worth and could be targeted for fraud. While it is obvious negotiable documents such as checks and gift certificates need protection, some official and original documents need protection from fraud as well. Consider the following: Official Documents Certificates (Birth, Death, Title, Ownership, etc.) Transcripts & Diplomas Identification & Membership Cards ISO (and other certification) Documents Permits and Licenses (hunting, fishing, building, driving, etc.) Vehicle Registrations Original Documents Admission & Event Tickets Certificate of Authenticity Labels and Packaging (proof of purchase, tamper-indicating seals, etc.) Licenses (software, business, etc.) Merchandise Tags Point of Sale Receipts Prescription Forms* Proof of Insurance Negotiable Documents Airline Tickets, Bus Transfers & Boarding Passes Checks (accounts payable, payroll, medical reimbursement, expense, dividend, etc.) Coupons Credit Refund Forms Gift Certificates Hotel Vouchers Money Orders & Travelers Checks Rebate Coupons *Some state pharmaceutical boards have their own standards for printed prescription forms. 3

4 Overview The Need for Protected Documents (Facts/Figures) The actual extent of document fraud is difficult to establish due to the fact that many businesses do not report their losses, choosing to absorb them rather than face negative publicity. It is estimated that less than one-third of banks report all incidences of check fraud. In addition, no known entity tracks hard-to-quantify items such as fraudulent transcripts and prescriptions. The media s focus on violent crimes such as bank robberies tends to further skew the public s view of the actual extent of document fraud. Ask yourself which is more prevalent, bank robberies or check fraud and then compare these dated but still relevant statistics: Nationwide Annual Occurrences Estimated Daily Occurrences Bank Robberies* Check Fraud** 7,700*** 500,000, ,369,863 Estimated $77,000,000 $16,000,000,000 Dollars Lost % of Funds 20% < 13% Recovered *FBI, **Ernst & Young, National Check Fraud Center, (Estimated $12 billion in 1996.) ***Down from 8,046 in (Bank Security Report) Consider these other statistics: There are more cases of check fraud each day in the US than there are armed bank robberies in a year. US Government Accounting Office reportedly paid $28 billion in benefits to individuals who used counterfeit identification (official documents such as birth certificates and drivers licenses). An estimated $750 million is lost each year due to fraudulent coupons and gift certificates. An additional $700 million is lost annually from duplicated or altered sales receipts. 5-8% of the world trade (approximately $250 - $300 billion per year) is counterfeit. Known counterfeit products include clothing, airplane and auto parts, infant formula, toys, and pharmaceuticals such as birth control pills. (International Anti-Counterfeiting Coalition, Holography News) * Check fraud is estimated to grow by 2.5% annually. (American Banker) The average fraudulent check totals $1,775. (American Bankers Association)* The number of cases involving fraudulent checks over $100,000 has more than tripled in the last decade. (Loder, Drew & Associates, Inc., FBI)* *Losses are compounded by cost of investigation, lost employee time, business disruption, legal fees and settlement costs incurred when the matter is brought to court. Further, once a business has become a victim of fraud, there are untold costs relating to loss of community goodwill and trust by their clients. Additional costs may include replacement cost of faulty fraudulent parts or forms, warranty work, loss of market share and tarnished reputation in the marketplace. 4

5 Future of Paper Checks Future of Paper Checks In 1979, nearly 33 billion checks were written in the US. The mid 1990s saw that figure peak around 49 billion. The year 2000 was on the front end of the downward trend with only (ONLY!) 42 billion checks being written. Estimates are that paper check volume will continue to decline at a rate of 1 billion checks per year reaching 32 billion by (The Green Sheet) Billions Any way you look at the numbers, there are still a lot of checks written in the U.S. There still were more 10 0 checks issued for payment in 2000 [in the US] than in any other industrialized country. In fact, in every 1979 mid 1990s industrialized country except the U.S., check volumes dropped dramatically during the 1990s. (The Green Sheet) Consumer vs. Business Checks While the actual number of checks written each year continues to decline, the percentage mix of consumer-issued versus business-issued checks is a most interesting statistic. At the height of US check volume the mix was 60/40, with 60 percent of all checks being issued by consumers. A 2002 analysis by the Federal Reserve saw that mix change to 51/49. This change in mix can be attributed to consumers increased use of electronic transactions such as credit cards, debit cards and on-line bill paying services. Clearly electronic transactions have and will continue to have an effect on the number of checks consumers write each year. Although many companies would like to move in this direction, at the turn of the century most companies were not capable of handling electronic funds transfer (EFT). Additionally, electronic transactions represent an unknown and a new set of risks. A recent General Accounting Office report to Congress cited that nearly half of the institutions surveyed had yet to take steps the government deemed as necessary to limit online banking risks. Fraud on the Rise The combination of a large number of targets, low start-up investment, and low likelihood of prosecution has helped to increase significantly the incidences of fraud. Fifteen years ago, an investment of $250,000 was needed to purchase printing technology to produce a fraudulent color document. Today it s possible to purchase equipment that will allow accurate reproduction of documents for under $2,000 (PC $1,000; graphics software $400; scanner $100; color printer $400). Not only has the cost decreased, the time for a counterfeiter (skilled and unskilled alike) to produce counterfeit documents takes minutes using today s technology compared to weeks or months in years past. And for criminals not willing to make even this small investment, the alteration of an inadequately protected document can be accomplished for less than $5.00! To compound the problem, police departments report there s not a lot of emphasis for them to go out and arrest amateur check forgers. If arrested, district attorneys don t generally want to spend time with a case that s not high profile. If they do, there s no space in already overcrowded prisons for perpetrators of these non-violent crimes. 5

6 Industry Issues Padlock Icon With the growing problem of document fraud, the need to enhance security of the traditional check was recognized. Check Payment Systems Association (CPSA) developed the Enhanced Check Security Features Padlock Icon (Padlock Icon) to provide an indication to individuals accepting checks that security features have been incorporated in the design of the check, in the production process, and in the materials being used. It is generally agreed that the effectiveness of a security feature is greatly impaired if the person verifying authenticity doesn t know what to look for or is unable to recognize the feature. The Padlock Icon and accompanying warning box make it clear that there are specific safeguards included in the document and alert the person (cashier, bank teller, etc.) to inspect the document carefully. In addition, the Padlock Icon and the listed features may cause an experienced criminal to pass up the document in favor of a less protected one. In order to print the Padlock Icon on documents, CPSA must license the printing company. This license signifies that the printer agrees to comply with CPSA guidelines on all documents where the Padlock Icon is printed. Document Requirements In order to use the Padlock Icon, the following requirements must be met: A minimum of three overt features must be present. * The document must contain alteration protection and duplication protection. The Padlock Icon must appear on face (preferred location is to right of the legal amount area or the word Dollars ). No registered symbol ( ) should appear on the face. Directions to refer to document backer for listed security features must also appear on the document face. A warning box must appear on back listing at least two overt features. The Padlock Icon with registered symbol ( ) must be printed on back. * The Padlock Icon printed on the face along with the Padlock Icon and warning box printed on the back of the document represents one feature. Therefore, only two additional features must be present to satisfy the minimum requirement. 6

7 Industry Issues Legal Liability and Issues Document security is easier to understand if there is a knowledge of the legal issues driving it. While you don t have to be a legal expert to understand document security, it is important to be aware of legal terms and issues, namely the Uniform Commercial Code, due diligence, comparative negligence and Regulation CC. Uniform Commercial Code (UCC) The UCC is a comprehensive law governing commercial transactions. It includes ten articles, two of which pertain to checks Article 3 (negotiable instruments) and Article 4 (bank deposits and collections). Although these articles contain legalese and their adoption may vary somewhat by state, their basic premise asserts banks and/or their customers can be held liable for check fraud. Prior to revisions made in 1990, a single party, frequently the bank, would be held responsible for losses in check fraud cases. Now it is possible for the check issuer to be held liable for forged checks if ordinary care or due diligence was not taken by them to protect their negotiable documents. The intent of the 1990 UCC revisions was to place the risk of loss on the party in the best position to prevent the loss. More information on each states specific adoption of the UCC can be found at Due Diligence Simply stated, due diligence means recognizing potential threats and taking reasonable action to help protect against these threats. Ordinary Care Ordinary care requires check issuers to follow reasonable commercial standards of care prevailing in their industry of business. Ordinary care includes, but is not limited to, keeping checks in a safe place, reviewing statements promptly, limiting access to checks and placing security features on the check. Comparative Negligence Prior to the 1990 UCC revision, losses were allocated on an all-or-nothing basis with the burden usually borne by the financial institution. Under the revised code, when the bank, check issuer and/or accepting party have all been negligent in some way, the UCC provides guidelines for allocating losses between the parties according to their respective levels of fault. In lay terms, comparative negligence means that banks are no longer solely responsible for financial loss due to fraud. If the check issuer is found to be negligent (having not practiced due diligence or ordinary care), they will be held responsible for part, if not all, of the loss. The judgment of negligence is determined based upon whether the accepting party or bank could have easily recognized the fraudulent document, and if the issuer adequately protected the document. A recent American Bankers Association Check Fraud Survey reported that a significant proportion of mid-size and large banks successfully used the contributory negligence rule to reject or reduce losses. 7

8 Check Clearing in the 21 st Century Act Are Your Valuable Documents Vulnerable to Fraud? Industry Issues Becoming an official law October 2004, Check Clearing in the 21 st Century Act (referred to as Check Law 21 ) will continue to have a significant impact on paper checks for years to come. A key turning point in the check payments industry, Check Law 21 allows financial institutions to digitize (image) paper checks and process the image in place of the paper check (check truncation). Under Check Law 21 the check image, and any resulting substitute checks, are the legal equivalent of the paper checks they represent. A boon to the financial industry, Check Law 21 allows banks to use secure electronic networks instead of trucks, planes, and couriers to exchange checks. Checks will clear and post quicker. Some fraudulent and non-sufficient funds (NSF) checks may even be identified as early as the point of sale by the accepting merchant. Check Law 21 does not mandate check truncation. It does, however, allow for the check image to be covered by check law even though it clears electronically. Prior to Check Law 21, the image would be handled under laws governing electronic payments. Federal and state electronic funds transfer (EFT) laws are less bank-friendly than current check laws. 8

9 Methods of Fraud Methods of Fraud Disgruntled employees alter checks. Scalpers duplicate event tickets. Desperate job seekers forge college transcripts. Shoppers change the value of gift certificates. The facts prove that fraud is a major problem. But before you can protect against something, you have to know and understand what you are protecting against. You have to learn to think like a criminal. Understanding the different types of fraud (theft, alteration and duplication) is necessary when evaluating which solutions to select. Theft/Embezzlement Theft of checks and their eventual use, as well as issuing checks to ghost vendors or employees can represent a substantial risk to a corporation. To prevent internal theft or fraud, corporations must assume responsibility for implementing adequate procedures and controls, or ordinary care. Duplication (Counterfeiting) Counterfeiting can be described as the reproduction of an original document. As recent as fifteen years ago, an investment of $250,000 was needed to purchase printing technology that could produce a fraudulent color document. The criminal had to make a serious investment both in time and money to turn out an acceptable duplicate. Today it s possible to purchase equipment that will allow accurate scanning and printing of documents for under $2,000. Today s computer technology (affordable PCs, color copiers, printers, scanners and desktop publishing software) has moved counterfeiting documents from full-time professional forgers to the casual part-time forger. To make a counterfeit, criminals will scan an original document into a PC. The counterfeiter can then manipulate the document information (payee, dollar amounts, names, etc.) using desktop publishing software and print as many copies as they wish. While a counterfeit check may not exactly match the genuine check in appearance, it is important to note that counterfeiters need not create an identical document; they need only create one that appears legitimate. Another method of counterfeiting is duplication on color copiers. Today s high-end color copiers reproduce color documents that cannot be discerned from the original, even in side-by-side comparisons. With the adjusting of some dials and the push of a button, a near-original quality document can be produced. The availability of walk-up color copiers at public libraries and office supply stores reduces the investment required to just a few dollars. Alteration (Forgery) Forgery can be described as the alteration of an original document. Alterations can be made using various chemicals, erasing or scraping to remove original information. New information is then handwritten, typewritten or inserted with a laser printer or check imprinter. Alteration of an inadequately protected document takes only a matter of minutes and less than $5. Chemical Attack Various common chemicals, available quite legitimately for other purposes, are used to remove ink or toner from a document. The type of chemicals used depends upon the type of ink used to write the document. Laser Printed Images Toner-based images produced on laser printers can be removed in several ways. First, the information can be scraped off with a sharp object or lifted off using transparent tape. The images can also be removed using fingernail polish remover (acetone). 9

10 Complete Document Protection Layering Solutions Rapid advances in technology and the various successful methods for accomplishing fraud mean that it is virtually impossible to guarantee that a document is fraud-proof. The goal, therefore, is to help reduce the risk associated with the potential for fraud. One way to accomplish this goal is to layer security features on a document. Compare layering security on a document to adding security to a house. Before adding a solution it is critical to understand the objectives of the solution. Solutions should: Deter Fraud Like a guard dog inside a fence, visible security features make it clear that the document is protected and therefore not an easy target. Show Due Diligence Check issuers must be able to show (according to the UCC) that they ve taken reasonable actions to safeguard their checks. This includes, but is not limited to, adding security features. See Legal Liability and Issues Section. Fit the Potential Threats The geographical location of a house generally plays a significant role in determining the amount and types of security selected. The geographical location of checks should also play a role in their security. Because of the different region-specific document threats, some solutions are more appropriate in different parts of the country. Agricultural communities in California have seen a tremendous volume of payroll check fraud. Midwestern states have seen an increase in check washing. Check with your local law enforcement officials or FBI office for prominent activity in your region. Offer Appropriate Level of Protection The type and number of security features to add to a document depends upon the magnitude of the potential loss. The required level can be determined by examining several factors, including actual or perceived document value, possible loss (in money or breach of security) and the likelihood that a counterfeiter will go to extreme lengths to attack the document. Complement Verification Environment Understanding the environment in which a document will be accepted is critical in determining which solutions to offer. A gift certificate cashed in a controlled environment, such as the local jewelry store, should be designed differently than a payroll check that will be cashed in a variety of uncontrolled environments. Security features are worthless if the person verifying authenticity doesn t know what to look for, doesn t have the proper tools or is unable to recognize the feature. For instance, if invisible fluorescent ink is recommended, persons verifying authenticity should have a blacklight readily available. 10

11 Complete Document Protection Safeguards Layering solutions has proven to be the most successful method to reducing document fraud. The ideal is to prevent the fraud (and monetary losses) at the earliest point in the document s life cycle. Safeguards can be categorized by: 1) Processing controls the check issuer must implement, 2) Overt solutions on the document, and 3) Covert safeguards. Processing Controls Use secure documents. Layer security features to help combat against both duplication and alteration. Use an established, respectable source to ensure your valuable documents will be produced in a secure facility, delivered promptly, and process easily through the banking system. Maintain adequate physical security. Place all supplies of checks and other valuable documents in a secure, locked environment with boxes sealed until needed. (Boxes should be resealed each time documents are removed.) Protect ALL checks. This includes cancelled, voided, blank and issued. Destroy obsolete inventory on a timely basis. Arrange to have all valuable documents signed for and received by a specific person instead of shipped to a general loading dock or receiving area. Separate the check writing and account reconciliation functions. (The same person who balances the statements should not issue checks.) Limit the number of individuals authorized to sign a check. Require more than one signature on large dollar amounts. Immediately notify bank of any change to check writing process and personnel. (Former employees retain check signing authorization until the bank is advised to remove their name from the list of authorized signers.) Reconcile bank statements promptly and notify bank immediately when fraud occurs. The best defense for a bank in a forged-check case is to point to a deposit agreement that imposes a duty on the customer to notify the bank of any fraud within a relatively short time such as 30 days from the mailing date of the monthly statement. (Advice given to financial institutions in Clarks Bank Deposits and Payments Monthly.) Consider using protective devices on your computer such as multiple-level passwords. (Better Business Bureau) Print amounts and pay-to information in large, unusual type fonts to make alteration more difficult. (Consult your check printer or ANSI for valid font types and sizes.) Utilize bank fraud prevention services such as Positive Pay and account dollar limits. Deposit all incoming payments into a Deposit Only account. (Transactions on the account are deposits no checks are cleared on the account. After deposits are made, the bank can electronically transfer the funds into a checking account.) Consider vendor and employee payment by Electronic Funds Transfer (EFT). 11

12 Complete Document Protection Perform reference and background investigations on all prospective employees. (Include any individual that may come in contact with valuable documents i.e., Mail Room, Receiving, Accounts Payable, Payroll, etc.). Enforce mandatory vacations and rotate personnel. Emphasize to all employees the importance of being alert to fraud. Proactive (Overt) Safeguards Proactive safeguards are overt (obvious and apparent) features that deter potential criminals. The goal of these features is to make it clear that the document is protected and is therefore not an easy target. Overt features can be printed, ink-based or paperbased. Some of these features are outlined and discussed in detail in the following pages. Reactive (Covert) Safeguards Reactive safeguards are covert (hidden) features. Once fraud has been attempted, these safeguards draw attention to the fraud attempt and make the document worthless. Covert features can be printed, ink-based or paper-based. Some of these features are outlined and discussed in detail in the following pages. 12

13 Document Security Features Document Security Features It would be self-defeating to select several features that are all effective against one category of fraud, for instance duplication. This would leave the document defenseless against alteration. Because of this it is recommended that a minimum of five features be layered on any valuable document protecting against both alteration and duplication. Layering works best when printed/design features, ink-based features and paper-based features are combined. Following is a recap of the security features available from secure document printers. There are other, more specialized security features that are not included for reasons of cost, limited demand in the marketplace, availability, or incompatibility with laser printers. Printing and Design Void Feature Pantograph A pantograph designed to expose a hidden word such as VOID when scanned or copied on a color copier. Pros: Relatively inexpensive. Cons: To date, no company s void feature is 100% effective. Print densities of copiers can be varied to override the void security feature. Many scanners and some color copiers are able to reproduce the pantograph without the void feature emerging. In addition, void pantographs are not designed to work in black and white copiers. Micro Printing A covert feature, micro printing is type that is so small it appears as a line to the unaided eye. Upon close inspection with a magnifying glass, a specific word or message can be read. The MP icon can be added at the end of the micro print line to turn this covert feature into an overt one. Pros: Very low cost feature. Most copiers and scanners tend to reproduce micro printing as a line or shaded area making the words unreadable. Cons: Requires magnifying glass to view. Teller must take time to find micro printing, retrieve magnifying glass and view line of type. Prismatic Printing Often referred to as split fountain or rainbow printing, this technique blends two or more colors of ink into a single image. Typically one plate and one ink tower is used as different ink colors flow side-by-side down the ink train to create an image effect similar to the way light blends through a prism. Pros: The resulting blend of inks challenges older color copiers and scanners to simulate the original. Creates an eye-pleasing, attractive design. Cons: Newer copiers and scanners can reproduce originals without difficulty. Adds significant cost to document. 13

14 Document Security Features High-Resolution Border Like the intricate borders on US currency, a high-resolution border printed on a document is not easily duplicated or copied. Pros: The detailed spaces and delicate lines tend to fill in and not duplicate exactly. Aesthetically pleasing and can be incorporated into most existing designs. Low cost. Cons: Person authenticating document (in most cases) will not have an original to compare document against. Padlock Icon A highly recommended security feature, this icon is central to the CPSA guidelines to enhance check security. Refer to Padlock Icon section for additional information. Pros: Industry standard. Low cost. Serves as security feature indicator to person accepting check. Serves as warning notice to would-be criminals. Cons: Low enforcement of license by CPSA. Low education level on Padlock Icon use in financial institutions. Artificial Watermark An artificial watermark is created using inks that range from transparent varnish to opaque white. Usually printed on the document back, it is visible when viewed at an angle and more difficult to see in direct reflected light. Pros: Customizable design. Because copiers and scanners view documents from a right angle, the watermark is nearly impossible to replicate with a copier or scanner. Cons: Can be reproduced using rubber stamp and special stationery watermark ink. Warning Bands A key component of any security system is a warning notice that advises potential criminals that there is protection in place. The warning band serves to deter criminals and send them looking for easier targets. Pros: Warning bands can be added to nearly any document without an increase in cost. Cons: An effective warning message should be relatively simple to understand and difficult to remove from the document. The message should also be specific, instructing the recipient to look for a specific color or features to authenticate the document. Multiple Colors Although new color copiers are making the forger's job easier, it is still harder to reproduce color than black and white. (Better Business Bureau) Pros: The use of color on documents increases the time and difficulty required to create a duplicate. Cons: Additional color increases cost of document. Non-Negotiable Stub Backer Another concern for valuable documents is the potential for an unprinted stub area. This is particularly true for documents printed on security paper. Consider the following: On a typical 8-1/2" x 11" laser cut sheet check, the check portion takes up approximately one-third of the sheet, the stub area takes another one-third. The remaining one-third area is typically left blank face and back. With this area left blank, the counterfeiter can reproduce the check in this area and have a duplicate check printed on safety paper! 14

15 Document Security Features Pros: Printed in the same color and density as the check backer, the non-negotiable backer prevents the unauthorized use of the unprinted stub area. Low cost. Highly secure. Cons: Back of document (stub areas) becomes unusable. Foil Stamping A reflective image stamped onto the document. Pros: The image will appear dark and non-reflective when copied. Traditional foil stamping is more effective when used in conjunction with an intricate design or when combined with embossing. Cons: Adds a moderate increase to the cost of the document. The availability of foil stamping kits has enabled counterfeiters to duplicate this feature using a laser printer. Embossing Embossing uses dies to create a raised image. Pros: Because the image is raised, it doesn t duplicate by scanning or copying. Cons: Because laser printers use heat and pressure to create an image, embossing generally is not laser compatible. Adds moderate increase to cost of document. Thermography Thermography also produces a raised, printed image. Pros: The lettering is raised from the surface and impossible to recreate with a scanner or laser printer. Cons: Do-it-yourself thermography kits are available in craft stores where stamp kit supplies are sold. Holograms Holograms belong to a class of images known as Optically Variable Image Devices (OVID). Highly valued for security, OVIDs can only be produced using expensive, specialized equipment. Inks Pros: Holograms cannot be replicated by color copiers, scanners or by standard printing techniques. Cons: Simply adding a hologram to your product will not prevent counterfeiting, but it significantly ups the ante for the counterfeiter. Thermochromic (Heat-Reactive) Ink When subjected to heat this specially formulated ink will change color then revert back to its original color (usually within seconds). Document authentication is as easy as rubbing the printed area between two fingers to trigger the color shift. Pros: No special devices needed to activate. Color shifting effect is impossible to photocopy or digitally recreate. No limit to the number of activations. Laser compatible. Cons: Requires teller to interact with document. Individuals with cold hands have difficulty generating enough heat to cause color shift. 15

16 Document Security Features Penetrating (Bleed Through) Ink As the name implies, dye in the numbering ink results in the gothic or MICR numbers penetrating the paper fibers, developing into a visible, mirror image number on the back of the document. Pros: Low cost. Cons: Requires teller to verify image on reverse. Ink does not bleed through consistently on all paper types. Invisible/Ultraviolet (UV) Fluorescent Undetectable under normal light conditions, this ink glows under an ultraviolet light source (blacklight). Pros: Fluorescent ink can be used to print wording, designs or even numbering. The fluorescent effect is virtually impossible to photocopy or digitally recreate. Cons: Requires ultraviolet light to verify. Coin-Activated Ink Opaque white or transparent ink that turns black when rubbed with the edge of a coin. Pros: When used to print a verification spot or an artificial watermark, the document can be instantly verified as original with the rub of a coin or a swipe of the pen. The reactive effect cannot be photocopied or digitally recreated. Cons: Requires teller to interact with document. Security Papers Today, plain bond paper is by far the most commonly used paper, accounting for approximately 80% of all secure documents. While regular bond is the least expensive option, it also provides the least (if any) document protection. Put another way, 80% of the secure documents produced are inadequately protected! Most secure paper manufacturers offer security papers in standard grades or levels. The individual features available in the various grades are outlined below. Chemical Reactive Stain Often referred to as a stain feature, chemical sensitivity is a key defense in the prevention of document alteration. Using a chemical to remove or alter an image causes a colored stain to appear on the face and/or back of the document making the alteration apparent. Pros: Reacts to most commonly used chemicals. Multiple reactants protect against a variety of chemicals and prevent forgers from using a second chemical to remove the first stain. Cons: Requires teller to be educated on, look for, and identify stain. Fourdrinier Watermarks A fourdrinier watermark is pressed into the paper by a dandy roll (a wire cylinder on papermaking machines) during the wet state of the papermaking process. Pros: The result is a two-dimensional (shaded both light and dark) image that can be seen from both sides of the paper yet difficult to reproduce. Cons: Requires teller to look for, and verify, watermark. 16

17 Document Security Features Artificial Watermark or Ghost Mark Printed using a varnish, opaque or transparent white ink, artificial watermarks resist photocopying. The mark is visible when viewed at an angle. Pros: Most paper-mill printed artificial watermarks are printed using coin reactive ink. Because copiers and scanners view documents from a right angle, the watermark is nearly impossible to replicate with a copier or scanner. Cons: Artificial watermarks are provided as a standard offering on some security papers and not customizable. Can be reproduced using rubber stamp and special stationery watermark ink. Toner Retention Coating A coating is applied at the paper mill that helps protect laser-printed images. The coating reacts under fuser temperature to form a more secure bond between the paper and toner. Pros: The result is an increased resistance to common methods used to scrap or lift toner in order to alter a document. Cons: Temperature and dwell time of printer can greatly affect the effectiveness of the coating. Visible Fibers & Invisible (Fluorescent) Fibers Synthetic fibers are added during the papermaking process to make replication of the document more difficult. Pros: By putting an array of fiber colors into the design one can greatly complicate counterfeiting by making it necessary to print many extra colors. Invisible fibers are invisible to the naked eye but fluoresce when viewed under an ultraviolet light source. Because fibers are invisible, they resist photocopy replication. Cons: Requires teller to interact with the document. Fluorescent fibers require the use of an ultraviolet light to verify. Security Thread Commonly found in US currency, these printed threads are embedded into paper during the papermaking process. Recent developments by Appleton Papers allow the thread to be digitally coded with information. This technology allows an individual piece of paper to be given a unique and identifiable signature or an entire run to contain the same identification code. Pros: The continuous thread can be viewed when held to the light, but not easily reproduced on a copier. The threads can be fluorescent, micro printed, or even multicolored. Cons: Requires teller to interact with document. May require the use of special verification devices. Increases cost of document. Taggants Added during the papermaking, machine-readable taggants are included in paper to provide embedded protection. Either handheld or in-line readers scan a sheet. If the proper mix of taggants is present, the sheet/document passes as authentic. If the proper mix is absent, the sheet/document will fail. 17

18 Positive Pay Positive Pay Positive Pay is the most sophisticated of all account reconciliation services. It is a process through which the customer and bank work together to identify items presented for payment. How it Works The company sends to the financial institution a transmission or tape containing the serial numbers and amount of each check issued that day. As checks are presented for payment, the financial institution compares the actual check with the issued list. Any exceptions are reported to the client. Exceptions can include: Stale dated checks or checks not presented for payment within designated timeframe. Checks not on issued list. Check amounts different from issued amounts. Duplicated check numbers. Stop payment exists. While Positive Pay is a highly secure process, no feature or process is 100% fraud-proof. The Positive Pay process generally checks the MICR line data (amount, account and check number). Should the check be intercepted and the payee altered, the Positive Pay process generally will not catch the illegal alteration. Steps to protect against alteration must also be taken. 18

19 References References Abagnale, Frank W. The Security Group. Counterfeiting, Forgers and News Technology. Abagnale, Frank W. Tips for Counterfeit Detection. Client Service Bulletin. Appleton Papers Inc. Your Guide to Document Protection, Better Business Bureau. Tips for Businesses: Beware of Desktop Forgery, Boise Cascade. Security Pays, 1994 and Security of Documents, circa Check Fraud Working Group. Check Fraud: A Guide to Avoiding Losses, February Check Payment Systems Association. Guideline for Use of the Enhanced Check Security Features Padlock Icon, Revised March The Columbia Encyclopedia, Fifth Edition Copyright 1993, Columbia University Press. Federal Reserve Financial Services, Press Release August 14, Fiedler, Eric. Risky Business. Business Forms, Labels and Systems, June The Flesh Company. Document Security for Business Executives, Flynn, Susan Keen. A Line of Defense. FORM, November The Green Sheet, Check Volume is Checking Out!, by Richard Crone and Ed Bachelder, Issue 03:02:01, February 10, The Green Sheet, It s Time to Prepare for a New Era of Paperless Checks, by Patti Murphy, Issue 04:02:02, February 23, The Green Sheet, American Are Writing Fewer checks, But They re Still Writing Lots of Checks, by Patti Murphy. Global Concepts Payment Systems Consulting. The Indelible Check, Guard, Mary Beth. Anatomy of a Check, Part One and Two. Bankinfo.com, Guard, Mary Beth. 20 UCC Provisions Every Banker Should Know, Part One and Two. Bankinfo.com, March 3, House, Katherine L. Banking on Imaging, FORM, November National Check Fraud Center, Fraud Partners. Guarding Your Business Against Check Fraud, Vol. 5, No. 1, Part One, February Owens, Charles L. Federal Bureau of Investigation, Financial Institution Fraud, Chief Financial Crimes Section. Statement Before the U.S. Senate Committee on Banking Housing, and Urban Affairs Subcommittee on Financial Services, Washington, D. C. September 16, SICPA. Ink Related Features Useful in the Design and Production of Value Documents, Defense Against Unauthorized Color Photocopy and Document Security Inks, February Wandling, Dave. Business Printing Technologies Report, Ask the print professional, August