Checking Fraud Surge During a Pandemic



Roy Urrico

The “check is in the mail” may not mean what it once did, but the 160 million stimulus payments sent out during the pandemic created a rush of deposits across all channels. They also left financial institutions trying to fend off a surge of fraudsters seeking to cash in on that increased item flow.

Stimulus checks are just the latest opportunity for cybercriminals, who take advantage of any cracks in the system during any emergency or disaster situations. The IRS even described stimulus payment scams as “aggressive and evolving.”

The High Point, N.C.-based Advanced Fraud Solutions, which provides deposit fraud detection software, in a white paper, “Guide to Treasury Check Validation,” detailed how credit unions can quickly validate Treasury checks across their deposit channels (particularly mobile deposits as more customers opt to socially distance). The AFS report described several frequently deployed deposit fraud tactics used on Treasury checks, including social engineering, duplicate deposits and counterfeit checks, as well as best practices on how to secure checks across deposit channels.

AFS also highlighted new enhancements to TrueChecks – its check fraud database and prevention solution – including a direct link to the U.S. Department of the Treasury database, giving financial institutions the ability to validate items in real-time or in batch, across deposit channels.


Ted Kirk, AFS

"Financial institutions face two big challenges when it comes to properly validating these Treasury checks: processing at volume and processing across channels, including remote and mobile deposit," said Ted Kirk, vice president of strategic partnerships at AFS. "The volume of Treasury items currently hitting banks and credit unions is historic. This influx will also represent a test on the security of remote and mobile deposits, as more customers opt for safer, more socially distanced ways to bank."

Iowa CU Protects Against Fake Checks

Jill M. Gogel, assistant vice president of fraud services at the $2.2 billion Dubuque, Iowa-based Dupaco Community Credit Union, said prior to the pandemic, the credit union saw a fair number of fraudulent items, such as counterfeit business checks or cashier's checks, coming through its lobby and mobile channel.

Gogel noted fraud attempts went up when Dupaco had to close its lobby. In the pre-COVID-19 days they saw the same type of scams, but now they are a more frequent. “Fraudsters are taking advantage of people out of work, looking for ways to make ends meet. It is not an easy situation. Unfortunately, those are the people that are falling victim to make-money-quick scams,” said Gogel.

Jill M. Gogel, Dupaco Community CU

Gogel also indicated the credit union has seen a slight shift away from physical checks to more electronic and ACH fraud, such as those hitting unemployment agencies and the Small Business Administration. Even though Dupaco would not be on the hook for falsified ACH items, such as Paycheck Protection Program loans, because of the National Automated Clearing House Association indemnification agreement, the credit union wants to prevent as many scams as possible. “We've been successful in stopping over 90% of those funds and sending those back to the appropriate agencies that had been defrauded,” said Gogel.

Mobile Deposit Frauds are Trickier

In Gogel’s view, the mobile deposit area has become increasingly troublesome. Dupaco’s staff prepares to look for different physical tells when someone tries to perpetuate fraud at the teller line. “I can look you square in the eye and probably tell if you're bluffing me,” Gogel said of scammers trying to kite a check. But frontline staff cannot read the body language of a scammer working remotely. “We have had to adapt to different ways to make sure that we can further stop fraud through this mobile deposit channel.”

Gogel added, “We see a significant amount of fraud coming through the remote deposit channel.” As a result of the COVID-19 lockdowns, Dupaco saw that fraud level rise even higher. “Members still needed a way to deposit their money. This was the primary channel utilized.”

Gogel pointed out last year at the same time, Dupaco had processed about $20 to 21 million in transactions and 50,000 transactions through its mobile channel, and stopped some $270,000 worth of fraudulent transactions. In 2020, through the first seven months, Dupaco processed about $70 million and 75,000 transactions through mobile deposit. Of those, the credit union stopped over $555,000 worth of fraud. “We've actually lost probably under $3,000 worth of hard dollars for the first seven months,” she said.

Gogel described TrueChecks, which the credit union has used for quite a few years on an as needed basis to do a quick verification check, as a great tool to have in its fraud prevention belt. Dupaco calls on the AFS solution whether the item comes through the ATM or interactive teller machine (ITM) channels, the teller line, or as a mobile deposit. “We can detect fraud even when we're seeing such increases in volume through the mobile channel, without creating mountains of extra work for our team, and keep member satisfaction high while keeping our fraud losses to a minimum.”

If a member deposits an item through any channel, the credit union can still review the items with TrueChecks on an as needed basis by clicking a button and automatically scanning that item for review, noted Gogel. But Dupaco also integrated TrueChecks into their mobile app with all items over a certain dollar amount scanned. From there, any flagged items go into a review queue for the credit union’s mobile deposit team, which ultimately decides whether to approve or reject the item.

“We are a big firm believer that if we can reject it before it enters the payment system, it’s a better way than letting it in the account with a hold on it and waiting for it to come back. That is just continuing to create additional workload for all parties involved,” said Gogel. She added, “TrueChecks has been a great asset to us. It's one of the key pieces we utilize on a daily basis.”

Help in Identifying Risky Items

Josh Sheehan, AFS

Josh Sheehan, vice president of sales at AFS, said, “As a company we are helping institutions to identify risky items at the point of deposit. With the pandemic, you have institutions not used to working remotely, branches with limited hours; all those things that impact institutions have caused items to go through a variety of different channels.” Plus, from March to July, 2020, AFS saw twice as much volume than the same time last year.

“We have to believe that a lot of that is because of those additional checks being put out there,” Sheehan added. “But I don't think they ever anticipated the volume they would see through those avenues that quickly and having to adapt and review those items remotely.”

Advanced Fraud Solutions said about 1 million treasury items went through its system from March to July 2020, compared to some 370,000 items over a similar period in 2019. More troublingly, AFS identified 41,000 of those million items as fraudulent in their Treasury validation system.

AFS is not new in the credit union space. “We have 42 of the top 100 credit unions, 93 of the top 200 credit unions,” Sheehan explained. In addition, the fraud solutions firm put much effort into making itself easy to integrate with existing systems, keeping itself core agnostic and building relationships with core vendors and other fintech companies.

“We have APIs in our system that allow the institution to either code up directly or utilize one of our partners. We have about 35 of them out there in the market currently,” Sheehan said. “That allows us to be able to put a cross channel fraud prevention solution out there for the institution so they can handle mobile, ATM, teller, ITM, back office, remote deposits. Anything they're going to see from a deposit perspective, we can help them, not just checks, but ACH as well.”

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