WASHINGTON, Nov. 27 – Attempted check fraud at the nation's banks has more than doubled in the past three years reaching an estimated $12.2 billion in 2006, according to the latest American Bankers Association Deposit Account Fraud Survey Report.
While attempted check fraud continued to rise, the increase in actual dollars lost was less dramatic -- $969 million compared to $677 million in 2003, the last year of ABA's survey. Banks' check fraud prevention systems were credited with keeping actual losses significantly lower than the attempted fraud numbers. (See Fraud Prevention Methods below.) Attempted fraud totaled $5.5 billion in 2003.
Counterfeit checks, stemming from crimes such as check and wire and lottery scams, has now become the fastest growing cause of actual dollars lost, increasing from 15 percent of the total actual dollar loss in 2003 (or an estimated $104 million) to 28 percent in 2006 (or an estimated $271 million). While the number of check fraud cases actually decreased from 616,469 cases in 2003 to 561,306 cases in 2006, the average loss per case increased from $1,098 in 2003 to $1,727 in 2006.
All types of fraud combined, the median loss per bank varied from $9,994 for community banks, to $43,350 for mid-sized banks, to $698,955 for regional banks, and to $6.7 million for the largest institutions. (See explanation of bank sizes in "About the Survey" at the end of the release.)
The amount of check fraud loss from individual accounts declined slightly from 77 percent in 2003 to 75 percent in 2006. However, check loss from small business accounts rose slightly from 14 percent in 2003 to 16 percent in 2006.
On average, 44 percent of community banks' 2006 check fraud losses could be attributed to organized customer scams such as fake lottery scams. Counterfeit checks had the highest median loss per case at $2,758 followed by kiting and alterations, both at $2,000.
SOURCES OF CHECK FRAUD
Regardless of bank size, the most common type of check fraud in 2006 was return deposit items, which attributed to 38 percent of fraud losses compared to 41 percent in 2003. Forged signatures and endorsements came in second place with 30 percent of fraud losses compared to 31 percent in 2003. And counterfeit checks totaled 28 percent of fraud losses, up from 15 percent in 2003.
After re-emerging as a serious challenge for banks of all sizes in 2003, new-account fraud continued to be a concern in 2006. Approximately $1 of every $4 of check fraud losses (26 percent) were linked to new accounts, which is consistent with the findings of the 2003 survey. Compared with the last survey, new account fraud's share of check-related losses rose moderately for banks of all sizes. However, 46 percent of community banks' losses could be attributed to new account fraud in 2006, a small increase from 44 percent in 2003 but a substantial increase from 32 percent in the 2001 survey.
FRAUD PREVENTION METHODS
The most effective check fraud prevention measures included the use of check imaging software, kite detection service at the teller station, "out of pocket" external database for non-financial information for customer authentication, and positive pay service – a computerized check number matching program between banks and corporate customers.
The most common fraud prevention practices at banks of all sizes were employee training, followed by new account screening software and signature verification for large-dollar items. As could be expected, the larger the bank, the more prevention tools it employed to combat fraud.
CHECK FRAUD OPERATING COSTS
Losses are not the only expense banks incur from check fraud. The amount of resources that banks devoted to check fraud prevention, detection, investigation and prosecution increased with bank size.
One in four money center size banks spent more than $20 million each in check fraud-related operating expense (not including actual losses). The median expense was about $10 million for money center banks, between $500,000 and $1 million for regional banks, $50,000 $250,000 for mid-size banks and about $5,000 for community banks.
ABOUT THE SURVEY
ABA's Deposit Account Fraud Survey Report was conducted between February and July of 2007. One hundred and seventy-six banks participated in the survey. The survey used the following categories based on bank assets: community banks, less than $500 million; mid-sized banks, $500 million to $4.9 billion; regional banks, $5 billion to $49.9 billion; and superregional/money center banks, $50 billion and more.
The price of the 192-page report is $400 for ABA members, $800 for non-members. For more information or to order, call ABA at 1-800-BANKERS or visit ABA's Benchmarking and Survey Research page.
FRAUD PROTECTION TIPS FOR CONSUMERS
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Reconcile your statement each month and check for unauthorized transactions.
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Report any suspicious inquiries or unauthorized account transactions to your bank immediately.
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Never give out your checking account number unless it is a call you have initiated.
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Reveal checking account information only to businesses you know to be reputable.
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Shred or tear-up canceled checks and deposit slips before discarding them.
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Notify your bank if you don't receive your checks in a reasonable amount of time.
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Use dark ink, never light colors or pencil than can be easily erased or covered.
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Don't leave blank spaces on the payee or amount lines.
The American Bankers Association, on behalf of the more than two million men and women who work in the nation's banks, brings together all categories of banking institutions to best represent the interests of this rapidly changing industry. Its membership-which includes community, regional and money center banks and holding companies, as well as savings associations, trust companies and savings banks-makes ABA the largest banking trade association in the country.
