Check Ordering Procedures

Not long ago a company in Long Beach, California received an invoice in the mail from its check printer. The invoice drew the attention of the office administrator because it was mailed to the company's post office box rather than the street address where it was usually sent. When reviewing the invoice, the administrator became extremely alarmed because the checks were being shipped to 110th Street in Los Angeles. The reason for the administrator's alarm: The company doesn't have an office in Los Angeles, nor does it have an office on 110th Street, a part of Southern California that is well known to the law enforcement community.

The administrator called the company's check vendor, a national printer that sells its product line primarily through banks. The administrator was horrified to discover that someone had reordered their checks and changed the ship-to location to the 110th Street address. The printer had apparently received the reorder with an address change and had simply processed the reorder. After the administrator's urgent call to the check printer, the delivery company was contacted. Fortunately, the checks were still on the truck for delivery later that day.

While this story may seem inconceivable, it is true. For years criminals have employed all kinds of schemes to obtain original checks drawn on someone else's account. The simplest method is to call the check printer and reorder checks and have them shipped to a new address. Recruiting an internal employee to steal the check reorder form is becoming more popular. A stolen check reorder form is worth $100 on the street. The criminal changes the "ship-to" address on the reorder form to a P.O. box, mails it in, and in a couple of weeks receives original checks from the manufacturer.

Processing check orders without consideration to the legitimacy of the order or address change is an all too common practice in the printing business. Verification takes time, manpower and supervision. On the basis of expense and efficiency, very few printers attempt to confirm this information. Those that do confirm changes generally call the company, without considering that the person answering the phone may be the perpetrator of a scam. Although it is labor-intensive, calling the bank to confirm names, addresses and account numbers is the right thing to do.

SafeChecks is unique in its approach to processing new orders or reorders. SafeChecks refuses to mail checks to unauthorized parties. All new orders, and any changed information that is given when checks are reordered, are verified with the bank the check is drawn upon. Note that the changes are verified with the bank, not the company. Employees are offered a substantial reward for uncovering an attempt to obtain checks fraudulently.

Consumers as Victims of Check Fraud
When a consumer is the victim of a check fraud scam, the direct financial losses are almost always borne by the bank and those retailers that accepted the forged checks. The account holder is very seldom held financially accountable, unless it can be demonstrated that he/she was extremely delinquent and that the delinquency contributed substantially to the loss. However, consumers are dramatically affected in other ways. In the short term, their credit is always ruined because the retailers that accepted the forged checks report the losses to the credit agencies. The consumer must also fend off calls from collection agencies acting on behalf of the retailers attempting to recover the money. Proving to all affected parties that the legitimate account holder was not the party that wrote the bad checks can often take years. Those people that have been through the experience of having their identity and credit compromised by a thief can attest that it is a very harrowing experience.

Ordering Procedures and the State of Illinois
Last year, the State of Illinois passed legislation ensuring that check printers selling checks in that state do the right thing, at least for consumer checks. The bill is known as the Check Printer and Check Number Act, and was authored by the state's Retail Merchants Association. The governor of the State of Illinois signed the bill into law despite opposition by some of the most powerful members of the check printing industry.

The new Illinois law requires check vendors selling personal checks in that state to verify with the financial institution upon which the account is drawn the accuracy of information on all check orders. Excluded are printers that are at least 50 percent owned by a financial institution. The information to be verified on all new orders includes the account number and the name and address printed on the check.

Reorders with a "material change" must also be verified. Material change means any change or addition to any part of a check pertaining to the name, address, city, state, or account number. Failure to do so may result in a fine of up to $1,000 per incident.

Why did the Illinois legislature deem this law necessary? Very simply, some of their constituents (i.e. voters) were having their credit ruined by the check printing industry's poor practices. Banks and retailers were also suffering. The only parties not affected were the check printers, who actively opposed the bill. (For a copy of the bill (Senate Bill 406/House Bill 1113), please fax The Abagnale Advisor at (800) 615-2265.)

Opposition to the Illinois Bill
This bill is interesting in part because of the parties that opposed its passage. Opposition was led by the Financial Stationers Association in Washington D.C., whose members include some of the largest consumer check vendors in the country.

Deluxe Corporation, Clarke American, John Harland, Intuit and Liberty are a few of the members of the Financial Stationers Association. Deluxe, one of the nation's largest check printers, led its own charge against the bill. They claimed the bills passage would be unnecessarily burdensome and unproductive.

Although it does have its shortcomings, the Illinois bill is very good law. It addresses a very real and growing problem in American society, a problem exacerbated by the check printing industry's practices that facilitate forgers. Unfortunately, the bill stops too soon. It does not include business checks, which account for the vast majority of total check fraud losses. All check printers should implement the same verification procedures on business checks that Illinois requires for consumer checks.

A few check printers have already implemented these practices. You can quickly determine whether or not your check printer has secure ordering procedures by asking that a copy of their procedures be faxed to you. If your printer does not know what you are asking for, or if the fax is not immediately forthcoming, the procedures either do not exist or they are not being implemented.

Tightening the distribution channel on both new check orders and repeat orders would play a significant role in controlling check fraud losses. The fact that many check printers are adding security features to the checks they manufacture indicates their awareness of the fraud problem. But one might reasonably question a check printer's true commitment to fighting check fraud if that same printer will sell entirely blank laser checks with security features to anyone that calls their 800 line.

Solutions
1. Keep track of the check reorder notices, which should be kept under lock and key. The reorder notice is a tool that facilitates the reordering of checks on a timely basis. Many check printers put the notice on the top of the last box of checks to serve as a reminder to reorder checks on a timely basis. However, left unattended in the box, it can be spirited away by an ethically challenged person and sold. The reorder notice should be taken out of the box, locked away separately from the checks and REPLACED with a REORDER CHECKS NOW notice, with a reference to where the reorder form can be found.

2. Ask your check vendor for a copy of their written check ordering and reordering procedures. If your vendor cannot produce such a document, it is a safe bet that such controls do not exist. In that case, either change printers or obtain a hold-harmless agreement from your printer.

3. Banks should demand that all check vendors implement secure ordering procedures. Check fraud investigations should include, where possible, the source of the checks used to perpetrate the fraud. If a pattern of abuse can be determined, banks might consider redistributing the burden of the check fraud losses they have incurred by taking legal action against selected check printers whose practices have contributed to the losses. If check printers will not be self-policing in their sales practices, the threat of legal action may provide the impetus to do the right thing. If legal action becomes necessary, banks may want to enlist their state's retail trade association to help defray costs. For the phone number to the retail trade association in your state, please contact the National Retail Federation in Washington D.C at (202) 783-7971 or www.nfr.com.