A TFCU Online Feature Preventing Check Fraud By Linda Formichelli Is check fraud increasing at credit unions? When this question is put to Ken Otsuka, senior risk management specialist in the credit union protection division of the financial services provider CUNA Mutual, he laughs resignedly. "Yes, it is," he says. "It seems like every year we hit new records. Check fraud is at its all-time high." The total loss attributable to check fraud is approaching $20 billion. One of the major reasons for this staggering loss is the availability of high-quality, low-cost technology that allows scammers to print and alter checks. "You can go to any office supply story and buy a check-printing kit," says Otsuka. "This allows you to make your own checks at home off of your PC. You don't have to be a professional to do this." Add increasingly more sophisticated and organized criminals into the mix, and you have a huge check fraud problem. But here are some tips from experts on how to stop check-fraud criminals in their tracks: Verify It Some scam artists will join a credit union under someone else's name and Social Security number. Then, within the first few months, they negotiate a fraudulent check. If the credit union doesn’t place a hold on that check deposit, it allows the scammer to immediately draw on those funds. To avoid such fraud, Otsuka suggests tightening up the new account screening process. "Credit unions should verify all avenues of eligibility of those people applying for membership," he says. That means if you're an employee credit union, you should verify that the applicant is actually on the payroll of the employer. If you're a community-based credit union, check the applicant's address. Give Credit Checking all applicants' credit reports can cut your check fraud risk. You can use the reports to compare the information provided by the applicant to the information on file at the credit bureau. Mismatched addresses and name spellings are red flags that need to be investigated before opening an account. The applicant's creditworthiness is also a good indicator of how he or she would handle an account. "If someone's going to defraud the credit union with a fraudulent check, it's usually going to come from individuals who are not very creditworthy," says Otsuka. Check the Check "The teller is the primary handler of checks within the credit union," says Tom Whitehead, manager of value-added services for the check printer Deluxe. "There are a number of features that are built into checks to prevent fraud and to provide security to the customer's account." Even though counterfeit checks are getting harder and harder to spot, you can train your tellers to recognize some signs of fraudulent checks:    1. Checks that don't contain a MICR line.    2. Checks that lack perforations. All legitimate checks are perforated on at least one edge.    3. Toner pile-up on the check, which is a sign of a check generated on a color copier.    4. Misspelled pre-printed words on the check. Check fraud perpetrators are notoriously bad spellers.    5. MICR lines that are slightly raised from the paper or bumpy to the touch; such checks may have been created on a color copier.    6. An incorrect Federal Reserve District number in the routing number. The number should match the location of the institution on which the check is drawn. Hold that Check "Most of a credit union's check fraud losses are occurring on accounts that are six to 12 months old," says Otsuka. That's why you should focus check-hold efforts on new accounts for six to 12 months, or until the members have become established—meaning, for example, they've been set up on direct deposit or approved for a loan at the credit union. Be familiar with Federal Reserve Regulation CC, which specifies maximum hold periods on check deposits. "One way to avoid Reg CC limits is to perhaps deposit the check to the member's savings account rather than their checking account," says Otsuka. "Then you can use hold periods that are longer than what Reg CC specifies." Be aware, however, that five states—California, Connecticut, Maine, Massachusetts and New York—have laws that mirror Reg CC but they govern funds availability on checks deposited to savings accounts. Under certain circumstances (e.g., deposits greater than $5,000 made on a single day, deposits made to accounts that are repeatedly overdrawn, and when there's reasonable cause to doubt the collectibility of a check), the credit union can extend a check hold for a "reasonable period of time." For more information, check the Federal Reserve Board's Guide to Regulation CC Compliance at http://www.federalreserve.gov/pubs/regcc/regcc.htm. Tell Your Tellers A cautious teller can help thwart check scammers. Tellers should verify that there are sufficient funds in the account before cashing an on-us check, not allow members to cash on-us checks in the drive-up, record a non-member's driver's license number and expiration date on the check and verify the drawer's signature against the signature card. These expert tips will protect your credit union without creating hassle for your members. Linda Formichelli is a free-lance writer.