An Old, Low-Tech Threat Returns

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MT. PROSPECT, Ill.-With all the press regarding high-tech financial theft involving hacking, skimming devices and spoofed websites, many credit unions overlook a form of fraud that is as old as paper money: counterfeit currency.

Curtis Hallowell, VP of product management for Cummins-Allison Corp., cited U.S. Secret Service reports showing counterfeiting has been on an upward swing in recent years. In 2010 there was an estimated $261 million counterfeit money in circulation, up from estimates of $182 million in 2009 and $79 million in 2008.

"This threat is up because of access to digital technology," he explained. "No longer is counterfeiting the realm of large rings; it can be done by mom-and-pop outfits."

The most common counterfeit note in the United States is the $20 bill, as it's easier to pass than larger bills.

There are two other fraud areas Cummins-Allison is watching closely: check fraud and employee fraud. Hallowell said check fraud is becoming a "huge issue" for CUs for two reasons: fraudsters attempting to deposit counterfeit checks, and their use of new mobile deposit technology to deposit a legitimate check more than once.

When banking is done remotely, "the human touch is lost," he said. "Some credit unions are opening up their member base, so they must walk a fine balance between opening up to their community and the increased fraud risk that comes with not knowing those new members."

Other Potential Fraud

There is a potential for employee fraud from tellers up to management, Hallowell said. In many cases, CU employees/managers are exposed to opportunities, either from lackadaisical management or no policies. Such fraud also hurts the CU's reputation.

"Credit unions are community oriented, so having the membership get information that there is internal fraud in the organization can cause a huge hit."

So what can be done?

To prevent being duped by bogus bills, Hallowell said it is vital for CUs to stay up on technology for counterfeit detection. He said there are devices in currency scanners that can catch a counterfeit bill on the teller line.

"The closer to the point of collection, or first point of entry, the better," he said. "If not, there are devices that capture the serial numbers of the notes and tie them to the depositor. If the Fed issues a chargeback later, the credit union knows who deposited it.

"Cash and checks are treated separately, but Cummins-Allison just developed a device that can keep an image record of all items. Therefore, management can call up a deposit record later to examine currency or checks if there is a question."

Preventing Check, Employee Fraud

In the case of check fraud, prevention comes down to the CU's systems. Hallowell said there are many solutions providers that are attempting to keep repositories of checks and looking for ways to detect patterns of entry.

Some forms of employee fraud can be stopped in their tracks with technology available today. At the end of a day if a teller's drawer is short $20, he or she owes $20. But if the drawer is $20 over, Hallowell said tellers often feel they should keep it.

"So if the member says he is depositing $300 and hands the teller $320, it shows on the screen-the teller cannot hide it. If a member's entire deposit can be captured, the teller has no recourse."

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