Banks are at risk for check fraud by not verifying signatures on checks before payment, according to a wide-ranging survey conducted by the American Bankers Association.

With 274 banks participating, the survey, called Check Processing/Wholesale Operations, found that only 1.7% of the responding banks above $1 billion of assets verified signatures on all checks before payment.

Smaller banks - those under $100 million of assets - verified checks 32.9% of the time.

"Big banks are taking on more risk," said Kenneth P. Leckie, senior vice president of PNC Bancorp, Pittsburgh, and also a member of the ABA Corporate Operations Committee, which conducted the survey.

Banks that responded to the association's 121-question survey instrument were placed into three broad categories based on asset size.

Banks with assets less than $100 million were labeled community/small banks; banks with assets between $100 million and $1 billion were mid-sized banks; and banks above $1 billion were called large.

The ABA has estimated check fraud to be increasing at a rate of 20% a year. Experts have estimated that as much as $10 billion is lost due to fraud annually. An ABA spokesman put the figure at $1 billion, noting, however, that "banks are reluctant to reveal their losses due to fraud."

But even though the survey found smaller banks doing a better job at check verification than their larger counterparts, still only one in three verified all check signatures, which is something that Dan Fisher, senior vice president of Victoria Bank, Texas, believed will change.

Mr. Fisher said banks will look at their policies as a result of the recent activities by gangs that roamed various cities with counterfeit copies of good checks.

Mr. Fisher, who also sat on the ABA committee, said that more community bankers will look to protect against fraud as criminals become more sophisticated, since fraud has more of an adverse affect for a community bank.

"If you look at it, it may only be a $10,000, but that will impact a small bank more significantly," Mr. Fisher said.

In other findings of the survey, the size of the bank played a significant role in a bank's operating costs. Smaller banks paid higher percentages of their total operating costs for check processing than did larger banks.

Large banks' costs for check clearing as a percentage of total operating costs were anticipated to be 4.1% in 1994, a figure that has remained stable for the last several years.

On the other hand, the same costs for community banks were. expected to increase to 18.4%, up from 16% in 1992.

"It seems that the smaller banks are unable to control costs," Mr. Leckie said. "That may be because of increased pricing from providers of services. Small banks have no in-house control of the pricing. There is also evidence that community banks tend to focus on customer services."

Mr. Fisher said increased costs in the operations among smaller banks perhaps reflected a commitment to develop more in-house operating systems.

"You can buy more computing power now, and that speaks loudly to the community banks," Mr. Fisher said.

But there are a number of other related reasons that operating expenses for community banks are higher, and it goes to the heart of the community bank's relationship with its customers.

Mr. Fisher said community banks, which are typically concentrated in rural areas, serve an older population. Such customers, he said, require more traditional, as well as more costly services than larger banks in metropolitan areas.

One cost-saving operation that larger banks have implemented is check truncation, or, the safekeeping of checks at the bank rather than sending them back to customers.

More than half of all large banks participate in check safekeeping programs for consumer accounts, which can reduce costs through less handling, sorting, and mailing. "

Fewer than 10% of small banks and 27.6% of mid-sized banks offered check truncation to customers.

"If I were a community banker, I'd look to see if I could save some money in this area," said Mr. Leckie, who thought that truncation would become easier as new technologies such as imaging become more common.

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