When Imperial Bancorp was confronted with the growing and increasingly costly problem of check fraud, its management looked to some of the usual suspects to find a way to take a bite out of crime.

But when executives at the Inglewood, Calif.-based bank approached some of the nation's biggest check printers, they were told the kind of secure checks they wanted for their corporate customers weren't affordable in the quantities they needed.

So, according to Phyllis Sanchez, a vice president at the $2.6 billion-asset bank, "We decided the best way to find a solution was to come up with our own product, which incorporates the safety features we need, at a price that is reasonable."

Enter Standard Register Co., the Dayton, Ohio-based maker of business forms.

Together, the companies worked to design a secure check that would be impossible to fake using the latest advances in color copying machines and desktop publishing systems. Among the features making the items difficult to counterfeit are copyproof watermarks and microprinting.

Greg Litster, a bank senior vice president, said the cost of the newer, more sophisticated items, called Safe Checks, is comparable to that of an ordinary corporate check.

"We look at Safe Checks as a way to deter criminal activity," Ms. Sanchez said.

The partnership between the bank and Standard Register is providing benefits to both parties. Standard Register, which produced a large run of the check stock, is now able to market Safe Checks to other banks at a cost lower than custom-made checks.

And Imperial is able to offer its corporate customers more secure checks.

The need to do so became clear in 1993, when the bank suffered big losses due to check fraud.

"We were seeing an increase in the number of fraudulent checks coming into the bank, and decided that something needed to be done to combat the problem," said Mr. Litster. "Our accounting system was allowing us to catch the fraudulent items as they where coming in, but it also showed us the increase in the activity -- which forced us to come up with a secure document."

Imperial bankers say Safe Checks, along with other efforts put in place to reduce fraud, have been working well.

Last year, for example, $3 million in fraudulent checks came into the bank. Although Imperial caught most of the fraudulent items, it "ate" several hundred thousand dollars in losses. "We realize something had to be done and we implemented the programs. Since then, through September 30th [1994], our loss has been under $10,000," said Mr. Litster.

Another weapon in the bank's anticrime arsenal is a more vigilant manual inspection of large-dollar checks.

"Every check that comes in through the Fed or another bank that is sent to us for same-day settlement over a certain dollar amount...is physically inspected," said Mr. Litster. "By having our people review the same accounts day in and day out, they become familiar with the checks and are able to spot fraud a lot easier.

"We have been able to catch items because they look a little different," he continued. "We have caught checks which are practically perfect replications, but were caught because the shade of green is off."

The third part of Imperial's checkfraud efforts involves "positive pay." Each day corporate customers send the bank a list of checks they have written. Among the information included is the sequence numbers and the dollar amounts, which are matched against the list of checks that come into the bank.

If a check is not on the list, it becomes an exception item and is reviewed before it is cleared.

"There may be reasons that a legitimate check is an exception item, such as the check being folded and the magnetic ink character recognition line not being captured correctly," Mr. Litster said. "By having our customers provide a list of checks every day, we have the opportunity to catch items before it is too late."

He noted that recently four checks stolen from an Imperial customer were written for more than $1 million. Although the items were caught before any funds were lost, the criminals were never caught.

"The customer's chief executive, who did not know anything about positive pay, called and said, 'What is positive pay and how did it save me $1 million?'" said Mr. Litster. "In most cases, because the checks were stolen out of the office, the items would have been his responsibility, because of comparative negligence."

"The customer would have taken the entire hit and by having positive pay in place nobody took any hits," he continued.

Richard Crone, senior manager at KPMG Peat Marwick in Los Angeles, said the advent of the laser printer has resulted in a rash of small-time criminals capturing MICR lines and counterfeiting checks.

"The use of technology has forced banks to look to positive pay and secured documents to combat the problem," he said. "The tools are out there, and the criminals are taking advantage of the technology."

Mr. Crone added, "The root of the problem is paper and the dependency surrounding the paper-based settlement. The solution is the increased use of electronic payment systems such as debit cards or smart cards."

Mr. Litster also offered a cautionary tale. He noted that one bank customer, confident that his company would not be victimized, was content to stay with standard-issue yellow checks.

"Someone replicated the items," said Mr. Litster. "Someone put through the replicated checks--in small-dollar amounts--and the items got through."

Mr. Litster would not disclose the customer's name or the dollar amount of the loss other than to say it reached into five figures. Both the customer and Imperial ate the loss.

But today, he said, the customer uses Safe Checks and positive pay.

At a Glance



Headquarters Inglewood, Ca.

Assets $2.6 billion

Employees 900

Branches 12

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