Put a Stop to Check Fraud Before It Starts

Willis Reed
April 25, 2005

Sunmark Federal Credit Union tries hard to stop check fraud before it happens— and it succeeds.

The Schenectady, New York credit union filed no check fraud claims in 2004. Nor did it have any significant losses under its $5,000 deductible. The results contrast with the national trend in which attempted check fraud totaled $5.5 billion in 2003, up from $4.3 billion in 2001, according to American Bankers Association statistics.

Sunmark ($389 million assets; 46,000 members) adopted a multipronged approach to fighting check fraud after switching to a community charter in 2002. "When you’re community chartered, you often have members you don't know, which increases the risk of getting a bad check," explains security director Sara Spychalski.

Here's what Sunmark does to stop check fraud:

Check Hold Policy

Sunmark places holds on checks depending on the maker, amount of the check, and whether the checks are local, in state, or out of state. Holds range from 2 to 11 days. Checks deemed most risky include those from credit card companies, investment checks, checks for more than $5,000, and checks from new members.

Returned Check Analysis

Sunmark divides returned checks into three categories: loan payments, checks under $100, and "all others," which get the most attention. Spychalski scrutinizes returned checks that fall in the "all others" category to make sure the credit union’s front-line staff (tellers and new-accounts reps) placed the proper "hold." The credit union also looks within this category for checks written by a member to himself or herself from another financial institution to spot kiting schemes. The credit union's director of operations also examines the checks to see "what we can learn from this."

Follow-Up with Employees

Spychalski routinely acknowledges a job well done in an e-mail to all the credit union's approximately 180 employees and a personal visit to the alert employee (often bearing a stuffed McGruff crime dog as a gift incentive). Spychalski's e-mails also detail the particulars of the fraud attempt, which "reinforces the fact that it really does happen," she says.

She also describes frauds perpetrated on members such as the Canadian lottery and Nigerian E-bay schemes. Placing a hold on a counterfeit check involved in these schemes helps members as much as the credit union.

When in Doubt, Talk It Up

Sunmark encourages front-line employees to strike up a conversation with members when presented with a check from another financial institution, a practice that has thwarted several fraud attempts and protected members targeted by fraud. For example, the teller might ask about the source of the funds: "Did you recently sell a car?" If a member says he's sold something to a foreign buyer, tellers ask if the check was for more than the purchase amount. If the answer is yes, and the member indicates that he wired excess money back to the buyer, Sunmark employees try to educate the member and warn that he may be a victim of fraud. Tellers also have had people walk out when they call Spychalski to check on a detail, such as a bad Social Security number. If things don't seem right, staff are encouraged to ask questions or seek assistance.

Networking

Spychalski is president of a group of security officers from area financial institutions and law enforcement officials that meets monthly, and she participates in an e-mail alert when a fraud is happening in the community. She says Sunmark has thwarted bad-account openings through tips obtained from that group.

Willis Reed is an account vice president, corporate services, for CUNA Mutual Group in Albany, New York. This story was first published by CUNA Mutual Group in its online publication Added Dimensions and is reprinted with permission.