There are certain simple procedures that you can implement to help prevent check fraud. Many of the bad guys take advantage of two basic facts with regard to the check processing system: 1) check processors just read the MICR line and no human reviews the checks; and 2) there are certain time limits required by Reg CC for a credit union to make funds available to its members.

Have your check processor notify the depository bank if a check is being dishonored by the credit union and the amount is $2,500 or greater. Reg CC requires that large dollar checks which are dishonored do not only have to be sent back through the Federal Reserve but that the maker’s credit union must notify the depository bank by telephone, email, fax or other immediate method, that the check has been dishonored. Make sure that you have an agreement with your check processor that it will handle the notification if you dishonor a check. Also, don’t forget this rule if you are the depository credit union that took a large check. If the maker’s bank doesn’t call you, and you are notified too late to stop the withdrawal by your member, then the maker’s bank is liable.

Get a daily printout of all checks from your check processor and review it. Pay particular attention to large dollar checks, especially your own checks. Desktop publishing and color copying technologies are very advanced and affordable. Your credit union checks can be duplicated. If they are you have to be able to catch the fraud immediately because financial institutions are held to a higher standard when it comes to forgeries. Members have a period of time after they receive their statements (usually 60 days) to advise you of a forgery. You have no such luxury. Obtaining a daily printout will enable you to confirm that the checks being returned that day were actually issued by your credit union. You may check for a year and find no fraud, but the one time you catch it the check will undoubtedly be for a large amount and you will be able to prevent a loss.

Set a threshold amount over which you want your check processor to fax you copies of checks so that you can examine the signature. Your check processor will charge you for the service but it is money well spent. The bad guys do not forge maker’s signatures on checks for $20. They deal in large sums. If a bad guy has obtained a blank check of your member and forged her signature, your member will not be able to tell you that until after she has received her monthly statement. By then it is too late to dishonor the check. If a maker’s signature is forged on a check the credit union suffers the loss because it is the only financial institution that has the ability to check the maker’s signature.

Don’t allow members immediate availability with regard to deposits. Reg CC mandates an availability schedule for checks deposited by your members. However, some credit unions allow members immediate availability for all deposits. The bad guys would love to take advantage of this situation. They open a checking account at the credit union, deal with it in a normal way for several months and then deposit a large, bad check from another bank and withdraw the money before the other bank notifies you that it is NSF. In that situation the credit union suffers the loss.

Extend the check hold period if the credit union has “reasonable cause to doubt collectability” of any check. Reg CC allows you to utilize this exception if there is any suspicious activity regarding an account that would cause a well-grounded belief in the mind of a reasonable person that a check will not be collectible. Local checks can be held for an additional 5 business days and non-local checks can be held for an additional 6 business days. The member must be notified in writing of the reason for the extended hold. This extension is especially helpful if you suspect that a member is kiting checks.