Is Check Fraud Under Control?
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Recently several bankers I've spoken with stated they "don't have a check fraud problem" or that they have check fraud "under controlâ€. These comments puzzled me, especially in light of the release of ABA's most recent Deposit Account Fraud Survey Report. The report, published in 2009, is based on 2008 data and states that bank losses due to check fraud grew to exceed $1 Billion for the first time. $1 Billion – yes, billion with a B - and that doesn't even include credit unions and other types of financial institutions.
Over the years, check fraud losses in banks were measured in hundreds of millions of dollars. I clearly recall one study where losses remained relatively flat compared to the prior survey two years before. We really thought we had check fraud losses "under control" at that time, but alas, the following survey showed healthy growth in industry losses, and we had to concede we did not.
So when bankers commented that they have the check fraud threat "under control", but I knew losses had grown fairly dramatically, I had difficulty reconciling their stated belief with the facts. What were these people thinking? I knew they were sincere; many of them are dear friends, so it was important to me to understand their perspective.
I think I've figured it out. Perhaps when bankers state they have check fraud under control, what they really mean is that they are able to control check fraud to such as extent that they can meet their loss budget, thereby being successful within their financial institution. We all know that if losses meet or are under budget, it is still a loss, and management has an opportunity cost. In an industry that has been absolutely hammered in these tough economic times, is losing a billion dollar a year on check fraud acceptable? Can the industry afford to be complacent in light of such losses? Personally, I think not.
What do you think? Does your financial institution have check fraud under control? Is there a different reason than the budget explanation I proposed?