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Educating customers about security documents clinches the sale
By Rebecca Trela
VOCAB LIST
ACH (Automated Clearing House)—An organization that processes checks and sends the scans, such as a grocery store. Sometimes the scans are referred to as ACHs. The electronic documents are less secure, but your bank can place an ACH filter on incoming debits that only allows preauthorized check amounts.
Holder in Due Course (HIDC)—The institution accepting a check, which is responsible for verifying an “authorized signature” and a “reasonably acceptable” check. In other words, says Pat Cook, VP of sales and marketing at Ennis Inc., “it has to look like a check and smell like a check.” The HIDC is responsible for verifying non-survivable features before the check is turned into an IRD, such as thermochromic ink.
Ordinary Care—The standard, from the Uniform Commercial Code, which end users must meet to avoid liability for check fraud. Ordinary care requires “reasonable commercial standards” for security prevailing in their industry or business. In the print industry, that’s about six security features on a given check—or however many the bank uses for its own check stock.
Sight Review Threshold—The amount, in thousands of dollars, that requires a bank to physically inspect the check before clearing it. Each bank has a different threshold.
On his way into a seminar about check fraud, Rick Voss, a distributor in Fraser, Mich., signed the back of his business card and dropped it into a box. The seminar, led by famed fraud consultant Frank Abagnale at Walsh College, Voss’ alma mater, showed attendees the value of check security features and procedures. On the way out, however, the lesson really hit home: Abagnale’s associates handed him a credible-looking check with his company logo, colors and signature on the bottom line. “I was pretty astonished,” he says, surprised at the speed and sophistication of counterfeiters. “However many people were at the event, you could tell that many orders of security checks were placed the next day.”
Seminars at Walsh College are still paying dividends for the Consolidated Document Solutions sales rep. “Every time a seminar is hosted, I’ll get a half a dozen calls or more from my existing customers,” although he may not have even attended. “The business owners are looking to upgrade their checks; you can tell they are either impressed or very worried, and they start asking for features by name.”
Opportunities for Distributors
Checks have been declining in use slightly (6.4 percent) over the past few years, although the market is still sizeable—about 30 billion checks are written each year. Check fraud, on the other hand, is alive and well. The Nilson Report estimates that more than 1.2 million fraudulent checks enter the banking system each day, and losses total more than $20 billion. As the economy slides into a recession, fraud is expected to rise, and the time is ripe for introducing new security features to customers.
“You basically have to educate the end user to the point that you scare them to death,” says Abagnale, who has been lecturing about document security for more than three decades. He is often invited to speak to banks, accountants, and executives of Fortune 500 companies who, he says, he would expect to secure their documents and be aware of risks. But they are largely ignorant until something goes wrong. “Mostly they’re concerned about running their own business and making a profit,” he says.
The best way to help companies “get religion about security features” is to help them understand their liabilities if the checks are forged. “Purchasing and procurement people know that their mission is to look for the best price,” Abagnale says, “but they are in the position to get in a lot of trouble if there aren’t any security features.” That realization helps once-stingy customers look at the situation differently. “This is by no means limited to checks or banks,” he says. “We could be talking about any secure document—prescription pads, transcripts, government documents, titles and deeds, or anything related.”
The Process of Fraud
One of the best ways to show value to your client is to sell something that other check providers can’t—the tools for avoiding fraud in the first place, including procedures that should accompany the use of high-security documents. One often overlooked simple fix is to lock up the check stock.
“A few years ago you didn’t see a lot of counterfeiting,” Voss says. “Occasionally you would find someone take a few checks from the middle of the stack or something. Over time, they’ve become more sophisticated. Now they know what the cashing levels are that require a thumbprint, a drivers license or something else. A lot of times they won’t go to a bank, it’ll happen at a grocery store.” Voss coordinates with his vendors to learn new security features, but he also stays informed on what banks require and what local stores’ procedures are. To pass information along to the customers, he uses visuals or demonstrates how checks are washed, forged or otherwise copied. (See graphic above.)
"You basically have to educate the end user to the point that you scare them to death."
Frank Abagnale, consultant
While selling printing to a construction company, Steve Ventura, Ventura & Associates, Folsom, Calif. had to order the client new checks every few months because of fraud. “Every time they’d get new checks, they’d come back with a new problem. It turns out that the company was printing its direct deposit receipts on the secure check stock,” he says, and the company was handing the documents out on the construction sites on payday. Employees, Ventura realized, would verify the receipts and then toss them in the trash at the unsecured site. It wasn’t long before fraudsters figured out the company’s bank account number was printed on the secure stock, which was all the information they needed.
It’s very easy to make simple mistakes, Abagnale says. “A lot of times you see companies who ship their checks UPS with ‘payroll checks’ written right on the side.” Ask your customers these questions, he advises: Are the employees bonded? Do you lock up the storage facilities? Do you need an ID card to get into the building, and where is that access log kept? Is your bookkeeper the same person who writes and reconciles the checks? “If you have the same person performing both functions, federal law shows that you’re 100 percent liable if that person embezzles funds,” he says.
“Several years ago, I was consulting for Bancomerica in Mexico City,” Abagnale remembers. The bank, part of Bank of America, couldn’t figure out where all their fraudulent checks were coming from. “They all looked exactly like the real thing! It turns out they were,” he says. After printing the checks on secure paper with a number of deterrent features, the blank stock was stored in the back of the facility, which was open to the street. “Hot dog vendors would stroll in,” Abagnale says, amazed. “There were people using the checks as Coke coasters. It was unbelievable.” For a big client who’s very worried about security, it might be a good opportunity to make a joint sales call with your vendor partner, or even take the customer on a plant tour to assure them of the facility’s precautions.
Preventing Loss
Knowing the risks is so important, in fact, that Dan Hartlieb makes all clients who buy security documents sign a contract. “It’s just like signing off on a proof,” he says. After working with a client’s accountant as she struggled through the aftermath of a fraud problem, he realized that the situation could put him at risk, too. “In this scenario, the bank paid for the issue, but I started thinking, ‘One day, this could come back on me and be my problem,’” he says.
Sign Your Troubles Away
A lot of customers are reluctant to spend money on security documents, so Frank Abagnale, fraud consultant, suggests distributors prove their expertise and helpfulness with a cheap leave-behind for prospects: the Uni-Ball Signo 207 pen. The pen’s ink, designed by Abagnale, resists chemical check washing. (He does not recieve a royalty on pens sold.) “There are a lot of small businesses that still handwrite checks,” he says, and the pen is one way you can show them you understand their needs. Originally, he was unsure if the pen would be successful, but says that Wal-Mart now sells about 100,000 per week. “For about $2 retail, it’s a very simple solution to a difficult problem.”
Now, customers sign a waiver that indicates they don’t want any (or most of) the commonly available high-security features on their orders. “That, more than anything, really makes them start listening to you. I don’t think there’s been more than one time when someone didn’t order additional security features at that point,” Hartlieb says. “They look at me as more than just a guy who can provide checks, but as someone who is a professional at what he does.”
Once a customer signs for the checks and takes possession, make sure they flip through the book and keep track of the check numbers. If there’s a mistake and one has to be voided, shred the document. Other best practices include getting background checks for employees and setting up a separate PO box for returned checks.
“The smaller the company, the more damage it can incur with check fraud,” says Robin Johnson of SAFEChecks, Canoga Park, Calif. “Fraud can bankrupt a small company.”
Another good way of combating check fraud is Positive Pay or Reverse Positive Pay, depending on the end user’s size. Banks offer the service, which automatically matches the checks issued with the checks cashed, examining account numbers, check numbers, dollar amount and payee name. Reverse Positive Pay provides a checklist so that companies can do it themselves. All the components must match or the check becomes an “exception item” which must be examined by the check issuer. Of course, Positive Pay isn’t foolproof, which is why it’s a good idea to add a string of asterisks next to and above the payee’s name—so that someone else can’t be added to the check.
Also, some experts suggest, print a “void after 35 days” mark on the check, which is one banking cycle, or “void after 15 days for a payroll check. “After all,” asked Dick Gray, a distributor in Laguna Beach, Calif., who sells a lot of security documents, “who’s going to keep a paycheck longer than that?”
Generally, says Gordon Klepec, director of sales and marketing at Wright Business Graphics, Portland, Ore., and PSDA regional director, overt features sell better than covert ones because business owners like to see what they pay for. The most secure check will mix both overt and covert, with 7 or 8 features. “We do a few off-site distributor summit meetings,” Klepec says, “where the suppliers and a few forward-thinking distributors can get together and we can all communicate what our needs are and where the market is going. That’s probably the most valuable way to get and exchange knowledge.”
Rebecca Trela is assistant editor of Print Solutions Magazine. Email comments to rtrela@psda.org.