ALL BAD CHECKS ARE NOT CREATED EQUAL SOME INDUSTRIES MORE VULNERABLE TO FRAUD THAN OTHERS

Furniture World Magazine

Overall Fraud Up 11 Percent, Says TeleCheck Services Shoppers are making a list and checking it twice, but some will be naughty and some will be nice. Check fraud artists will be shopping with the rest of American consumers this holiday season, and some retailers are far more vulnerable to fraud than others, according to data compiled in a new point-of-sale check fraud index by TeleCheck Services, Inc., the world's leading check acceptance company. Wine & liquor, jewelry, apparel and department/discount stores are more than 10 times as likely to be hit by check fraud as the least affected businesses, which include those in the healthcare, wholesale & commercial, and automotive parts & service industries. Overall, incidents of check fraud rose more than 11 percent over the past year, according to TeleCheck's data, which are segmented according to Standard Industry Code (SIC) and drawn from TeleCheck's 167,000 subscriber locations, covering a broad cross-section of industries and geographic areas. Check losses cost retailers more than $12 billion annually; about half is directly attributed to fraud. "We have long known through our efforts to manage check fraud risks that the impact of check fraud is not distributed equally, with some businesses far more vulnerable than others," said Randy Templeton, senior vice president of Strategic Marketing & Development at TeleCheck. "Places that sell products that can easily be resold by fraud artists are generally more at risk, as are check cashing services at grocery stores and hotels, as well as casinos." All Bad Checks Are Not Created Equal / #2 The highest check fraud, not surprisingly, occurs in the gaming industry. Using TeleCheck's check fraud index, which defines the national check fraud average as 100 points, gaming fraud scores a staggering 322, or 222 points above the national check fraud average. (Reference attached graph). The risk for check fraud is particularly high because checks are exchanged for cash money that goes back onto the casino floor rather than for purchase of a product or service. Check fraud at wine & liquor stores, with an index of 235, is 135 points above the national average, followed by jewelry stores at 230 (130 points above average), and apparel stores at 200 (100 points above average). Other high-incidence categories include department/discount stores at 87 points above the national average; electronics stores, 65 points above average; retail optical services, 57 points above average; and gift specialty at 43 points above average. TeleCheck's index is based on check transactions in which an intent to defraud is evident, such as checks drawn on closed accounts; checks lost, stolen or forged; fraudulently created checks or checking accounts; unable-to-locate accounts; and unauthorized or irregular signatures. The index does not include insufficient funds checks resulting from consumer error or temporary financial setbacks. "While TeleCheck stops about one half of fraud in real time at the point-of-sale, meaning those checks are not accepted, some types of fraud are difficult or impossible to detect, such as forged checks presented with fraudulent identification," Templeton explained. Check fraud has been on the rise as modern technology, including the use of personal computers, laser printers and sophisticated copiers, has made it easier to create fraudulent checks. Fraud artists also use such low-tech methods as check washing, in which checks are washed in a chemical solution to erase signature lines or dollar amounts on stolen or fraudulently obtained checks. Other fraud trends include altering the MICR line (the line at the bottom of a check that contains the account number and Federal Reserve and bank codes). Fraudulent new accounts at financial institutions, particularly for accounts opened by mail, phone or computer, are also on the rise. All Bad Checks Are Not Created Equal / #3 According to The Nilson Report, the leading news and advisory service for payment services executives, 32 percent of check fraud is attributed to accounts closed and kiting, 27 percent is counterfeit checks, 24 percent is forgery, 12 percent is bankruptcy and 5 percent is miscellaneous. Industries near the national average for check fraud include grocery and convenience stores at 130, (30 points above average), and sporting goods and hospitality & entertainment, both of which scored a rating of 126, (26 points above average). For grocery and convenience stores, check fraud comes primarily from check cashing. Although check cashing accounts for only 5 to 10 percent of a grocer's check activity, it can represent about half of a supermarket's check loss. Losses from check cashing have been on the rise, in part because of new technologies available today that enable fraud artists to more easily counterfeit payroll checks. Hospitality & entertainment includes restaurants and taverns, hotels, amusement parks, recreation services, and professional sports clubs. Like supermarkets, hotels and motels are more at risk for check fraud because of check cashing courtesies offered on-site. Other businesses with an about-average rate of check fraud include music/video stores (13 points above average), drug stores (9 points above average), and mail order & COD (4 points above average). Home furnishings, with an index of 96, is 4 points below average and general services, with an index of 78, is 22 points below average. General services includes categories such as transportation (airlines, cruise lines, limos), moving & storage, travel agencies, communication services (paging & cellular, cable TV, broadcasting), postal services, dwelling leases, and cleaning & laundry. Least impacted by check fraud are the healthcare and wholesale & commercial industries, each with an index ranking of 22, or 78 points below the national average. The healthcare category includes physicians, dentists, optometrists, hospitals, outpatient clinics, and general health services. The wholesale & commercial industry is composed of wholesale building contractors, construction materials, industrial equipment, and other business-to-business related transactions. All Bad Checks Are Not Created Equal / #4 Other categories that are below average on the check fraud index are computer stores, with an index of 43, (57 points below average); auto dealers at 48 (52 points below average); and auto parts & service and building materials & supplies, each 48 points below average with an index rating of 52. With most purchases at computer stores and building materials & supply stores used in homes or businesses, these categories are less susceptible to fraud, with the exception of certain items such as tools and small machinery, which can easily be resold by fraud artists. The TeleCheck system provides check acceptance and check guarantee services, collection services, and new account screening to more than 167,000 retail, financial institution, travel, gaming and association clients through a sales and service network with offices in more than 90 cities in the United States, Canada, Puerto Rico, Australia and New Zealand. In 1996, TeleCheck authorized over $40.2 billion in checks and processed more than 645 million check inquiries. TeleCheck is a subsidiary of First Data Corporation (NYSE: FDC). For more information about TeleCheck and its products and services, visit the Internet site at http://www.telecheck.com. Founded in 1992, Hackensack, NJ-based First Data Corporation is a global leader in payment systems, electronic commerce and information management products and services. First Data and its principal operating units process the information that allows millions of consumers to pay for goods or services by credit, debit or smart card at the point of sale or over the Internet; by check, or wire money - seamlessly and effortlessly. To request more information about First Data, click this E-Mail Link: jalinna.jones@telecheck.com