Image analysis – Applications – Reading bank checks
Reexamination Certificate
1998-07-14
2001-01-30
Johns, Andrew W. (Department: 2721)
Image analysis
Applications
Reading bank checks
C705S045000, C340S870030
Reexamination Certificate
active
06181814
ABSTRACT:
FIELD OF THE INVENTION
The present invention generally relates to a computer system and data processing techniques for detecting fraud and abuse in commercial instruments. More particularly, the present invention relates to a data processing system that works in concert with specifically delineated software to ensure checks issued and presented through the banking system contain no material alterations to printed check information, such as the payee name, issue date, check number and check amount.
BACKGROUND OF THE INVENTION
For many centuries, money has been used to permit market transactions of goods and services. Money was often in the form of coinage and other types of currency and thus immediately liquid—and subject to immediate loss. To expand the available transactions, banks became available to extend credit for goods and services in the market. Such credit extensions were leveraged on deposits and took the form of various types of commercial paper including promissory notes, letters of credit, drafts and, more commonly, checks on account. These financial instruments have provided substantial capital and increased asset liquidity and thus supported greater—debt based—economic growth.
However, transactions based on paper have long suffered significant losses as a result of acts of fraud. Specifically, paper was easily stolen and modified in ways that misled the drawee bank into inappropriately releasing check defined currency. For the most part, this involved altering the check in a way undetectable to the bank. When presented for payment, the modified check would be honored with the resulting financial loss to be allocated between the drawee bank (bank of first deposit) and check writer of the funds usurped by the altered or fraudulently created check.
To combat this fraud, banks have employed many techniques for confirming check validity. For example, checks will routinely include information about the drawing account and amount to be drawn. Special patterns and designations are applied to the blank paper check stock to discourage replication. In fact, centuries ago, checks required a personal “chop” to permit cashing.
Notwithstanding these techniques, modern practices of check writing and encashment remains mired in scams and fraud, resulting in billions of dollars of lost funds and is growing at an alarming rate due to the use of technology such as image scanners, personal computers and laser printers. Moreover, banks and other institutions are responsible for cashing many pre-printed checks of the type now typically used for payroll, dividends, etc. These checks are computer generated by the check issuer with specialized accounting software to track the transactions on an aggregate basis and to record individual account activity. In some ways, these automated issuance systems make it easier for check forgers to alter or reproduce fraudulent checks. Banks also, in an effort to reduce the costs of processing presented checks and posting them to customer accounts, have implemented sophisticated equipment and software to greatly automate these processes. One of the unfortunate results of this automation, however, is that fewer customer checks are physically handled and reviewed by bank personnel, making it more likely that these reproductions of originally issued checks with altered payees will go undetected. Even when physically inspected, however, many of these falsified items so clearly match the appearance of an original check drawn on the same customer account that the counterfeit is still not detected. These types of fraudulent items are resulting in losses of approximately five billion dollars per year and are growing at an alarming rate.
As an example of this widespread type of check fraud, in 1993, two checks for $80,000.00 were stolen from the Philadelphia Post Office. These checks included a printed name identifying the payee on the check. In addition, these checks included information of the check number, account number and dollar amount. The fraud was perpetrated by creating a duplicate check in the same font/typeface on security paper with MICR (Magnetic Ink Character Recognition) encoding used by banks to read the key pieces of information about a check in an automated fashion. This was done so the copy was identical to the check stock that was initially issued. The sole difference from the original item was that the payee had been changed. An account had been opened in the fictitious payee's name and the duplicate check was deposited into the account. The duplicated check was presented for payment and the funds were transferred to the falsified account, which was then closed out after the deposit funds were withdrawn. Since the check number, account number and the amount were all accurate, and the check appeared to be the original, the check was honored and the fraud uncovered only after the funds had been removed from the fictitious payee's account.
The foregoing example is not a lone event. Similar schemes are being perpetrated by check fraud rings worldwide at an astounding rate. Computer generated paychecks for stock dividends, payrolls and similar automated check preparation systems are now used extensively throughout the U.S. to issue millions of checks each day. Each check must include the printed payee as discussed above, and thus each is subject to the same kind of potential fraud. To prevent this and other types of fraud, the present invention has been created.
OBJECTS AND SUMMARY OF THE PRESENT INVENTION
It is an object of the present invention to provide a data processing system for managing check preparation and processing to prevent check alteration.
It is another object of the present invention to provide a data processor for confirming validity of checks presented for payment in a manner that precludes payee substitution.
The above and other objects of the present invention are realized in a unique data processing system that reads, interprets, and converts alpha characters found in payee names to a numeric value. The numeric information from the payee is combined with selected information from the MICR line and other parts of the check (check number, account number, issue date and dollar amount), and the combined information is used in a check digit routine. The result of the check digit routine is conveyed to the drawee bank. The drawee bank will use this information to validate the check upon presentment before final payment. The method used to convey the check digit routine can vary. The check digit information can be transmitted to the drawee bank as part of the current Positive Pay file within which the check issuer provides the drawee bank with a list of checks issued against which the bank can match items such as the check number, account number and dollar amount when presented for payment. Alternatively or in addition thereto, the value of the check digit may be placed on the face of the check in the “aux on us” field in the MICR line or on the face of the check, via the check issuance system.
In accordance with the varying aspects of the present invention, a first computer system is used to manage the check printing and accounting process. This computer system includes additional software processes for generating a numerical coded value corresponding to, among other things, the individual name of the payee—a numeric value that is based on the transformation of the alpha characters of the payee.
The check issuer and the corresponding drawee bank will agree on a set or sets of numeric manipulations (hereinafter referred to as the “algorithm”) to be employed for the specific customer's checks that will result in the check digit. This algorithm can vary by customer, by drawee account, by check serial range, or by check if needed. To protect against fraud, the algorithms are shared only by the check issuer and the drawee bank and only disclosed to other interested parties as agreed to by the check issuer and the bank.
A second computer system, located at the drawee bank, will have complementary software. This second
Hopgood, Calimafde, Judlowe & Mondolino LLP
Johns Andrew W.
Merrill Lynch & Co. Inc.
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