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Agenda
Fraud & Cheque-Fraud
CTS Challenges
Issues at Presenting Banks end
Issues at Paying Banks end
Different kinds of Cheque Frauds
Fraud Prevention support system CTS 2010 standards
Ways to mitigate Frauds
Internal Processes
Outward Clearing Process
Inward Clearing Process
Customer Awareness
Fraud
What is Fraud ?
Fraud is intentional deception made for personal gain or to damage another
individual; the related adjective is fraudulent, and verb is defraud. Defrauding people or
entities of money or valuables is a common purpose of fraud.

What is Cheque Fraud?

Cheque fraud refers to a category of criminal acts that involve making the
unlawful use of cheques in order to illegally acquire or borrow funds that do not exist
within the account balance or account-holder's legal ownership.
What is Cheque Truncation?
Truncation is the process of stopping the flow of the physical cheque issued by a
drawer at some point with the presenting bank en-route to the drawee bank
branch. In its place an electronic image of the cheque is transmitted to the
drawee branch by the clearing house, along with relevant information like data
on the MICR band, date of presentation, presenting bank, etc.
Challenges at Presenting Bank
Processing Cheques for 400+ banks at Western Grid.
Various types of stationery for several banks.
Still Old Stationary getting processed (NON CTS 2010)
Activities at presenting bank require more time
Technical verification
Hardware based solution to detect frauds not available in big
machines. Majority work is manual, prone to omissions`
Challenges at Drawee Bank

Drawee/Paying Bank receives Black & while + Grey Scale Image of the
cheque.
Reduced visibility to verify Client Mandate:
Alteration on the cheque. Less visibility to verify cuts and scratches.
Unable to Verify Security Features on Cheque :
Dandy Mark & Watermark.
Micro-lettering of cheque.
Glow-mark of Bank logo & VOID Pantograph.
CTS Related Frauds

Counterfeiting of Forgery of
Cheques signature on Alterations Demand Drafts Magic Pen
cheques

Fake Material
Cheque Alteration

Fabricated Chemical
cheque Alteration

Cloned
cheque
Counterfeiting of cheques
Cheque counterfeiters use todays sophisticated color copiers to copy valid
cheques. Exact imitations of genuine cheques can be created with readily
available desktop publishing capabilities and then using desktop publishing
software to change some of the cheque information, allows the counterfeiter
to include many valid cheque components into the imitation and get it
printed on a high quality laser printer
The different type of counterfeiting are:
Fake Cheque
Fabricated Cheque
Cloned Cheque
Counterfeiting of cheques
Fake Cheque-
Colour Photocopy of the Instrument
Scanned & Printed Cheques

Fabricated Cheque-
Portions of 2 Separate leaves used to make the cheque

Cloned Cheque-
Fraudsters printing the instruments similar to the ones issued by banks
Forgery & Alteration on Cheques
Forgery:
It usually involves the use of legitimate blank cheques, with a false
imitation of the drawer signature on the signature line. Many cases of forged
signatures are perpetrated by a person known to the valid drawer.

Alteration:
Alterations are defined as valid cheque with certain fields changed. When
the payee name is changed, payment is made to the wrong person. The courtesy
and/or written amount can be increased, resulting in overpayment to the payee.
Types of Alterations
Material Alteration
Altering / Changing the field names in
the stolen / misplaced cheques

Chemical Alteration
Using the chemicals to erase and
modify the contents in the cheque with
fraudulent information
Alterations examples

Alteration in Payee Name

Alteration in Amount
Demand Drafts
Demand Drafts:
It can be misused to commit fraud because this practice involves
misusing of account information to obtain funds from a persons bank account
since demand draft does not require that persons signature on a negotiable
instrument.
Magic Pen
Magic Pen:
A pen with ink which evaporates after sometime, the fraudster can then
fill up the details of his own
Fraud Prevention Techniques
Banks / Customers should use "CTS 2010" cheques which are not only image
friendly but also have more security features.
Banks should exercise care while stamping the cheque forms, so that it does
not interfere with the material portions such as date, payees name, amount
and signature.
It is necessary to ensure that all essential elements of a cheque are captured
in an image during the scanning process and banks / customers have to
exercise appropriate care in this regard.
Fraud Prevention Techniques
Customers should preferably use dark coloured ink while writing cheques and
avoid any alterations / corrections thereon. Preferably, a new cheque leaf
may be used in the event of any alterations / corrections in the cheque.
Customers must ensure that details in the cheque should be written without
leaving any space in between, giving no room for any insertions in between.
Apart from above mentioned fraud prevention techniques, the customers/
banks must have awareness about void pantographs, Micro lettering, UV Logo,
etc.
CTS 2010 Standards
Standardization of fields
Helps in physical verification of instruments of other banks

Void Pantograph
Visible on a photo copy of 2010 standard compliant instruments

UV Logo
Help the banks identifying the fake instruments by running them
through UV lamp and looking for UV logo

Micro lettering
In case of material/chemical alteration the Micro lettering on the
instrument will get distorted. Banks will be able to identify this by
physical verification or through UV lamp

Water Mark
Cheque should carry standard water mark with the words CTS-INDIA
CTS 2010 Standards
Banks logo printed with ultra-violet ink (At Printing Stage):
Banks logo shall be printed in ultra-violet (UV) ink. The logo will be
captured by / visible in UV-enabled scanners / lamps. It will establish
genuineness of a cheque.
Field placements of a cheque:
Placement of significant fields on the cheque forms shall be mandated.
However, placement of additional fields shall be left to banks. This will enable
data capturing by Optical / Image Character Recognition (OCR / ICR) engines in
offline mode and help banks in automating their payment processes.
CTS 2010 Standards

CTS 2010 Standards:

Bank Logo in UV Date

Microlettering

Printer Name New Rupee

& CTS 2010 Symbol
Water Mark
VOID A/c No (CTS-INDIA)

Void
Signature

Cheque Validity period is 3 months

Ways to Mitigate Frauds
Internal Processes

Outward Clearing Process

Inward Clearing Process

Customer Awareness
Internal Process
Ensure that KYC done for all the new accounts as per the guidelines issued,
from time to time, by RBI

Monitor the transactions of all the new accounts for a period as may be
decided

Upper limit may be set for ATM and internet based transactions of new
accounts till such time bank is comfortable with the operation of the
account

All the cheque leaves pertaining to an account closed should be defaced and
then shredded

Document the standard operating procedures

Staff dealing the customer accounts and cheques should be given fraud
awareness training
Internal Process
Provide the details of beneficiary in the account statement of the customer

Verify the credentials of any agency or person engaged to carry out activities on
behalf of the bank

Follow the RBI norms and act accordingly on the accounts where cheques are
frequently returning for insufficient funds especially high value cheques

Should a fraud occur in your bank share the modus operandi with fellow
bankers so that they will be alert to such type of frauds
Outward Clearing Process
Monitor the process of Cheque movements from drop boxes and ATM sites to
the processing Centre

Slab wise Verification for high value cheques - it is suggested to have dual
checking

UV lamp verification

Check for any alterations, erasures on the cheques

Check the quality of paper, printing and uneven spaces (if any)

Be alert while high value instruments are getting presented through dormant
or inoperative accounts

If it is a CTS 2010 standard instrument then look for Void pantograph

Outward Clearing Process
Processed CTS instruments should be stored with proper processed seal to
avoid duplication. Please refer to the CTS procedural guidelines
In case of suspicion, please check up with the customer before presentation
MICR rejects
In case of Xerox copy or duplicate instrument there is a very high possibility of
MICR reject at the time of scanning.
At the time of scanning, if the MICR code cant be read by the scanner, the
instrument will be shown as MICR reject.
Before updating the MICR code manually the bank should ensure the following
Verify the reason for MICR reject.
Double check whether all the CTS2010 features of the instrument are in order
Whether the account to which the instrument is being collected is an active account
Inward Clearing Process
Technical Scrutiny of the instruments
Verify the signature on the cheque
If Image not clear/looking suspicious then ask for physical instrument from the
presenting bank
Reconcile the Paper to follow Inward items
Do not process any P2F instrument without verifying physical instrument
In case of CTS 2010 Instrument check for VOID pantograph
Return any cheque with material alteration even if such an alteration is duly
authenticated by the drawer of the cheque (exception being date field)
Inward Clearing Process
Be very careful in case of instruments for which MICR reject repair performed
by the presenting bank
System provides an indicator for reject repair being done for an instrument
Thoroughly check the instrument before clearing the same
In case of high value transactions, it is suggested to seek confirmation of
the account holder
Customer Awareness
At the time of receipt of cheque book, make sure all of the cheques are there,
and that none are missing. Report missing cheque to your bank at once
Store cheque book, deposit slips, bank statements and cancelled cheques in a
secure and locked location
Always issue Account Payee cheques
Dont leave blank spaces on the payee and amount lines
Draw a Line after the name, amount and wherever empty space was left
Always use Gel ink pen
Never Pre-sign the cheques
Customer Awareness
Always write the details of the cheques issued in the appropriate column
provided in the cheque book
Reconcile / Review Bank statements regularly
Start using CTS 2010 standards cheques
Never give your account number and other credentials to anybody
Unless needed, destroy old cancelled checks, account statements, deposit
slips, ATM receipts
At the time of closure of an account, return unused cheques to the bank
Use alternate channels of payment for High Value transaction
RBI Circular

RBI Master Circular on Frauds Classification & Reporting:

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7381&Mode=0#gui

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 THANK YOU

DHIRENDRA SINGH CHOUHAN

[email protected] MOB: +91 -8989413934

[email protected]
[email protected]

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