Banknorth successfully combats fraud with sqn sentry products

FRAUD IS PARTICULARLY RAMPANT AMONG BIG BANKS THAT SERVE A SUBSTANTIAL NUMBER OF CUSTOMERS. AS ONE OF THE 35 LARGEST COMMERCIAL BANKING COMPANIES IN THE COUNTRY, BANKNORTH, NA, HAS ATTACKED THIS PROBLEM HEAD ON.

In the early 1900s the Bates Mill complex on the banks of the Adroscoggin River in Lewiston, Maine was a thriving textile enterprise employing hundreds of workers. The mill operated for over 100 years, dating from the time of the Civil War. In the 1950s and 60s the Bates Mill complex was the largest employer in the state. Unfortunately, as textile production shifted overseas, the mill fell into decline and had become a derelict collection of more than a million square feet of empty brick shells.

A century after it first opened, the mill complex is once again a center of activity and major employer. Peoples Heritage, a division of Banknorth banking and paymentPeoples Heritage Bank. A division of the $21 billion Banknorth Group, Peoples Heritage has located its operation center out of the recently renovated Bates Mill Complex. The communications hub, with nearly 1000 employees, provides customer service, loan processing and fraud intervention out of the modernized buildings.

The convenient automated banking has allowed customers to receive faster service. Unfortunately, the advances have also made it more convenient to conduct criminal activity. Stories of identity theft permeate the news. Check fraud in the United States is growing at an alarming rate. A high-resolution printer and graphic software are the only tools a con artist needs to print phony checks and pass them off as real.

The Deposit Fraud Control Group at Banknorth is responsible for monitoring various forms of check fraud, from check kiting, to blatant forgery. The group monitors daily reports looking for any unusual activity that might indicate fraud. Working with the bank's internal security force, and outside law enforcement, the Fraud Control Group can act quickly when a scheme is detected and put a hold on an account. The faster the response, the more money can be saved. In 2002, the Fraud Control Group received recognition for having reduced Banknorth's check fraud losses by 50%, year over year.

"We've caught check kiting, client retarns . . . all kinds of stuff," said Katherine Spear, the head of the group, who gives credit to her team, as well as to advances in software for improving fraud detection. "It's been fun, but we didn't always make a lot of friends doing it," Spear jokes.

Using a suite of signature verification and fraud detection products from SQN Banking Systems (www.sqnbankingsystems.com), the bank is able to detect check and deposit fraud, conduct signature verification and automate batch review of daily activity. The software monitors activity on a rolling 13-month basis, constantly looking for anomalies in banking patterns. For example, if a client opens an account with a small deposit, and within a few weeks makes a substantial deposit, the software will trigger an exception and notify an analyst in Spear's department who can take a closer look.

The detection threshholds are constantly adjusted based on volumes, which can exceed a million items nightly.

"It's like a sieve," said Joseph Manson, executive VP of Operations for Banknorth. "We can open and close the holes to let pass more, or close them to review everything. The strategy used by the software is very clever."

Fraud detection itself can be quite a challenge-especially for a bank that processes over one million items per day. "You're looking for the proverbial needle in a haystack every day," said Hanson. "You're trying to beat the odds."

Sentry: Monitor and Sentry: Detect, notes deviations in patterns of behavior and focuses attention on the highest risk items.

Sentry: Detect works on the payment side, examining inclearings or checks presented. Check numbers that are out of sequence or duplicated are suspect. Counterfeit checks are also found by looking at behavior pattern changes. If a business, for example, typically writes checks in a certain dollar range at a certain time of the month, and a check comes in later than usual for substantially more, it is flagged.

Sentry: Monitor looks for unusual patterns of customer behavior when it comes to deposits. The system's flexibility allows the bank to set and change its own parameters, such as balance amount, age of the account, or significant balance change. For instance, if an individual were to open an account with $50 and a few weeks later make a deposit for $5,000; the system would report the occurrence to an analyst. The analyst could then decide whether to make the funds available or hold them on an exception basis.

"Large banks that want to do business today without incurring substantial loss must now employ fraud detection tools to limit exposure," said Hanson.

"The system has been so successful in the year since it's been implemented that the software has paid for itself," Hanson is pleased to report. "We have reduced our losses and saved a significant amount of money." Staffing efficiencies are likewise increased, since the SQN system flags only suspect items, rather than requiring employees to look at countless checks.