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Document Defense
Save the Day for Your Client With Security Features
BY KATIE SWEENEY
FORM, August, 1995
The purchasing agent thought it was a great idea. So did the accounting department. The controller was all for it, too. But when Dick Gray, CFC, regional manager of Altec, a distributorship in Laguna Hills, Calif., asked the chief financial officer if he wanted to include security features in the company's order of 500,000 accounts payable checks, the CFO said, "No, I don't think we need them." Gray says he was surprised because CFOs are often the ones most concerned with preventing fraud. But he went ahead and processed the order, sans security features.
Two months later, Gray got a phone call. The controller was on the line, in a panic. Seven checks totaling $100,000 had been passed as forgeries. The bank had refused to pay because the company hadn't taken any measures to protect itself. The CFO had been fired over the matter. And now the controller wanted security features--as many as possible, as fast as possible, no matter what the cost.
The company converted its checks to the second-highest level security features package that the distributorship offers. The checks are now printed on chemically reactive white safety paper and include an artificial watermark on the reverse side of the check and rainbow foil safety bars--hot- stamped foil that creates a blend of color on the face of the check but appears black when copied or scanned. The checks also contain warning bands that alert banks to the security features.
Gray says he's talked to many manufacturers who can recite similar stories. "After a forgery, [customers] don't care what it costs; they'll pay for everything," he says. "Because anything is cheaper than a forgery."
Educating End Users
The increasing sophistication of color copiers and relatively inexpensive laser printers and scanners are making forgeries or alterations of checks, gift certificates and other security documents more common. In addition, many experts in the financial and printing industries have interpreted revised UCC Articles 3 and 4 to mean that bank customers now must share more of the liability for forgeries and show "due diligence" in trying to prevent fraud.Despite this, Keith Klingler, CFC, account manager for Cornelius Business Forms in Indianapolis, says many companies aren't aware of their responsibility to try to protect their documents from fraud. They also don't realize just how easy it can be to forge a plain vanilla check. "Once they see that all it takes is some guy with a laser printer passing through town and staying at the Holiday Inn...[security features] are fairly easy to sell," he says.
Informing a customer about security features recently helped Klingler win an account from another vendor. Although Klingler already handled about 20 other products for the client, a large manufacturer of corrugated boxes, the company was purchasing its checks from another vendor. Last fall, he went after the check business. At first the customer was reluctant to change vendors because it feared doing so would create a snafu in the payroll system, says Klingler. But it eventually decided to switch. One of the factors in the company's decision was its plan to use fewer vendors, but Klingler says another reason was that he encouraged company officials to use security features, which they had never heard about. "I like to be the first to tell people things like that," he says. "If something comes up later, then maybe, hopefully, they'll remember that I'm the one who told them about it."
The company's new checks are printed on Boise Cascade Corp.'s Check Protect paper, which contains several features, including an artificial watermark and fluorescent fibers that can be detected under a black light. And if any chemicals are used to try to alter the check, the word "void" appears in six languages. In addition to the features in the paper, the checks contain a void pantograph, colored warning bands, microprinting for the signature line and bleed-through numbering for the consecutive check numbers, which makes the number black on the front of the check and red on the back of it. "I try to put as much [security] in it as possible," Klingler says. "The more you've got in there, the less likelihood there is that someone is going to try to mess with it." He says the company has ordered about 80,000 checks in eight months.
Frank Tatum, owner of Volunteer Business Systems Inc., a distributorship in Chattanooga, Tenn., says talking about security features is a good way to show customers that you're up-to- date on the latest technology and can educate them. "Any new thing coming up in technology, I keep the customer posted and up-to-date," says Tatum. "It shows that I'm more than an order- taker, and I'm concerned about their account."
Although some customers may hesitate at spending the extra money to add security features, experienced distributors say it's usually not difficult to convince them to do so. Gray, of Altec, says he always asks customers how much they can afford to lose on a forgery. "Most of them have never looked at it that way," he says. "They say, 'We've never had one.' I say, 'If you have one, how much can you afford?'" Gray says Altec has converted more than 500 customers to security features.
Dan Hartlieb, CFC, owner of Washington Form Service, a distributorship in Rockville, Md., says he also talks to many end users who aren't aware of the fraud problem. "One person said she didn't need security features because they took so many precautions internally," says Hartlieb. "The checks were locked up, and so on. I said, 'What do you do with the checks once they leave here?...Who protects them out there? No one.' That's where you've got to be afraid. I tell customers it's the cheapest insurance they'll ever buy."
Hartlieb also makes his customers sign a form saying they were informed about the available security features and understand that the distributorship is not liable if they decide not to use these features and their checks are forged. "If a bank can hold a customer liable for not showing due diligence, it struck me, with all the lawyers out there, why can't a customer hold me liable?" he says. "It's just another step down the food chain." Although he started using the form as an extra precaution, it serves another purpose. When asked to sign a letter releasing liability, customers start taking security features more seriously. "It's a great marketing tool," he says. "It works the same as a proof. People don't take a proof seriously until they have a pen in their hand. When they see this form, then they know we're serious." Hartlieb says he's only had one customer decide not to add security features after reading the letter.
Selling Strategies
Distributors recommend the following strategies for successful security sales:
- Enlist local banks as your allies. Gray says he tells bank branch managers and business development managers in his area that he will be approaching businesses about adding security features to their checks. Most banks will be pleased that you are trying to convince their customers to make checks more secure, says Gray. If customers call up their banks and tell them that you have been talking about security features, the bank managers can say they know you, and you're steering them in the right direction, he says. And banks can be a great source of referrals. "The banks have gotten so used to me, they recommend me to others," Gray says. "I've gotten a lot of business that way."
- Talk to someone at the top. Most of the time, the people near the top of an organization are more concerned about a company's overall financial picture than purchasing agents, who may be concerned only with cost per unit, says Bill Cole, president and chief financial officer of Tri-C Enterprises Inc., a distributorship in Fayetteville, Ga. "Generally, the higher you go, the more well received you'll be," he says. "If you're used to talking to a purchasing agent, it may be a little bit uncomfortable, but you need to get as high as you can." When Cole recently added security features to a restaurant chain's checks, he met with the company's controller, vice president of finance and vice president of operations.
- Don't get lazy on repeat orders. Klingler, of Cornelius Business Forms, says he never fails to talk to customers about security features when a check or gift certificate reorder comes up. He says this strategy recently paid off when a 14-year customer reordered its checks. He suggested adding security features and showed the customer product samples and copies of magazine articles on check security and fraud. The company decided to switch to Boise Cascade's Check Protect paper and add microprinting, colored bands and a void pantograph.
- Never say something is forge-proof. "Most people have to realize that if someone really wants to forge something, they can beat any system that's in place right now," says Gray. "The whole purpose is to make it as difficult as possible." He says he tells his customers that most check forgers go after the easy prey--plain vanilla checks--not ones armed with void pantographs, watermarks and chemical reactants. "They're going to pass those by because there's a whole bunch of targets that are real easy to pick up," Gray says.
Distributors who sell checks and don't sell security features are "missing the boat," says Klingler. "It's easy to get customers' attention when you tell them they could be liable for checks that are bad. They tend to notice that pretty quick," he says. "If the customer refuses, then you've still done your job. And you can come back and say, 'I told you so.' In a nice way."
Katie Sweeney is assistant editor of FORM magazine.
Thanks to the following for assistance: Continu-forms inc., Kulpsville, Pa.; Datagraphic Inc., Roswell, Ga.; Foster Business Forms Co., Columbus, Ohio; Major Business Systems, Hillsborough, N.C.; and Woodbury Business Forms Inc., La Grange, Ga.
Guarding $2 Million in Happy Meals
Security cameras record the moves of everyone who enters and exits the thick wire cage. Invisible beams are connected to alarms, which are hooked into the local police department. If anyone tries to break in, the police will respond in minutes.
The cage is just one aspect of a sophisticated security system at this large distributorship that sells gift certificates to McDonald's restaurants. Every day during the Christmas season, the distributor receives and releases $2 million in McDonald's gift certificates. Even during the off- season, about $50,000 in certificates must be secured in the 50- x 50-foot cage, which stands 12 feet high.
Although several security features are incorporated into the certificates to prevent forgeries, distributors who warehouse sensitive documents also need to set up security measures on site. This distributor, who asked not to be identified, allows only the warehouse manager and employees working on the gift certificate account to enter the cage. Security checks are conducted before giving any employee access to the cage. Only one person is allowed to accept the gift certificate orders from McDonald's. And only one person is allowed to receive the gift certificates when they arrive at the cage, delivered by a guard in unmarked boxes. Orders are weighed before they go out and when they are received by the customer. And certificates can be tracked by serial numbers.
One of the biggest hurdles that distributors who warehouse security documents often face is getting insurance. Not only is it hard to find a company willing to insure them, but the cost is high. This distributor said insurance would have cost him about $37,000 a year--if a company had agreed to insure him. Instead, McDonald's insures the distributorship through its policy. Security cages are also expensive items. In this case, McDonald's owns the security cage.
So far, the distributor says the system has been successful. In the five years he has been handling the gift certificate account, there has been only one theft. That occurred on the day the person designated to receive returned gift certificates was out for the day. Another employee received them instead, stole a box worth $1,000, and promptly quit his job. The employee was caught after spending about $160 in certificates.
How Secure Are Your Clients' Documents?
The following is a list of questions to help determine a customer's document security risk level. Have your clients answer these questions and rate each on a scale of 1 to 10 (one being minimal risk and 10 being high risk). Then add up the numbers and divide the total by 16 to determine the total risk level. (Taken from "Document Security and Security Papers," by Appleton Papers Inc., Appleton, Wis. Used with permission.)
Receipt
How controlled is your receiving area? ____
Are only specific personnel authorized to sign for security documents? ____Storage
Are documents retained in a secure area with general inventory? ____
Are documents securely stored in the "using" area? ____
Are only specific personnel authorized to move documents? ____Document Fulfillment
How secure is your equipment area during document fulfillment operations? ____
Are only specific personnel authorized for document fulfillment? ____
Are only specific personnel authorized to handle "finished" documents? ____
Are finished documents securely stored? ____Audit Features
Do your documents contain audit/tracking features? ____
How often do you conduct document audits? ____
Are audits conducted by authorized personnel only? ____Environment
How controlled is your document operations environment? (Limited transaction locations) ____
How uncontrolled is your document operations environment? (Unlimited transaction locations) ____Personnel
How well educated are your personnel about your security needs? ____
How well educated are your personnel about fraud? ____Value Analysis
What is the average value associated with your document? ____
How many documents are typically transacted between audits? ____
Multiply the above two numbers to demonstrate to customers their potential vulnerability.Back to Document Security