Check scam may cost city $48,000

During his 15 years as Juneau finance director, Craig Duncan had never seen a counterfeit scheme like it: a city check manufactured and cashed in Mumbai, India, that was drawn on the Juneau School District account.

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"The bank said they couldn't tell it from a real check," Duncan said.

The $48,000 payment was payable to Techlogic of Bangalore India and cashed on Dec. 12. The bogus check was eventually honored by the city's local bank, and now the city says it might not recover the lost funds.

Duncan said the city has seen small scale check theft before, but this is the first time an imitation city check has passed through the international banking system.

The city first noticed the payment on an electronic banking report when a digit in the registry number was missing, said Deputy Treasurer Calvin Kubota. When the physical check returned to city accounting employee Mike Kirchner, he noticed the registry number was about 1,000 checks beyond the school district's accounting.

"It was way out of place," said Kubota. "It just didn't look right."

The check colors were off, but close, and some fonts were not quite right. "Someone did a good job forging the signature," Kubota said. The pen-hand was just slightly off on a few letters in city Treasurer Barbara Rolfe's name.

Before arriving at First National Bank Alaska, the check, equal to half of a principal's yearly salary, passed through seven banks, he said.

"You would be amazed at the amount of fraud out there," said Alan Dablemont, vice president of deposit services at First National Bank of Alaska. "We catch a lot of it."

Last winter, five checks totaling more than $500,000 were drawn on the government account of Albany County, N.Y. Their bank caught the checks in December and January and refused payment.

Chip Dott, executive deputy comptroller of Albany County, believes that someone working at Home Depot intercepted a county payment for $30 then sent the document to India where the slew of sham checks began.

"They [counterfeiters] did a wonderful job," he said.

Like the city of Juneau, Bank of America noticed the check registry number was too high.

"It was way out of sequence," Dott said. His county pays for a service called Positive Pay, which requires banks to only honor payment on checks reported as issued by the account holder.

New York State Police and the FBI picked up the fraud case but didn't pursue it because the checks did not clear the county's account. No loss actually occurred.

"They were not crazy about going after it," Dott said. "If they had taken $300,000 from us the FBI would have been more interested."

The city made a fraud report to the Juneau Police.

Kubota thinks the India-based scammers got the Juneau School District's check design, routing and account numbers from a check the school district sent to Kenya for payment of tuition.

The Indian counterfeit check had the same exact registry number plus 2,000, he said. The check bound for Kenya never made it and the city has asked the school district to hold off on sending a replacement.

Because of the city's current banking system, a week passed before it confirmed the check was an imitation. Kubota hopes First National Bank can recover the money from the Mumbai bank that originally cashed the forgery. The first American bank to see the check did question it before passing it on, he said.

"We're always going to work with a customer to recover funds based on the situation," Dablemont said.

First National Bank's primary security feature against fraud is to compare the signature on the check against a signature card. Other security measures are in place but Dablemont said he cannot discuss them.

He recommends the use of Positive Pay for business, and that general consumers should watch his or her accounts daily.

Both Duncan and Kubota say it's scary how easy the scam is. Blank check stock can be bought and combined with today's affordable high-end scanning and print technology to produce near-perfect forgeries.

"It's up to the banking customer to identify fraud," Duncan said. If the check fraud goes unnoticed too long, banks will not recover the money, he said.

"I'd check my account every day," Kubota said.

The city will soon start using Positive Pay, but for now the accounting department is comparing daily banking reports on hundreds of city issued check records to avoid further losses.

"Anything over $10,000 will be closely scrutinized," Kubota said. "If we can contact the bank within 24 hours they can stop the transfer of funds."

• Contact Greg Skinner at 523-2258 or greg.skinner@juneauempire.com.