Telephone Companies Speed Up Fraud Detection

WHEN Bill Graham used his AT&T calling card at a Las Vegas computer conference a few months ago, someone was watching. His card number was passed onto a person in Lebanon who, in two days, managed to rack up $350 worth of calls.

This is telephone fraud, known as ``shoulder surfing.'' Criminals peek over people's shoulders, set up mirrors, and even zoom in on keypads with a video recorder to copy down phone-card numbers. The result: a scam that costs consumers plenty.

``Unfortunately, the public is not very well educated in ... how important it is to guard that telephone credit card,'' says Frances Feld, executive director of the Communications Fraud Control Association, a nonprofit education organization in Washington. ``You watch people! They lip-sync it [the code number]. They stand aside, away from the dial pad.... Mr. and Mrs. Consumer are completely oblivious.''

Spotting fraud faster

Long-distance telephone companies have cracked down with programs that spot potential illegal use much faster than in the past. In Mr. Graham's case, AT&T phoned his home in Paris within two days of the theft. When the company learned he was not in Lebanon, it canceled the card and promised to refund the money.

``The industry is getting better at controlling calling-card fraud,'' says Howard Jordan, special agent with the United States Secret Service. ``They're losing less dollar amounts on each card than they used to.''

The problem, he adds, is that criminals are moving on to more sophisticated techniques. The Secret Service estimates that all telephone fraud runs somewhere between $2.5 billion and $5 billion a year. And it is growing, Mr. Jordan says.

The biggest chunk of that fraud, he adds, comes from hackers who use a corporation's private telephone system to make outgoing calls. The next biggest source of fraud: portable phones altered to make calls from someone else's cellular-telephone account. Some estimates put cellular fraud alone at $100 million to $300 million a year.

Sophisticated software

Telephone companies are fighting back here too. The cellular industry launched an antifraud program in 1991, which has led to more than 100 arrests and the reported seizure of thousands of phone-altering computer chips. Some carriers, such as Southern New England Telephone Company, are using sophisticated software that can spot fraud within minutes instead of hours.