$12 Billion Worth of Check Fraud

check fraud

$12 billion is a lot of money and according to the FBI that is the estimated cost of check fraud committed per year. This could be a concerning fact for any business owners or individuals who write a lot of checks. Luckily there are two systems that are beneficial to managing the checks issued and preventing fraud. These systems are called Positive Pay and Reverse Positive Pay. While you might not have ever heard of either of these, the majority, if not all, of commercial banks offer these systems for customers who utilize a lot of checks.

 

Positive Pay

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Positive Pay is a cash management system with the notion to deter check fraud. When a check gets sent to the bank, they verify it against a list of issued checks. If the check gets determined to be fraudulent, it will be prevented from being paid. Some of the reasons a check can be deemed fraudulent are if it has been altered or if the check number comes from a stolen check batch.  Another common reason includes if the account number, check number and dollar amount of each check do not match records exactly.

 

How does the bank know its fraudulent?

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Generally, with the positive pay system, the issuing company will send a file to the bank which provides the check numbers, dates, and amounts of all checks issued in a check run. The bank teller has the responsibility of taking the presented check and comparing it to the list. Some files can provide the name whom the check is written out to, but not always.

 

The benefits are less check fraud due to the additional verification procedures. While this process can be helpful for check-heavy businesses, there are some disadvantages as well, such as:

 

1) The issuer must be diligent in sending the file on time; forgetfulness may cause a fraudulent check to be accepted

2) The check being presented to the bank might happen before the issuer sends the file over

3) It is an extra process that requires consistent time-sensitive action

4) Some banks may add a Positive Pay Fee

 

Reverse Positive Pay

 

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The second system offered is Reverse Positive Pay system. This is, as described, the reverse of the Positive Pay system. The reverse of Positive Pay, the bank now sends a daily file to the client with a list of checks. In this scenario the bank will only pay out checks approved by the company within a short time window. If the client doesn’t alert the bank within the time frame, the bank will pay the check.

 

 

Reverse Positive Pay can be considered less effective as a control, however, the responsibility ultimately lies with the issuing company to either send or review a list of checks. The time to manage this process on either end can vary depending on the quantity of checks being issued.

 

Even though electronic and other payment methods are more frequent, checks play a vital role in the economy. Many businesses still use checks due to their knowledge and ease of the check process, or even to buy some time to help with short term cash needs. Some businesses, like landscapers or other small companies, only accept check or cash as their payment method, usually because of the cost of credit card processing fees. Since checks are the most information-rich payment method, they can also be easier to match up payments to invoices.

 

Please contact us to see how we can benefit your business:

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