1 Check Fraud and Mitigating Risk Western NY AFP September 23, 2009

2 Should You Be Concerned? 72% of companies experienced attempted or actual fraud Each day 175,000 fraudulent checks are presented 61% of check fraud involved altered payee names 57% involved counterfeit checks Attempted fraud estimated at $12 BILLION, while actual fraud was $970 million

3 Can You Safeguard Your Company? 75% of B2B transactions are still made by check, and banks process 64 billion checks per year 88% of the $12 billion check fraud attempts were caught by banks’ prevention systems What else?

4 Check Safeguards Sophisticated technology allows for easy altering, copying and forgery Paper-based security measures Watermarks Fluorescent fibers Void pantographs Border microprinting Color stain protection BUT…

5 Check 21 Imaging What happens when a check is imaged? Pantograph goes away Watermarks don’t appear Border microprinting blends

6 How To Prevent Internal Controls No pre-printed checks Control check printing procedures “Checks” and balances Security features on check stock Deposited check endorsements Use positive pay Write fewer checks!

7 Why Implement Controls Prevent losses Changes in UCC –Section “Ordinary Care” –Section “Comparitive Negligence” –Section “Account Reconciliation”

8 Bank Controls Regular positive pay Payee positive pay Reverse positive pay

9 New Technology Image-Survivable Check Security Features (ICSF) –2D bar codes Banks still evaluating Image-Survivable Check Security Features (ICSF) 2D Bar Codes

10 Alternatives? ACH –Bad News – ACH fraud on the rise –Good News - controls

11 ACH Fraud 25 – 35% increase E-Commerce and on-line banking Converted checks

12 Internal Controls Segregation of duties Delete on-line users as part of exit procedures Dual system administrators Periodic change of passwords Timely account reconciliation

13 Bank Controls ACH Positive Pay/Debit Blocks Authentication tools (tokens) Link between paper and electronic systems

14 New Technology Universal Payment Identification Codes (UPIC) Fastest growing product in ACH

15 What Is It? Developed by Electronics Payment Network (EPN) Universal Routing Transit Number (URT) Unique account identifier Issued by a financial institution Allows companies to receive electronic credits without divulging confidential bank account information

16 How It Works Seller acquires a UPIC from their bank Seller provides UPIC to buyer Buyer originates payment using URT and identifier Buyer’s bank recognizes UPIC and routes transaction to EPN EPN validates information and replaces URT and unique number with ABA and account number and routes to seller’s bank

17 Benefits Facilitates conversion of checks to electronics Receive more payments electronically Provides more security and fraud protection Remains the same and stays with the associated company

18 Summary Stick to Basics Establish internal controls Timely bank account reconciliation (and use of Web-based information reporting services) Meet regularly with your banks – and challenge us!

19 Questions?

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