1. Fraud Prevention Strategies at Georgia Tech

2. Georgia Institute of Technology Accounting Services Department
Did You Know?
Your drawee bank does not have to immediately reimburse stolen funds prior to the resolution of a fraud investigation?
Did you know….(below are supporting messages for each bullet)
This high number of check fraud attempts may shock you, but this is actually on the rise.
As a result, losses have also increased because companies do not prioritize implementing fraud preventative methods (which is my next bullet).
As a person who has worked closely with clients who have experienced fraud, please put this high on your agenda (not just in the back of your mind). If you look at the next bullet, thieves steal 100 more through check fraud versus bank robberies!
I once heard that “Payments aren’t interesting until they impact your bottom line (positively or negatively).” We certainly want to make sure we keep our bottom line positive, right?
Additional Comment if needed
According to the National Check Fraud Center, check fraud and counterfeiting are among the fastest-growing problems affecting the nation's financial system, producing estimated annual losses of $10 billion and continues to rise at an alarming rate annually.
Georgia Institute of Technology Accounting Services Department

3. Georgia Institute of Technology Accounting Services Department
Uniform Commercial Code (UCC) Changes (Articles 3 and 4 rewritten in 1990)
Changed long-held premise that banks were solely responsible for losses resulting from fraudulent checks.
Liability for check fraud can now more easily be apportioned between banks and clients relative to a determination of fault
Company and drawee bank must exercise “ordinary care” – adherence to reasonable commercial standards
Negligence on the part of either party may make it liable for part or all of the losses resulting from check fraud
Case law has changed to encourage companies, clients and banks to practice ordinary care, and not neglect their responsibility to minimizing fraud.
For example, if Positive Pay (a fraud tool we will discuss a bit later) is available in your industry and region and you (as a company/client) is not taking advantage of it, you may be held liable for any losses that you may have experienced as a result of fraud. This is a perfect example of a company not exercising ordinary care.
For questions and interpretations of the UCC, companies are directed to their own legal advisor. This presentation is not intended to offer legal advice.
Georgia Institute of Technology Accounting Services Department

4. Georgia Institute of Technology Accounting Services Department
Forms of Fraud
Forged check signatures
Usually involve the use of legitimate blank checks, with a false imitation of the payor signature on the signature line
Forged check endorsements
Often involve the theft of valid checks which are then endorsed and cashed or deposited by someone other than the payee
Counterfeit checks
Exact imitations of genuine checks can be created with readily available desktop publishing capabilities
The fastest source of fraudulent checks
Altered checks
Are defined as valid check stock with certain fields changed
Electronic Fraud
As ACH transactions increase, companies must ensure that they are not victims of the newest type of fraud -- unauthorized ACH transactions
Forged check signatures – signatures can be obtained through external documents signed by executives (such as annual reports). Can be detected by Image Positive Pay.
Forged endorsements- Despite the fact that this is so easy to detect, it is one of the main reasons an invalid check is cashed. Can be detected by Image Positive Pay.
Counterfeit checks – Positive Pay and Teller Positive Pay service can help ID these.
Altered checks – if dollar amount or ck # is altered, it will pop up on your PPY reports, and if the payee is altered – then Payee Name and Image Positive Pay can detect this also – we’ll talk about these technologies later
Electronic fraud – is increasing and so should your attention to the electronic transactions posting to any or all of your accounts. Can be detected by ACH Blocks and Filters.
Georgia Institute of Technology Accounting Services Department

5. Why Is Fraud Getting Easier for Criminals?
Sheer volume
49.1 billion checks issued annually
30 billion electronic payments initiated annually
Technology
Inexpensive software that creates reproductions of documents, including checks
Laser printers
Banks’ compliance with Reg CC to make funds available
Within one day for certain types of checks
Two days for checks drawn on a local bank
No longer than five days for non-local deposits
Banks’ compliance with Reg CC to return checks
Within 24 hours of settlement items must be identified (by client) and returned (by FI) to the Bank of first deposit
Banks’ compliance with NACHA Rules and Regulations for unauthorized entries return
60 days to recuperate electronic fraud from consumer transactions
Only 24 hours to return a fraudulent item from a business to business transaction
Check volume (processed through the Fed) is actually decreasing, but we still process billions of checks each year, and paper checks are one of the greatest contributors to transactional fraud.
Electronic payments statistics:
50% credit card, 28% debit card and 22% ACH. Fraud on the rise with electronic payments too.
Georgia Institute of Technology Accounting Services Department

6. Secure Check Stock used by Payroll and A/P
Printing Contributions:
Prismatic Printing
2 color prismatic printing of step and repeat pantograph on face, frustrates attempts at color copying
Backprinted Pantographs
2 color step and repeat pantograph on back is also difficult to copy (Payroll only)
Warning bands
Alerts cashier to look for colored background, watermark and visible fibers in the paper (Payroll only)
Paper Contributions:
Optically Dead
Will not fluoresce under black light
Bleach Reactivity
If alteration with bleach is attempted, a brown stain appears
Polar Solvent Reactivity
If alteration with polar solvents is attempted, a blue stain appears
Technology advancing on check printing and check security – are you keeping up to date – or are you using the “low bidder”?
If you select the low bidder, raise your standards so that you can better protect your bottom line.
Useful Quote: “I believe that punishment for fraud and recovery of stolen funds are so rare, prevention is the only viable course of action.” by Frank Abagnale, a Fraud Consultant.
Georgia Institute of Technology Accounting Services Department

7. Secure Check Stock Payroll and Accounts Payable
Paper Contributions (continued):
Non-Polar Solvent Reactivity
If alteration with non-polar solvents is attempted, a blue-black stain appears
Acid Reaction
If alteration with acid is attempted, a pink stain appears
Base Reaction
If alteration with base is attempted, a blue-green stain appears
Invisible Fibers
Fluoresces yellow under black light
Visible Fibers
Both green and red fibers are visible to the naked eye
Watermark
When held up to light, a watermark is visible (cross-hatched pattern)
Toner Grip
Fuses toner to paper, attempt to scrape or lift toner from sheet will result in obvious destruction of paper fibers
Georgia Institute of Technology Accounting Services Department

8. What Are Banks Doing about Fraud?
Establishing new account procedures
Investing in technology to catch fraud at earliest opportunity
Teller Fraud Training
Requiring proper identification for all customers
Using electronic PIN verification of customers
Fingerprinting non-bank customers when they present a check at the lobby teller window
Not allowing check cashing for non-bank customers at the drive-thru windows
Supplying MICR line readers at teller window
Providing clients with fraud prevention services
According to one FBI study, fingerprinting on-bank customers has the potential to reduce check fraud by up to 50%.
Georgia Institute of Technology Accounting Services Department

9. Georgia Institute of Technology Accounting Services Department
Procurement Cards
Identify Risks
Integrity of employees and supervisors
Fraud
No liability for fraudulent charges
Misuse
Covered up to $50,000 per cardholder under VISA Liability Protection Program
Georgia Institute of Technology Accounting Services Department

10. Georgia Institute of Technology Accounting Services Department
Procurement Cards
Potential Fraud
Unauthorized transactions by other than cardholder
Lost or stolen cards
Compromised account numbers
Not fault of cardholder
State assumes zero liability
Covered 100% under contract
Fraud Detection
VISA Fraud Detection System
Back end reporting of certain exceptions
Electronic Reporting
Daily downloads
Timely cardholder reconciliation
Georgia Institute of Technology Accounting Services Department

11. Georgia Institute of Technology Accounting Services Department
Positive Pay Workflow
Client’s Vendor
Issues check to Vendor
Client’s checks clear
against account
Send check Issue File
The industry calls it Positive Pay, but many banks have other names or service marks that you may be dealing with - CitiBank calls it Positive Pay or Matchpaid, Wells Fargo has Perfect Positive Pay, Bank One also calls it The One Net Check Service, First Union calls it Positive Pay Reconcilement, Sun Trust offers "controlled payment,"all of them include Positive Pay plus some other options depending on the bank.
Let's walk thru this step by step… *you can talk about each step but the critical pieces are the timely input (before you hand out the checks) and the decision making function the next day.
Send Exception Detail
Client
Bank
Same-Day Decision:
Pay
No Pay
Georgia Institute of Technology Accounting Services Department 4

12. Georgia Institute of Technology Accounting Services Department
Teller Positive Pay
Teller Positive Pay provides check issuance information to a bank’s tellers
It matches a check rendered for encashment to a serial number and dollar amount previously provided by you
We mentioned this before, but again I want to drive home that if you don’t tell the bank it’s been issued, they can’t approve it for your payees!
And if w,e a bank, call you for approval –have someone sitting there waiting for the call or can drop what they’re doing to approve. Especially someone available after 6pm on Friday and Saturday and Sunday.
If a match is not made, the teller receives
three possible responses:
- Check presenter is informed the bank is unable to cash check at this time
- Check presenter is referred to maker or bank attempts to call client for approval
Georgia Institute of Technology Accounting Services Department