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
What Is Georgia Tech Doing To Prevent Fraud?
#1 – Converting Paper to Electronic
#2 – Using ACH Blocks and Filters
#3 – Using Positive Pay Services
#4 – Instituting “Post No Checks”
#5 – Performing daily transaction review
Georgia Institute of Technology Accounting Services Department

10. #1 – Convert Payments to Electronic Transactions
ACH Transactions and Plastic Cards:
ACH Transactions
Travel expense reimbursements
Financial Aid distributions
Paycards
for those who don’t have a bank account but have reoccurring payments (payroll, reimbursements, insurance)
95% of GT employees paid via direct deposit
Procurement cards
Controls and reporting set by Georgia Tech
Highlight financial benefits/ statistics about the costs of ACH vs checks
Last Bullet Extra:
Avoid wire transactions due to releasing bank and account information over the phone, as well as the fee amount when it is scheduled as an ACH transaction.
Georgia Institute of Technology Accounting Services Department

11. 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

12. 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

13. Georgia Institute of Technology Accounting Services Department
Procurement Cards
Preventive Controls
Card-based controls
May be customized
Transactions not within established parameters declined at POS
Procedural Controls
Policies and Procedures
Training
Cardholder agreement
Georgia Institute of Technology Accounting Services Department

14. #2 – Use ACH Blocks & Filters
ACH debit blocks and filters
Debit Block keeps all ACH debits from posting to our account
Debit Filters allow ACH debits from only known trading partners
Advance authorization - transmit expected transactions to your bank, and only transactions that match all criteria would post to your account
Examples: Federal Payroll Tax, State Payroll Tax, etc.
Your other choice is to review every account every day for unauthorized ACH transactions. Unlikely though—our staff does not have the time! However, if we don’t identify and return, our “position” isn’t strong . In case you are not aware, NACHA says unauthorized B2B transaction must be returned within 24 hours (consumers have 60 days). As a business, you must be ready to quickly protect your account!
Supporting Story from one of our clients
A client, recognized as one of the leading educational institutions in the United States, was eager to successfully implement their electronic payment solution. Even though our Treasury Management Officers had discussed ACH Blocks and Filters with them, the client was confident that their existing internal Positive Pay and Teller Positive Pay procedures would insulate them from all fraud (check and electronic). In addition, this client was so certain of their internal fraud structure that they did not thoroughly review/utilize their Information Reporting services to review accounts on a daily basis. Despite the client’s best intentions to protect their funds, criminals were able to obtain the client’s account information and easily use it to initiate Internet transactions and purchases. Using the client’s check number account, these criminals made small but consistent purchases in order to avoid detection. Over a three-month period, $300,000 was stolen from our client!
Georgia Institute of Technology Accounting Services Department

15. #3 – Utilize Positive Pay Services
Positive Pay is:
An industry term for the check matching service banks offer as a means of reconciling accounts and reducing exposure to fraud
A match of checks being presented for payment against those you have issued
Georgia Tech:
Views an image of the exception item or scans an exception report
Renders a decision to “pay” or “return” each exception item by the bank’s daily deadline
Communicates decision in a manner pre-arranged and by a person preauthorized
Establishes a “default” if decision is not rendered in time
Teller Positive Pay
Positive Pay continues to help clients prevent more and more check fraud losses by comparing all the checks processed within an account with a specific issue file submitted by the owner of that account.
Several Other Positive Pay Services:
Teller PPY – A more advanced type of Positive Pay Service that detects check fraud activity at the teller line.
Reverse PPY – Your company may use an internal bank reconciliation system
You manage the “matching” process yourself, the bank provides daily file of check presentment information and, after “matching” process is performed, you determine exceptions.
Payee Name – again if the name is altered and the person intended is not receiving the funds, then Payee name PPY is for you! You provide the bank the payee name (as part of the PPY issue file) and it’s matched along with the account number and dollar amount.
Image PPY – You can see each check front and back to make your “pay” or “no pay” decision. This technology allows you review endorsements within 24 hours of posting!
Georgia Institute of Technology Accounting Services Department

16. 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
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17. 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

18. Positive Pay Workflow Bank Person presents check to Bank Teller checks
item against
issue file
Issues check to Payees
This service, Teller Positive Pay, delivers the information right to the teller line. The critical factor here is the delivery of information to the bank in order for them to process and deliver it to teller stations throughout their franchise.
In the case of Bank of America, we can process the files (match them against already paid items) and deliver the information to approxiamately 16,000 tellers nationwide in about 2 hours. Some banks may be faster but they aren’t usually quite so large.
One of the negative fallouts from Teller Positive Pay is when the item does NOT match: what should we do? Our options are to:
Slow down the teller line for everyone, and make phone calls to the issuer to get approvals (for every check presented) if their file wasn’t received.
Turn down all the presenters of un-issued checks and tell them to call the issuer or check with us later…maybe tomorrow they’ll have sent us the file.
Or assume all checks presented (and no match occurs) is a fraudulent check and treat the presenter like a criminal?
THAT’S WHY THE CRITICAL FACTOR IN DELIVERING TELLER POSITIVE PAY IS TIMELY INPUT!
Send check Issue File
Pay - Item match found on issue file.
No Pay - Item does not match issue file data.
Client 6
Georgia Institute of Technology Accounting Services Department 6

19. #4 – Institute “Post No Checks” Indicator
Georgia Tech uses the “Post No Checks” indicator for the collections/receipts account
When checks are presented, they will be automatically returned
Even though you may not be using your paper disbursement account for ACH origination, your corporate funds may still be vulnerable to counterfeit check fraud!
Once you’ve disclosed your bank and account information (which is on every check you issue) your account is vulnerable.
Georgia Institute of Technology Accounting Services Department

20. Controls on Receipt Accounts
Centralized Receipting
Daily Reconciliations for all cash received
Credit card receipts (via web) balanced to credit card processor and receipts system (Banner)
Credit card receipts (in person) balanced to credit card machines and receipts system
Cash/check receipts balanced to receipts system
General Ledger Feed Controls from Central Receipts confirmed to cash receipts daily
Bank Confirmation of Daily Cash Receipt reconciliation
Georgia Institute of Technology Accounting Services Department

21. #5 – Perform Daily Transaction Review
Criminals are betting that we will not notice or return their unauthorized ACH debit in time!
We may end up taking a loss if we do not reconcile our bank accounts on a timely basis
We recently became aware of a scheme where criminals were creating small dollar ACH transaction to verify the bank (and account numbers) by making a small debit. After the small amount would go through, the criminals debited much larger dollar amounts (thousands of dollars). These criminals usually try to make both a check and ACH transaction in order to clear out the account – all within a couple of days, not weeks but days!!
Georgia Institute of Technology Accounting Services Department

22. Georgia Institute of Technology Accounting Services Department
Helpful Web Sites
U.S. Secret Service
F.B.I.
Comptroller of the Currency - Check fraud: A Guide to Avoiding Losses
National Check Fraud Center
American Law Institute - Order the 1999 edition of the Uniform Commercial Code
Cornell University Law School - Legal Information Institute
and
National Conference of Commissioners on Uniform State Laws
Frank Abagnale, nationally known speaker on Check fraud –
NACHA, The Electronic Payments Association –
Eastpay, Regional Non-profit organization on electronic payments -
Here are some helpful websites if you are interested in additional information.
Georgia Institute of Technology Accounting Services Department