Transcript Check Fraud and Mitigating Risk

Check Fraud and Mitigating Risk
Western NY AFP
September 23, 2009
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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
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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?
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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…
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Check 21 Imaging
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What happens when a check is imaged?
Pantograph goes away
Watermarks don’t appear
Border microprinting blends
How To Prevent
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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!
Why Implement Controls
• Prevent losses
• Changes in UCC
– Section 3-103 “Ordinary Care”
– Section 3-406 “Comparitive Negligence”
– Section 4-406 “Account Reconciliation”
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Bank Controls
• Regular positive pay
• Payee positive pay
• Reverse positive pay
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New Technology
• Image-Survivable Check Security Features
(ICSF)
– 2D bar codes
• Banks still evaluating
Image-Survivable
Check Security
Features (ICSF)
2D Bar Codes
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Alternatives?
• ACH
– Bad News – ACH fraud on the rise
– Good News - controls
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ACH Fraud
• 25 – 35% increase
• E-Commerce and on-line banking
• Converted checks
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Internal Controls
• Segregation of duties
• Delete on-line users as part of exit
procedures
• Dual system administrators
• Periodic change of passwords
• Timely account reconciliation
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Bank Controls
• ACH Positive Pay/Debit Blocks
• Authentication tools (tokens)
• Link between paper and electronic
systems
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New Technology
• Universal Payment Identification Codes
(UPIC)
• Fastest growing product in ACH
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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
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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
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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
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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!
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Questions?
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