Positively $mart – It’s Positive Pay

We really don’t think about fraud until it somehow touches us.  We felt for Alabama and its image when the HealthSouth fraud was uncovered, but there is no stronger wake-up call than when it gets personal.  L. Kianoff & Associates, Inc. was a victim of fraud the first time about 3 years ago. It’s a big club, according to the Association for Financial Professions (AFP). In 2008 – the last year reported – more than 70% of the organizations surveyed had experienced attempted or actual payments fraud that year. Their 2009 Payments Fraud and Control Survey also found 9 out of 10 of those were victimized by check fraud (www.afponline.org).   

In our case it was the easy access to check-making technology that enabled these thieves to execute the crime.  Armed with just our bank account number and address – the kind of business information shared with everyone who receives a check from us – the would-be criminal made their own check, forged a signature and used it to pay off a car repair bill with money from our bank account. They actually pulled it off twice. Shame on the bank for processing a counterfeit check, so they reimbursed us, but you just know these types of bank losses mean higher fees for everyone.

We caught the fraud by reviewing returned checks that came with our bank statement, back in the days when you could have your checks returned if you paid an extra fee (I am still an old fashioned accountant). Now it’s 2010 and banks don’t return checks AT ALL. With the check in our hands, we were able to see the check was clearly not one of ours. Now we have to scrutinize scanned images of checks sent with our statement, making it harder to discover a fraudulent transaction in your account.

What To Do?

Where technology made it easier for the thief, technology also makes it possible to protect you and your money. The protection starts with a tool in your business management system. It’s generally known as  Positive Pay, though some call it Safe Pay or Reverse Positive Pay, which is a variation. It’s a security tool that puts a lock on your bank account so no check is cleared unless your bank expects it.

At this point, Positive Pay is really a business Best Practice. It starts with your accounting system, which delivers your detailed check information electronically to your bank every time your business processes checks.  Usually the information sent is the basics: check number, check amount and date.  You may be able to include the payee name, each bank’s services vary.

With this information, the bank is able to monitor your activity. As checks come to the bank’s clearing system for funding, the information is cross-checked against your Positive Pay file. If there is not a match, the check is not processed and you are notified that the bank won’t fund that check without your approval.  Although some banks will allow you to manually create the Positive Pay check file into their system – the best practice is using technology to automatically create the link. The link is similar to that for Direct Deposit.  Many accounting and ERP systems today have a module or add-on that allows the direct integration from the business system to the bank’s Positive Pay service. The investment is generally very reasonable. As the old idiom goes – “an ounce of prevention is worth a pound of cure”.

The value of Positive Pay is proven by the fact that in the same AFP survey, 8 out of 10 organizations noted that one of the forms of Positive Pay was responsible for preventing financial loss from check fraud.  While Positive Pay is not currently required by most banks, you can be sure financial institutions in today’s climate are actively evaluating their options, which include making customers partner more in the efforts to reduce their chances of being the next victim.  While we got our money back after our fraud experiences, we never did – and you never will - recapture the time it takes to work through the legal process and the paperwork. Do yourself a favor: Start using Positive Pay now and you won’t have to worry about criminals who might target your company.