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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

• What happens when a check is imaged?

• Pantograph goes away

• Watermarks don’t appear

• Border microprinting blends

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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!

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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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