Fraud Prevention
Strategies at Georgia Tech
Did You Know?
•Your drawee bank does not have to
immediately reimburse stolen funds prior to the
resolution of a fraud investigation?
Georgia Institute of Technology
Accounting Services Department
Uniform Commercial Code (UCC)
Changes
(Articles 3 and 4 rewritten in 1990)
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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
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
Forms of Fraud
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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
Georgia Institute of Technology
Accounting Services Department
Why Is Fraud Getting Easier for
Criminals?
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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
Georgia Institute of Technology
Accounting Services Department
Secure Check Stock
used by Payroll and A/P
Printing Contributions:
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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:
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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
Georgia Institute of Technology
Accounting Services Department
Secure Check Stock
Payroll and Accounts Payable
Paper Contributions (continued):
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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
What Are Banks Doing about
Fraud?
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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
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
#1 – Convert Payments to
Electronic Transactions
ACH Transactions and Plastic Cards:
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ACH Transactions
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Travel expense reimbursements
Financial Aid distributions
Paycards
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for those who don’t have a bank account but have
reoccurring payments (payroll, reimbursements,
insurance)
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95% of GT employees paid via direct deposit
Procurement cards
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Controls and reporting set by Georgia Tech
Georgia Institute of Technology
Accounting Services Department
Procurement Cards
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Identify Risks
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Integrity of employees and supervisors
Fraud
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No liability for fraudulent charges
Misuse
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Covered up to $50,000 per cardholder under VISA
Liability Protection Program
Georgia Institute of Technology
Accounting Services Department
Procurement Cards
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Potential Fraud
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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
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VISA Fraud Detection System
 Back end reporting of certain exceptions
Electronic Reporting
 Daily downloads
Timely cardholder reconciliation
Georgia Institute of Technology
Accounting Services Department
Procurement Cards
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Preventive Controls
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Card-based controls
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May be customized
Transactions not within established parameters
declined at POS
Procedural Controls
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Policies and Procedures
Training
Cardholder agreement
Georgia Institute of Technology
Accounting Services Department
#2 – Use ACH Blocks & Filters
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ACH debit blocks and filters
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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.
Georgia Institute of Technology
Accounting Services Department
#3 – Utilize Positive Pay Services
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Positive Pay is:
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Georgia Tech:
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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
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
Georgia Institute of Technology
Accounting Services Department
Positive Pay Workflow
Client’s Vendor
Send check Issue
File
Send Exception Detail
Client
Same-Day
Decision:
Georgia Institute of Technology
Bank
Pay
No
Pay
Accounting Services Department
Teller Positive Pay
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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
• 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
Positive Pay Workflow
Bank
Person presents
check to Bank
Send check Issue File
Pay - Item match No Pay - Item does
found on issue file. not match issue file
data.
Client
6
Georgia Institute of Technology
Accounting Services Department
#4 – Institute “Post No Checks”
Indicator
• Georgia Tech uses the “Post No Checks”
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indicator for the collections/receipts
account
When checks are presented, they will be
automatically returned
Georgia Institute of Technology
Accounting Services Department
Controls on Receipt Accounts
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Centralized Receipting
Daily Reconciliations for all cash received
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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
#5 – Perform Daily Transaction
Review
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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
Georgia Institute of Technology
Accounting Services Department
Helpful Web Sites
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U.S. Secret Service
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F.B.I. http://www.fbi.gov/hq/cid/fc/fifu/about/about_fifu.htm
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Comptroller of the Currency - Check fraud: A Guide to Avoiding Losses
http://www.occ.treas.gov/1999/may.htm
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National Check Fraud Center www.ckfraud.org/menu.html
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American Law Institute - Order the 1999 edition of the Uniform Commercial
Code www.ali.org
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Cornell University Law School - Legal Information Institute
www.law.cornell.edu/ucc/3/overview.html and
http://www.law.cornell.edu/ucc/4/overview.html
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National Conference of Commissioners on Uniform State Laws
http://www.nccusl.org/nccusl/default.asp
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Frank Abagnale, nationally known speaker on Check fraud –
www.abagnale.com
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NACHA, The Electronic Payments Association – www.nacha.org
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Eastpay, Regional Non-profit organization on electronic payments www.eastpay.org
Georgia Institute of Technology
http://www.ustreas.gov/usss/counterfeit.shtml
Accounting Services Department