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)
 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
 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?
 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:
 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

Georgia Institute of Technology Accounting Services Department

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
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

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:

 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

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

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

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

#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.

Georgia Institute of Technology Accounting Services Department

#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

Georgia Institute of Technology Accounting Services Department

 Positive Pay Workflow

Client’s Vendor

Send check Issue

File

Send Exception Detail

Client Bank

Same-Day
Decision: Pay No
Pay
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
• 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”
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

 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

#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

Georgia Institute of Technology Accounting Services Department

Helpful Web Sites
 U.S. Secret Service http://www.ustreas.gov/usss/counterfeit.shtml

 F.B.I. http://www.fbi.gov/hq/cid/fc/fifu/about/about_fifu.htm

 Comptroller of the Currency - Check fraud: A Guide to Avoiding Losses

http://www.occ.treas.gov/1999/may.htm

 National Check Fraud Center www.ckfraud.org/menu.html

 American Law Institute - Order the 1999 edition of the Uniform Commercial
Code www.ali.org

 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

 National Conference of Commissioners on Uniform State Laws

http://www.nccusl.org/nccusl/default.asp

 Frank Abagnale, nationally known speaker on Check fraud –

www.abagnale.com

 NACHA, The Electronic Payments Association – www.nacha.org

 Eastpay, Regional Non-profit organization on electronic payments -

www.eastpay.org

Georgia Institute of Technology Accounting Services Department