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Does anyone have experience with Positive Pay to deter check fraud?

positive pay system

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I have been using Positive Pay for about a year, through Chase. It is a very simple concept. Nightly you upload your check register. If a check is presented to the bank, they compare it to your register. If it is on the list, payment is approved. Every day you receive a message, i.e. “No Exceptions.”

However, if there is an exception, you receive an e-mail that asks you to log in to the Chase system and approve the exception. Exceptions occur for two primary reasons – you did not upload a check or the Payee changed the check front.

Issue without Solution – You will not be able to issue a check and have that person cash it the same day. The check will be denied at the bank, as it is not on the list, i.e. you have not uploaded the information as of yet.

This product is a great safety net. But like all security procedures, you can only determine if the cost is worth the benefit.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

To Regis's "Issue without Solution", many companies issue checks for same day presentation.

This leaves you with a quandary. A second account w/o Positive Pay (so where's the benefit you derived with Positive Pay). Another possibility is to tag an account with a ceiling in which checks can not be approved w/o intervention.

Not perfect by any stretch of the imagination.

I can say that in the last 15 years, I've only encountered 1 instance of a changed check amount. This covers about 20 clients, many who wrote hundreds of checks per week. So, Regis is correct, when he said is the cost worth the benefit.

karpakarajan chettiar
Title: internal auditor
Company: bank
(internal auditor, bank) |

thanks; this is new knowledge for me; if you don't mind what is the cost for this service;

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

A little clarification - I was not speaking of a changed check amount. As you know it is not uncommon for a company to accept a check and then use their own stamp to ink their name on the document. The government does it all the time.

Roberta Steele
Title: Sr. Treasury Manager
Company: SI Group, Inc.
(Sr. Treasury Manager, SI Group, Inc.) |

Regis - we upload the positive pay file to the bank as part of the check issuance process, so before checks leave A/P the file is already at the bank. This prevents the same-day clearing problem you mentioned.

Stacy Cordier
Title: Managing Partner
Company: SSGT Partners LLC
LinkedIn Profile
(Managing Partner, SSGT Partners LLC) |

Due to rampant check fraud, very few commercial banks will allow you to have an account without positive pay without signing away all of your rights should fraud occur. This is a very basic insurance policy to protect your company. With most positive pay products, if you have a same day check you can individually authorize that item. Most ERP systems can interface to the bank and transmit as the check is printed. This is a product well worth the expense.

Doreen Dennis
Title: Manager General Accounting
Company: STEVENS INSTITUTE OF TECHNOLOGY
(Manager General Accounting, STEVENS INSTITUTE OF TECHNOLOGY) |

I concur with Stacy, for most companies it is hard to have an account without positive pay (it's somewhat of an insurance policy for the bank). And another benefit I've seen, on the company's side, there's very little work if any to reconcile the bank account at the end of the month except for wires or special payouts.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Last time I talked with banks around me (NYC), positive pay was an option, not a requirement. What part of the country are you finding it a requirement.

Rene Kelly
Title: Treasury Analyst
Company: NASCAR
(Treasury Analyst, NASCAR) |

My experience is that when it comes to check fraud prevention, Positive Pay is just about the best thing there is.

Regis very aptly described a basic Positive Pay service, but most banks offer many options that might be described as “upgrades” that make the service less rigid while offering additional security. You should make a point to speak to your bank representative about which services they offer.

As far as the “issue without Solution”, there are several options. For example, you may be able to send a file before the payee gets to the bank. Many banks offer what our bank calls Teller Positive Pay. The bank has a list of authorized contacts specifically for this purpose. If someone shows up at the bank with a check that isn’t listed, they call one of the authorized contacts and request approval to cash the check. This, of course, depends somewhat on how diligent the tellers are at a particular branch, but we find it effective. Also, if your internal controls allow, most banks offer the ability to add issues through the same site where you decision your exceptions. These new issues should be almost immediately available.

Another consideration is Payee Positive Pay, or Positive Pay with Name Match. Traditional positive pay matches only the amount and check number, leaving the possibility that the payee could be altered and the check would still clear. Payee Positive Pay matches the payee name as well as the amount and check number. It’s quite a bit more work up front because you have to test your file transmission and checks to make sure that 1) the information is in the correct position and 2) that the file and check are both in the proper format for the matching, but it offers much more security.

A side benefit of Positive Pay is that you can virtually eliminate Stop Payments. If you make sure to void checks either online on the bank’s site or in the files that you send, it’s much cheaper than stop payments. And whereas a stop payment expires after a certain period of time allowing for the check to clear later, a voided check is voided forever.

Just one word of caution: when you talk to your bank representative, don’t get too hung up on the names. Some of the services are called by different names at different banks. Just make sure that you know what each service is and whether it does what you want or need.

Stacy Cordier
Title: Managing Partner
Company: SSGT Partners LLC
LinkedIn Profile
(Managing Partner, SSGT Partners LLC) |

Wayne, banks will let you elect to not have positive pay as long as your indemnify them against fraud. This essentially equals requirement if your legal department is anything like mine. The company does not want to take that kind of risk (nor would I advise them to). A company can lose a material sum of money before an account is reconciled and without positive pay, those funds are not likely to be recovered. That is not something that I would want to explain to the Board.

Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Careers
LinkedIn Profile
(CEO & COO, Treasury Careers) |

When I was a treasury practitioner positive pay saved one of my former employers several hundred thousand dollars in invalid check items. Several times when we bought a company and were about to close their AP account, we would see "fake checks". It is disturbing to see your signature on a check for $50,000 that you did not sign!. As mentioned above, Payee Positive Pay is even better than standard positive pay. There can be issues in setting up and managing the transmission of check issue files to your bank(s), but it can be a valuable risk management tool, especially if you have a de-centralized accounts payable structure and/or are active on the acquisition front.

Ken Mason
Title: Controller
Company: Pascua Yaqui Tribe
LinkedIn Profile
(Controller, Pascua Yaqui Tribe) |

Positive pay would have averted a situation in which fraudsters dummied-up checks on a former employer's operating account and had a ring cashing them at Walmart. I was able to limit the damage by noticing the out-of-sequence checks in my daily online account view. We were made whole for the fraudulent checks but had to close the account with all the attendant cost and hassle. If it is technically feasible for you to set up positive pay, there is no question in my mind that you should do it.

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