Combatting Check Fraud with Positive Pay
In the United States, checks are the payment method most often subject to fraud. In 2016, 74% of organizations that experienced attempted or actual payments fraud were victims of check fraud.* This is due to the extensive use of checks for transactions, as well as new technology that provides scammers with an expanding set of tools to commit fraud.
To remain good stewards of our resources, churches and schools should implement measures to protect against check fraud. Daily reconciliations and segregation of accounts are important steps to take, but one of the most effective weapons against check fraud is positive pay.
What is Positive Pay?
Positive pay is a cash management solution that allows the banks to verify that the checks they process are funded properly. When a company issues payroll or other types of checks for the week or month, it sends the check register list to the bank which stores the information in its database. The information transmitted to the bank includes the check number, date and dollar amount. As the checks are presented to the bank to be deposited or cashed, the bank compares the information it has on file with each check presented.
A positive pay system detects fraudulent checks and prevents these checks from being paid. Your bank only pays the checks listed in your positive pay file.
Some banks also accept files from submitting companies that contain the name of the payee of each check, which should prevent someone from illegally altering the name of the payee and having the payee issue payment to the altered entity.
What if we make a mistake on the files we submit to the bank?
If the information for any of the checks does not match the file, the bank notifies your finance person through an exceptions report and withholds payment until your organization advises the bank to accept or reject the check. If your finance person finds there was a clerical error or other minor problem, he/she can give the bank approval to fund the check.
Some banks may charge a fee for this service, but it is a small price to pay to prevent falling victim to check fraud.
*2017 Association for Financial Professionals Payments Fraud and Control Survey