Check21 has many benefits and a few areas that require organizations to be careful -whether or not you are using RDC (remote deposit capture, remote capture, etc).
**We edited this entry just before going to press due to a concern that it might aid certain people in their efforts to defraud banks and corporates. Some of the better current control methods will catch the type of fraud that we described and have since deleted from this entry (positive payment, payee match positive payment, rapid reconciliation (using the so-called reverse positive pay services), segregation of duties and outsourcing.**
Is it fraud or is simply honest mistakes in the process? Check21 has opened up some doors for fraud on the disbursement side of the house that must make us vigilant in the fraud detection and fraud prevention area. Rather than outlining ‘how to commit fraud’ – we’d like to touch on what controls that worked historically are of less value and what must be emphasized.
Former controls of less value:
- Secure check stock. How effective is the micr printing when a check is imaged? Will the check protection that shows up if someone washes a check work on an imaged item?
Controls of great value:
- Positive Payment. Regular positive payment and payee match positive payment are of great value. Isn’t this a commercially reasonable practice?
- Rapid Reconciliation. Doing it quickly is very important – though not the most exciting activity. And, make sure the reconciliation staff don’t just identify a ‘reconciling item’ and move on when it may be fraud.
- Segregation of Duties. Nearly as popular as double entry accounting -segregating the key disbursement functions remains wise.
- Outsourcing. Not only a good use of resources – it can provide the ultimate in segregated duties. What to do with the freed up time (from stuffing, licking and sticking) – convert more customer to electronic payments – the ACH.
- Convert to ACH. The restricted network is the best, least expensive and most efficient. Plus, it’s good for the environment.
Treasury and accouting will need to re-examine the controls they are using/depending upon in light of Check21 and the new bank produces like remote deposit capture. Some controls may need be dropped – and others emphasized. Yes, we did say some controls may need to be dropped since they aren’t protecting you any longer.
There are greater controls surrounding those organizations who enter transactions into the ACH network than those who can get RDC software. Banks need to be diligent and organizations need to be careful to avoid problems and losses. Companies must have clear procedures for handling and controlling their funds. Hiring honest people – and doing credit checks on them annually is wise for those responsible for handling your organizations funds.
Also, working with banks who can RAPIDLY detect/stop these situations is the only way to fight fraud effectively (along with your own diligence).