Fraud%20Prevention%20Strategies%20at%20Georgia%20Tech

1
Fraud Prevention Strategies at Georgia Tech
2
Did You Know?

• Your drawee bank does not have to immediately
  reimburse stolen funds prior to the resolution of
  a fraud investigation?

3
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.
4
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

5
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

6
Secure Check Stockused 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

7
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

8
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

9
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
10
1 Convert Payments to Electronic Transactions
ACH Transactions and Plastic Cards

• ACH Transactions
• Travel expense reimbursements
• Financial Aid distributions
• Paycards
• for those who dont 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

11
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

12
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

13
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

14
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.

15
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 banks 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

16
Positive Pay Workflow
Clients Vendor
Issues check to Vendor
Clients checks clear against account
Send check Issue File
Send Exception Detail
Client
Bank
Same-Day Decision
Pay
No Pay
17
Teller Positive Pay

• Teller Positive Pay provides check issuance
  information to a banks 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

18
Positive Pay Workflow
Bank
Person presents check to Bank
Teller checks item against issue file
Issues check to Payees
Send check Issue File
Pay - Item match found on issue file.
No Pay - Item does not match issue file data.
Client
6
19
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

20
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

21
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

22
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/a
  bout_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