One of the most common forms of fraud within organizations continues to be check fraud. Positive Pay can be a great tool for nonprofit organizations looking to strengthen their controls and help prevent fraudulent checks from being paid. Positive Pay does, however, come at a cost of both time and money. So, do the pros outweigh the cons?
Positive Pay is a service offered by most commercial banks to protect companies against check fraud. It systematically compares actual checks presented for payment to a list provided by the company, “flags” any that do not match and notifies the company before cashing the check.
Things to consider:
Differences in services
Not all Positive Pay services offer over-the-counter or teller verification against the check list provided.
Positive Pay and Payee Validation
Most commercial banking Positive Pay offerings rely on three pieces of information for verification:
- Check number
- Dollar amount
For a higher level of protection, most banks offer Payee Validation, adding a check to identify payee names that have been altered. This service is often an additional cost.
- Check Lists
If your organization forgets or fails to send the check list to the bank, all checks that should have been included in the list may be rejected by the bank.
Checks that are cut and taken straight to the bank may be rejected, as the check list is not sent to the bank until the end of the business day.
There is typically a charge for using Positive Pay and Payee validation. Although some banking institutions offer the service for free.
- File Formats
Banks often have specific requirements for the check list formats that your organization must follow. For example:
- Chase – CSV File format
- Bank of America – Cash Pro CSV
- Wells Fargo – ARP – CSV
- Citibank – Standard Positive Pay – CSV
This may appear overwhelming, but there are readily available tools that directly integrate with Microsoft Excel, Quickbooks Desktop, and Quickbooks Online, SQL Databases, and other Legacy Software to quickly and securely generate the correct file needed for your bank.
While not foolproof, Positive Pay is a strong tool to implement check fraud detection. However, it is certainly worth weighing the pros and cons, the cost for Positive Pay services, and the specific needs of your organization, before potentially giving Positive Pay strong consideration.
For any questions regarding accounting best practices, contact your tax adviser.