FEATURE/American Payroll Association Offers Tips on Minimizing Payroll Check Fraud.

Business Editors & Feature Writers

FEATURE...

SAN ANTONIO--(BUSINESS WIRE)--Jan. 6, 2003

Producers of the hit film, "Catch Me If You Can" may be laughing all the way to the bank, but payroll check fraud is no laughing matter.

In the November 2002 issue of the American Payroll Association's PAYTECH magazine, Greg Litster, president and CEO of SafeChecks, reported that check fraud ranks second, behind embezzlement, on the list of crimes that hurt the nation's top 1,000 companies the most. Check fraud costs an estimated $20 billion annually. Litster presented a check fraud and identity theft seminar last year at APA's annual convention.

The legal basis for liability for check fraud losses is found in the Uniform Commercial Code. The UCC outlines responsibilities for banks and corporations. Failure to comply with the responsibilities may cause the negligent party to bear the loss, which could mean a shift in liability from the bank to the check issuer. The internal procedures used by a company when issuing checks will be examined to determine negligence.

The best defense against counterfeit checks is "Positive Pay," an automated check-matching service offered by many banks. Sometimes called "match pay," this service matches the check number and dollar amount of checks presented for payment against a file of issued checks transmitted to the bank by the account holder. Organizations using facsimile signatures should always use Positive Pay. Large-dollar, facsimile-signed checks should have a second signature that is manually applied.

Altering the payee name is a common type of check fraud. Often, the alteration is simply adding an additional payee name above or after the original payee, followed or preceded by the word "or." This can be prevented by printing asterisks immediately above and after the payee name. To prevent alteration of the dollar amount, print asterisks before and after the amount.

Companies that issue manual checks typed on a typewriter should use a non-correctable fabric ribbon, not a self-correcting polymer ribbon. A polymer ribbon allows the type to be easily erased or lifted off with tape. A non-correctable fabric ribbon is an inexpensive preventive measure. Fabric ribbons cost about $6, and are available from office suppliers.

The best defense against altered checks is deterrence. Deterrence is accomplished by using high-security checks such as chemical reactive paper, toner anchorage, thermochromatic ink, and copy void photographs. The most important security feature is the paper itself. The best security papers have either Fourdrinier (true) watermark or thermochromatic (heat-sensitive) ink. The very best have both.

The check writing system should be installed on specific workstations, not on a company's computer network. It should require user names to log in, and a "security profile" should be created for each user. The software should be capable of restricting user access to specific check writing functions, while creating an audit trail showing how each check was created, selected, and printed.

Check fraud is primarily a crime of opportunity. Implementing preventive measures will help companies significantly decrease the number of opportunities available to forgers, thus minimizing losses from check fraud. Litster's complete article is available at www.americanpayroll.org/press.html.