Depending upon the types of anti-fraud features used on a company’s check stock, it may not be that difficult to alter the payable amount of a check. Consider using positive pay to prevent such altered checks from being cashed. Under this approach, the issuing company creates a file containing the check number, date, and amount of all checks it issues each day and forwards the file to its bank. The bank then compares the check information in this file to checks being presented for payment, and refuses to accept any checks containing different information. This approach is considered the most effective way to keep fraudulently altered checks from being cashed.
An improvement on the basic positive pay concept is for banks to also offer positive pay that includes the name of the payee, which keeps anyone from cashing a company check on which the payee name has been altered.
For those companies who do not want to spend time issuing a check file to the bank whenever they issue checks, reverse positive pay is the solution. Under this approach, the bank creates a file containing information about all checks presented during the day, and sends it to the issuing company. Ideally, the company reviews the file and approves only those checks for which it has matching information. In reality, the bank can only wait a short time for the company to review the file, and then accepts all checks if it is not otherwise notified by the company – which makes this a weaker control than positive pay.
There are a few problems with positive pay:
- If the payables clerk forgets to send the file of new checks to the bank after each check run, then every check in that run will be refused by the bank.
- If the payables clerk forgets to include stop payments, voided checks and manual checks in the file, checks may be cleared that the company did not intend to have clear, and vice versa.
- If the bank only updates its files with new incoming positive pay information during an overnight batch process, then anyone taking a check directly from the company to the bank to be deposited at once may find that the check will be rejected.
Despite these problems, positive pay is a useful fraud deterrent for many companies.