Fraud Prevention Strategies at Georgia Tech

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? Georgia Institute of Technology Accounting Services Department

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. Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

10. #1 – Convert Payments to Electronic Transactions ACH Transactions and Plastic Cards: • ACH Transactions • Travel expense reimbursements • Financial Aid distributions • Paycards • for those who don’t 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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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. Georgia Institute of Technology Accounting Services Department

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 bank’s 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 Georgia Institute of Technology Accounting Services Department

16. Positive Pay Workflow Client’s Vendor Issues check to Vendor Client’s checks clear against account Send check Issue File Send Exception Detail Client Bank Same-Day Decision: Pay No Pay Georgia Institute of Technology Accounting Services Department

17. Teller Positive Pay • Teller Positive Pay provides check issuance information to a bank’s 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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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 Georgia Institute of Technology Accounting Services Department

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/about_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 • NACHA, The Electronic Payments Association – www.nacha.org • Eastpay, Regional Non-profit organization on electronic payments -www.eastpay.org Georgia Institute of Technology Accounting Services Department