Check Fraud Prevention with Positive Pay

Our software is a somewhat contained world. Inside of it, we have a fair amount of control. This allows us to build audits, edit-checks, and other mechanisms in to protect the integrity of our data. When information comes in from the outside, we have the opportunity to vett it before allowing it in. And that's great for catching in-house malfeasance.

None of that protects us from others changing our checks after they have left our control. None of it prevents someone sitting half a world away from creating fake checks with our company name on them. This is where the concept of "Positive Pay" comes in, and banks are starting to push business into using it.

What is Positive Pay?

Positive pay is a cash management service provided by banks to help them catch check fraud. They use positive pay to match the checks written by the company with those that are presented for payment. If they don't match, then the check is considered fraudulent, and will not clear.

Positive Pay vs ACH/EFT?

Positive Pay is not to be confused with the term 'ACH' or 'EFT'. Although both entities generate check information and submit it to the bank, Positive Pay is only used as a form of check verification. It does not create an actual payment to the bank.

How does it work?

When a company issues checks, it sends a list off them to the bank. The information transmitted includes the check number, date, and dollar amount. In some cases, the payee may also be included on the list. This prevents anyone from altering the name of the recipient. As checks are presented to the bank, it compares each check with information on file.

If the information does not match, the bank notifies the customer through an exception report. They withhold payment until the issuing company advises the bank to accept or reject the check. The bank can flag the check, notify a representative at the company, and seek permission to clear the check. If the company finds an error or other minor problem, they can advise the bank to clear the check.

The Drawbacks?

Realize that there is generally a charge incurred for using the positive pay system, although some banks now offer the service for free. False positives - your company sends an incomplete file or forgets to send any file - might incur additional charges.

There are no standard for the Positive Pay file format or submission. Looking at five different banks, I have not have found four different formats. And the submission practices are all different. Some even require a user to physically log into a website and submit the file that way. Others permit automation-friendly methods like sftp.

Depending on the what the bank requires, positive pay may or may not verify the payee information, which means that check fraud can still happen as long as the check number and dollar amount don't change.

Reverse Positive-Pay?

Reverse positive pay is similar, but… in reverse. The company still gets a chance to verify the check number, amount, and sometimes payee, but instead of providing the information ahead of time, the company has to review lists sent by the bank.

File Formats

Like I said earlier, different banks use different formats. Most file use fixed-length formats. This usually means that you a normal accountant or controller can't just export a report into Excel and be done with it. It requires an export tool or program of some kind.

The example in Figures 1 and 2 is for KeyBank.

000000000012345671000023476201606290000168812  M DOUGLAS HURLEY LINDA HURLEY
000000000012345671000023477201606140006894573  SENEGA MCCANN
000000000012345671000023478201606150000069500  Invoice 3456 BRISBANS, MILDRED SERVICE COORDINATOR

Figure 1

Begin End Description Format
1 2 Region Code "00"
3 17 Account Number Zero-filled, Right Justified
18 27 Check Numbers Zero-filled, Right Justified
28 35 Date YYYYMMDD
36 45 Amount Zero-Filled, Right Justified, not decimal
46 46 Void Flag 'C' if void, ' ' if check
47 61 User Data Space Filled
62 136 Payee Line 1 Capitalized, Space Filled
137 211 Payee Line 2 Capitalized, Space Filled
212 220 Filler Space Filled

Figure 2

Wells Fargo on the other hand, used a file format that includes a header and a footer as seen in Figures 3 and 4.

000015279710120700336980793200000013633Lizzie McGuire J 
000015279810120700336980793200000013384Miranda Sanchez
&              00002  0000027017   

Figure 3

Begin End Description Format
1 3 *03 "*03"
4 8 Back ID Zero-Filled, Right Justified
9 23 Account Number Zero-Filled, Right Justified
24 24 0 "0"
0 10 Check Number Zero-Filled, Right Justified
11 16 Date MMDDYY
17 26 Account Number Zero-Filled, Right Justified
27 29 Transmission Code "320" - check, "430" - Void
30 39 Amount Zero-Filled, Right Justified
40 79 Payee Space Filled
80 80 Filter Space Filled
1 1 & "&"
2 15 Filler Space Filled
16 20 Detail Count Zero-Filled, Right Justified
21 23 Filler Space Filled
24 33 Total Amount Zero-Filled, Right Justified
34 80 Filler Space Filled

Figure 4

Final Thoughts

Positive Pay is a feature that should exist in most business systems. Implementing Positive Pay takes a little bit of effort, but since banks are starting to pushing companies into this, it is a good time to update our accounting software with these features.

Nathan Rector

Nathan Rector, President of International Spectrum, has been in the MultiValue marketplace as a consultant, author, and presenter since 1992. As a consultant, Nathan specialized in integrating MultiValue applications with other devices and non-MultiValue data, structures, and applications into existing MultiValue databases. During that time, Nathan worked with PDA, Mobile Device, Handheld scanners, POS, and other manufacturing and distribution interfaces.

In 2006, Nathan purchased International Spectrum Magazine and Conference and has been working with the MultiValue Community to expand its reach into current technologies and markets. During this time he has been providing mentorship training to people converting Console Applications (Green Screen/Text Driven) to GUI (Graphical User Interfaces), Mobile, and Web. He has also been working with new developers to the MultiValue Marketplace to train them in how MultiValue works and acts, as well as how it differs from the traditional Relational Database Model (SQL).

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