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Managing. The risk of Payment System - Turner P.

Turner P. Managing. The risk of Payment System - John Wiley & Sons, 2003. - 253 p.
ISBN 0-471-32848-0
Download (direct link): managingtherisksofpayment2003.pdf
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A list of exception checks is sent to the company. Depending on the terms of the agreement between the bank and the company, the bank either pays the exception check—unless the company instructs the bank not to pay it—or returns the exception check—unless the company instructs the bank to pay it.
Positive pay procedures can detect unauthorized checks, checks bearing forged drawer’s signatures, and checks that have been altered in amount. These procedures are highly recommended as a means of preventing fraud.
It is important to note, however, that a typical positive pay arrangement does not detect all types of check fraud. Most of the procedures utilized today capture the amount of the check and its number. They do not capture the payee’s name or the writing on the back of the check. Thus, a typical positive pay procedure will not detect the alteration of the payee’s name or a forged endorsement.
Warning: The company that signs a positive pay agreement should be wary, because such agreements often shift the liability for a fraudulent check from the bank to the customer when liability under the U.C.C. would otherwise have been allocated to the bank. A positive pay agreement, for example, may state:
The Bank shall have no liability for a fraudulent check paid by the Bank in accordance with the procedures specified in this Agreement.
The foregoing provision would absolve the bank of liability for a check when the bank would otherwise have been liable for
Company That Receives Checks
the check under the basic liability rules, such as for a check in which the payee’s name has been altered. The positive pay procedures would typically not detect such a check, but the provision would shift liability for it from the bank to the customer. If the bank pays the check, the result is that signing the positive pay agreement has made the customer liable for a check for which the bank otherwise would have been liable—quite a perversion of the purpose of the positive pay agreement.
From the point of view of a company that is the recipient of a check, care must be taken to avoid the risks associated with the steps from receipt to deposit and, as noted earlier, from provisional to final settlement.
Businesses receive checks by mail, and many businesses receive many checks at the point of sale.
Retail Point-of-Sale Receipts. Risk management procedures for retail point-of-sale receipts require an assessment of the degree of risk that the company is willing to accept. For example, many retail businesses use minimum procedures to verify checks for small amounts. Some retailers will accept any check that is preprinted and is drawn on a local bank by a drawer at a local address—although low-numbered checks drawn on new accounts may be selected for further scrutiny. Most retailers verify the identity of the drawer of the check with the information preprinted on the check.
Many retailers rely on validation services—most usually realtime electronic access—based on the identification of the check’s drawer and the bank account information on the check. These services also provide alerts as to writers of bad checks and confirm that funds are probably available in the drawer’s bank
Checks and the Risk of Fraud
account. These validation services may offer some level of guarantee to the retailer and assume collection responsibility for unpaid items. Such services may be particularly useful for high-dollar-amount checks or at certain times of the year, such as around the December holidays.
Training those who accept point-of-sale checks to review the appearance of the magnetic ink character recognition (MICR) line on a check helps to intercept forged checks. The forger wants the check to “pass” at the point of sale and is not concerned whether it will “read” in the check processing systems. In many forgeries, the MICR line is incomplete or does not match the preprinted numbers at the top of the check.
A knowledge of the potential problems in regard to “holder in due course” can facilitate an understanding of why retailers rarely accept third-party checks (checks that have been endorsed to a third party). See the discussion of the holder in due course doctrine earlier in this chapter.
General Business Receipts. General business receipts are receipts outside the retail point-of-sale environment. These include checks from retail accounts not at the point of sale and the very large volume of business-to-business payments made by check.
A business expecting very large payments to be made by check, instead of by wire, may request payment by “certified check” or by official bank checks, sometimes called “bank drafts,” “cashier’s checks,” or “teller’s checks.” In the discussion of drafts, it was explained how a certified check is an acceptance; the bank accepts the check, typically voiding the MICR so that the check will not process against its customer’s account, stamping the check “Accepted” or “Certified,” and adding the bank’s identification number. Bank checks are checks for which the bank is both drawer and drawee—hence, “drawn on us” (the bank).
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