Check fraud was a real threat for Michigan-based G&T, but Payee Positive Pay from Bank of America Merrill Lynch (BofAML) has helped to catch fake checks before they cost money.
Daryl Kragt takes check fraud seriously – and with good reason. As the CFO of G&T, an employee-owned business in Michigan, U.S., which specializes in foam fabrication and global sourcing, he has first-hand experience of what can go wrong.
“A few years ago, one of our checks was stolen out of a mailbox,” explains Kragt. “Whoever stole the check replaced the legitimate payee details with their own name and cashed the check. “
G&T, which has 230 employees and a four-strong finance team, has been using the Positive Pay system for over ten years to prevent money being stolen in this way. Positive Pay compares checks issued for payment to a list of legitimate checks provided by the company and verifies that details such as the check number, account number and dollar amount match up.
As Kragt discovered, this isn’t always enough. “In this case the payment went through because the number and the amount matched the list that we had provided.”
The company did eventually get its money back, but the process of recovering the funds took some time. As the business grew, the number of checks it issues was rising, presenting more opportunities for fraud.
Kragt knew that a more robust solution was needed, so when G&T began banking with BofAML in late 2010, he opted for the bank’s more stringent Payee Positive Pay solution.
As well as matching the data fields covered by Positive Pay against the company’s issue file, Payee Positive Pay also looks for any discrepancies in the beneficiary information. If Payee Positive Pay had been in place at the time, it would have identified the stolen check and prevented the payment from being processed.
Switching to the BofAML solution was straightforward and involved some small tweaks to the file layout that the company was already using. “It’s very easy to use,” says Kragt. “Whenever our accounts payable department does a check run, one of the final steps is to generate the Payee Positive Pay file. The file is transmitted to BofAML. It’s a painless process that doesn’t take much time at all.”
It wasn’t long before Kragt’s decision to go with Payee Positive Pay was vindicated. In January 2015, a fraudulent check for almost $300,000, purporting to be from G&T, was identified. In the following months, several other fraudulent checks were flagged up by the Positive Pay instruction report, including one for $129,999 and several worth around $30,000 each.
In Kragt’s experience, check fraud is becoming not only more prevalent but also more sophisticated. “When I think back to that first case ten years ago, that was a relatively unsophisticated process where somebody just stole the check out of a mailbox and doctored it,” says Kragt. “But some of these recent checks have been very good: You couldn’t tell by looking at them that they were not legitimate checks.”
Kragt says that the recent checks have featured the company’s logo, the correct color and an exact copy of Kragt’s signature. These more sophisticated fraudulent checks have also had check numbers in line with those the company is currently issuing. “It’s pretty easy to get this information – everything a crook needs is on every check that you mail,” he adds.
In total, payee Positive Pay has helped the company avoid over half a million dollars’ worth of potential fraud since the beginning of 2015. However, not all of these instances have been high-value fraud. In the last few weeks, a small bank contacted G&T to let the company know an individual was trying to cash a fraudulent check worth less than $5,000.
With so many fraudulent checks already identified, it is unsurprising that Kragt regards Payee Positive Pay as similar to buildings or property insurance – a necessity that every company should have. He concludes, “And if you prevent just one fraudulent check from clearing, it’s well worth the money that you pay for the service.”
- Check fraud is growing in sophistication and remains a real threat to growing businesses
- G&T fell victim to check fraud when one of their checks was stolen out of a mailbox
- G&T leveraged Payee Positive Pay and its added safeguards to catch more fraudulent checks before they damaged its business resulting in substantial savings