Accounting Best Practices, Fifth Edition

3–36. Implement Positive Pay

Depending on the types of antifraud 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 that 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 wait only 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 ...