Managing cash flow

Fraud is one of those loss areas that
threaten all businesses. Check
fraud is the number one vulnerability, but businesses need to be aware that
there are other kinds of fraud, too.

Smart Business spoke with Lori Wood,
treasury management banker with 20
years experience at FirstMerit Bank,
Columbus, about how treasury management works, how businesses can recognize areas where fraud can occur and
how to avoid fraud.

First, what is treasury management?

Treasury management involves managing the cash flows of business accounts.
Banks provide cash management solutions to businesses that are designed to
help speed collection, control payments
and manage funds more efficiently while
minimizing risk.

Banks differ in the number of services
they provide and the clientele they
serve. Commercial banks offer a full
range of treasury management services
to their customers.

Can you describe some common fraud vulnerabilities?

Check fraud is one of the largest challenges facing businesses and financial
institutions today. The fraud starts with
someone stealing a blank check from an
office, home, unlocked or burglarized
vehicle; by searching for cancelled or
old checks in the garbage; or by removing a check you may have mailed to pay
a bill from the mailbox. Businesses are
prime targets of check fraud. Payroll
checks appear to be a favorite as far as
counterfeiting and alterations.

Positive pay and direct deposit are a
couple ways for business owners to
protect themselves from this type of
fraud. To eliminate cancelled checks
being stored, a company may choose
check imaging. Paper documents are
replaced with a digitized replica (on
CD-ROM). A special customer identification number provides an extra level
of security.

How about electronic fraud?

Electronic fraud, also known as ACH
fraud, becomes more likely for business
owners who do not implement dual control of their financial accounting for
internal and external purposes. Companies need to monitor account activity
on a daily basis in order to return any
fraudulent items.

There is also great vulnerability when
sharing account numbers and routing
numbers over the phone or online for
purchases or bill payments. A person
should never release account information over the phone unless they originated the call. Even then, I recommend
using a credit card instead of a debit

Don’t audits help prevent fraud?

Every business should conduct frequent audits. Treasury management
online banking allows authorized business personnel to monitor user activity
along with controlling the dollar
amounts of internal transfers, electronic
transfers and wire transfers.

I also recommend that business owners divide and switch duties periodically. Companies should consider assigning a different employee to manage
each function, such as check writing or
reconciling accounts. Upper management approval should be required on
manual checks and/or certain dollar
amounts. Check stock should be locked
at all times and audited on a regular

What can a bank do to help a business minimize fraud?

There are several ways. Positive pay is
designed for companies of all sizes. The
client sends the bank, via electronic
transmission, an issue file (including
voids) whenever checks are written. The
bank cross-references items being presented for payment. Any mismatches in
the serial number, account number and
dollar amount are sent to the customer.
The customer simply responds with a
‘pay’ or ‘no-pay’ decision by phone or

This process can also be reversed with
reverse positive pay. The bank prepares
a file listing the check number and dollar
amount of items being presented for
payment and sends it to the company
early in the morning. The company compares the clearing items from the banks
check file to their records and instructs
the bank to return items that do not

Companies may also choose to block
all incoming ACH debit or credit transactions, or both. When a block is placed
on an account, the company should be
very careful not to give out that particular account information to avoid a legitimate item being returned as an unauthorized corporate debit. There are also
ACH filters that allow the company to
block all ACH items except those specifically defined.

LORI WOOD is treasury management and public funds banker
for FirstMerit Bank in the Columbus Region. Reach her at
[email protected].