Effective Fraud Prevention Measures Applied in Banks and other Financial Houses


Given that fraud is a criminal act that has a negative impact both to the financial institute and to the general public as it can reduce the income of a country if not controlled. The government has forward a couple of measures to protect public funds. There has been the creation of the Uniform Commercial Code (UCC) put in place in order to serve as a regulator and to define the accountabilities of counterparties when carrying out  a business transaction and banking transaction. The UCC can be stated as follows, any transaction that involves two counterparties and there is the occurrence of fraud in terms of liability and money, the consequence is split between the two counterparties based on each once negligence and diligence during the transaction. This has boosted the banks to put in place measures to reduce and stop fraudulent transactions.

Positive pay

This is a measure used to verify an account and it is provided by the bank. The government sets a particular way in which the information on a check is presented so upon issue of a check to a bank for payment the banks carry out positive pay by comparing the information on the check to that set as standard. A check that does not conforms to that set by the government is set aside as an exceptional item. The items verified on the check are the date, check number and the amount.

Filters and ACH blocks

 An ACH (Automated Clearing House) block is a measure used to protect individuals and companies against electronic or online frauds of their accounts by blocking unauthorized account activities.ACH debit block is a means that enable the holder of an account have the power to control which companies can lay down a debit on their account. For example you might want to allow your business partners or even the government to debit from your company account during a payment but need to protect your company against unauthorized transaction and secure your ACH policy simultaneously. A filter ACH debit occur as a result of on accounts that are attached to preauthorized debit transaction like taxes and payroll. Using the banks ACH filter you will be permitted to block and return unauthorized transactions, hence reducing electronic frauds.

Reconciliation tools

Bank reconciliation can be seen as the practise of an account holder to verify his transaction records and then comparing with that of the bank. In case of an error by the bank in any transaction or in a situation of fraud bank reconciliation will help the account holder to easily detect the leakage area. This will involve verifying your monthly bank statement and compare it to the transactions you have carried out and also what is left of your balance to be the same as that of the bank. Sometimes an automatic electronic payment can enter into your transaction a day before or it could be a day after and during bank reconciliation at the end of the month the timing of the transaction might be missing or added not to worry about such a problem. Bank reconciliation is important as it can help detect a fraud before it gets out of hand.


Intra-day access

Intra-day access allows an account holder to see the various transactions that occur on a daily bases in terms of time. There are various media through which the account holder can have this information among which we have online service which is provided by the financial institute, or through email or through direct transmission from the bank to the computer system of the organisation for example the government.

Universal payment and identification code (UPIC).

The UPIC is a banking address used in the place of a bank account and it is issued by a bank to the customer so that very sensitive information about the financial transactions by the account holder can be protected by making the particular account not to be identified.The bank does this by masking the real bank account number using the UPIC, together with the bank detail transaction. UPIC is also important in fraud reduction as it is used only for credit payment so that unauthorized debit payments are avoided.

Internal prevention of fraud

  1. Preventing that only one person should have control over all the sectors of the financial transaction  such as purchases, disbursements and payroll can be authorized by single person. Making sure that the person handling receipts and deposits is different from the person keeping the records such as recording transaction and making the reconciliation of accounts. Splitting the function of fund purchasing from fund payment and giving vacation to those of the accounting department.
  2. Reporting the management and operations of the bank to the board of directors. This is done by verifying the agency’s financial balance on regular bases, achieved by comparing the amount of money that was expected to come into the agency at the end of the month to that which is at hand together with the agency expenses.
  3. Avoiding fraudulent use of checks in the bank. Can be achieved by limiting the number of persons in the bank who have access to blank checks and keeping them somewhere save, holding void checks. Making sure that checks are signed for payment only when all the information on the check has been filled correctly. Similarly, invoices such as “Paid” are marked on the check together with the check number when they are issued.




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