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Positive Pay Helps Co-ops and Condos Prevent Fraud

Bill Morris in Bricks & Bucks on November 16, 2022

New York City

Positive pay, paper checks, electronic transfers, co-op and condo boards, fraud.
Nov. 16, 2022

Companies that manage co-ops and condos are constantly moving money into and out of numerous bank accounts, either with paper checks or, increasingly, with Automated Clearing House electronic transfers. So much moving money is an irresistible magnet for fraudsters — which is why many management companies bank on an extra level of security called positive pay.

“If a management company doesn’t use positive pay, its clients are at risk,” says Thomas Thibodeaux, chief financial officer at New Bedford Management, noting that all of the 150 properties in the company’s portfolio, mostly co-ops and condos, use the service.

Nathan Hurley, New Bedford’s controller and chief tech officer, adds: “During holiday season there’s more check activity, so we see more attempted fraud. That’s merely because of the volume.”

Thibodeaux explains how the safeguard works: “We upload a file to our bank, Webster Bank, every day — a list of the checks we wrote to pay our vendors. It’s called the Check Control Listing. If a fraudster somehow got hold of a routing number and account number and created a check, normally that check would go through. With positive pay, the bank will see immediately that the check is not on the list. The bank uploads the questionable check to its Exceptions portal, and we then have until 1 p.m. to validate that questionable check. If we don’t approve it, it’s automatically rejected and our client is not affected.”

Many management companies reconcile their accounts once a month — plenty of time for a fraudulent check to clear.

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“Property management companies, unfortunately, do not do daily reconciliations unless they’re super-staffed,” says Trevor Hintzen, a director at Webster Bank who handles the New Bedford portfolio. “Since most management companies still use a lot of paper checks, there are numerous variables. Positive pay is a lot of work, but it’s a nice protection on the back end.”

Hintzen notes that a given building can have multiple bank accounts — for the operating budget, the reserve fund, capital improvements and so on. “That,” he says “makes the opportunity for loss more significant.”

Hintzen says the fee for positive pay ranges from $60 to $100 per building. For New Bedford, with a 150-building portfolio, this could add up to as much as a $15,000 annual fee. But since New Bedford has so many accounts with Webster, the bank offers positive pay as a free service. “We look at the relationship and structure pricing around that,” Hintzen says.

Hurley of New Bedford says that the rise of electronic transactions has been accompanied by a rise in attempted fraud. “One that comes to mind,” he says, “is an ACH transaction that displayed GEICO XXXXX on the banking transaction. For this ACH transaction, the fraudster added numbers to the end of GEICO to make it appear as if it was an insurance payment. ACH positive pay caught the fraudulent transaction.”

Hurley explains how ACH positive pay works: “It compares the Vendor ACH ID of the incoming debit transaction to an approved ACH Vendor ID list. If the ID’s don’t match, the transaction is presented on Webster’s Exception portal. The management company has until 1 p.m. to either pay or reject the transaction. If they don’t approve it, it’s automatically rejected.” It’s also possible to place a maximum amount on recurring transfers to such approved vendors as Con Edison, Verizon or a mortgage lender.

“We’re getting ready to start using ACH positive pay,” says New Bedford’s Thibodeaux. “It may be overkill, but electronic fraud is on the rise as well. Positive pay,” he concludes, “is a must for any management company these days.”

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