Check-clearing gains lightning speed and may get even faster

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The banking industry, transformed by a 2004 check clearing law, is moving toward ever-faster processing speeds.

The real pickup began after the Check Clearing for the 21st Century Act (Check 21) was passed, which gave paper printouts of checks the same legal status as original checks. Instead of banks physically moving original paper checks from the point of deposit to the bank that pays them, banks handled them electronically.

Processing speeded up to the point where checks are almost always delivered overnight to the paying bank and debited from the checkwriter's account the next business day, according to the Federal Reserve Board. The "float" is a thing of the past. Bill-payers can no longer write a big check a couple of days before payday, relying on a few days of check-processing delays.

Speeds may ramp up even more with increased use of remote deposit capture, a technology that allows businesses to make electronic images of checks they receive to be transmitted to their banks for crediting to the businesses' accounts. Less than three years after Check 21, 36 percent of banks have adopted remote capture.

According to a report released June 7 by Celent LLC, a New York-based research firm, the number of workstations scanning checks for remote capture will grow from 112,000 in March to nearly 245,000 by year's end.

Businesses that collect a lot of checks could benefit from the technology. But be aware that check-scanning terminals generally cost small businesses several hundred dollars, Ajay Nagarkatte, director of research at the Bank Administration Institute, a professional organization based in Chicago, told The Wall Street Journal. Also, consider monthly service charges and fees for each transaction. Some banks add an initial setup fee and may also assess "archival fees" for storing images of processed checks, Nagarkatte said.

While these technologies and accelerated payments have offered conveniences to CPAs and their clients, it also means fraud can be perpetuated faster and CPA firms performing bank reconciliation services must use caution.

So says CPA Jeffrey C. Hohman, a loss prevention specialist for Camico. In an article for the New York State Society of CPAs, he wrote that new check-imaging technologies raise the potential of a lost paper trail, "but clients can get confirmation of payment by printing or viewing imaged checks off of the Web, usually within a limited window of time, such as 90 days. It's a matter of finding out about the bank's policies and getting used to a different method of reconciling bank transactions."

He also wrote that it's still unclear whether Check 21 and other web banking services will make things better or worse for CPAs. "If no one is looking at the online activity, fraud can still be perpetrated, and the CPA could be exposed to liability for a failure to detect it. As a result, it is important for the CPA to warn and advise the client, and to document the understanding reached with the client."

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