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Mastering The Reconciliation Process With Accounting Software & Bank Data Feeds

A Few Seconds Of Your Time Protects Your Practice From Check Fraud


Could your practice afford to misplace $145,000, and not know about the loss for 18 months? According to the Association of Certified Check Fraud Examiners 2014 Report to the Nations, that’s exactly what a typical victim of check fraud goes through. CosmoLex cloud-based legal practice management software now includes a Positive Pay integration feature that protects your practice against fraud.

What is Positive Pay?

Positive Pay is a service provided by banks that has proven to be an effective weapon against check fraud. You provide your bank with a list of checks you’ve issued. Each time a check comes in for payment, the bank compares the check number and amount to the list. If the information doesn’t match, the bank refuses the check.

Let’s look at how Positive Pay protects you in two common check fraud scenarios:

  • The bank gets check #12345 for $100,000. They compare it to the list you previously provided and see that check #12345 is listed but the dollar amount is $1,000. The recipient has altered the check by adding a couple of zeroes. The bank rejects the check and you don’t suffer any losses.
  • The bank gets check #54321 for $100,000. Check #54321 doesn’t appear on your list to the bank at all. This check was never issued by your organization and is simply a counterfeit. Again the bank refuses the check and you are protected.

Now you might say, “We’d discover the error next time we reconcile our account.” That could be as long as a month later — longer if you are less than diligent about bank reconciliations — and by that time the perpetrator is long gone and so is your money. Positive Pay protects your account before you even know there is a problem.

Positive Pay & Law Firms

Check fraud is a problem for any business but it is an especially large risk for small law firms for several reasons:

  • Large Bank Balances – Try to write a $145,000 check against the operating account of a restaurant or a hair salon and it will bounce to the moon. However even a solo law firm might have millions of dollars in a trust fund, so huge checks can get cashed easily.
  • Fewer Resources – A megacorporation could eat that $145,000 loss and not notice it. A small law firm could go bankrupt over a single loss that large. After all, you may have millions in a trust, but that’s not your money. You are on the hook if those funds are lost through fraud.
  • Lots Of Payments – Some law specialties such as real estate or personal injury issue large numbers of checks every month. This makes it easier for one altered or counterfeit check to slip through undetected for months.

Unfortunately, many law firms don’t enroll in anti-fraud protections because of the additional cost and workflow. As for the cost, we again point to that $145,000 median loss, which jumps to $154,000 if you look only at small businesses. And though CosmoLex legal office management software can’t help you with the cost, we can streamline the workflow and make participation with Positive Pay easy.

How CosmoLex Legal Practice Management Software Helps With Positive Pay

Positive Pay is one of the best steps law firms can take to protect themselves from fraud, which is why we have implemented Positive Pay functionality into CosmoLex. A successful Positive Pay system requires careful data flow between your accounting software and your bank. CosmoLex is able to generate a list of uncleared transactions for transmission to your bank.

There are hundreds of commercial banks, each with its own format for Positive Pay transmissions. We realized we could not support so many formats in a cost-effective way, so instead, we compile and export the information in a format that can be read by a third-party software designed to act as a translator between billing software and banks. We have not partnered with any specific provider, but we recommend “SecurePay” from AP Technology or “Bank Positive Pay” from Treasury Software. We have no affiliation with these companies.

Four (Or Five) Steps to Implement Positive Pay Using CosmoLex

  1. Enroll for Positive Pay service at your bank. If you have multiple accounts, you will need to enroll each account you want to protect.
  2. Purchase and implement a third-party software which can convert accounting software data into your bank format (e.g. SecurePay or Bank Positive Pay). Regardless of who you choose, test the software with some test files exported from CosmoLex so you can be sure the two programs communicate correctly.
  3. Each time you generate new checks from CosmoLex, generate a Positive Pay transaction list. You’ll find the command under Bank -> Details -> Transactions -> Action.
  4. Open your third-party software and load file exported from CosmoLex. Review check records before transmitting the list to the bank and receiving confirmation. You must generate this list same day you issue checks as the bank needs this info before clearing any issued checks.
  5. (optional) We recommend logging in to your bank account daily to review checks cleared. You can even mark these checks as cleared in your CosmoLex software by going to Bank -> Details -> Reconciliation. You will still finish the reconciliation monthly, but you can mark cleared payments daily to save time later.

The process is fast and simple once you are used to it, taking only a few minutes out of your day. If you are diligent and integrate these steps carefully, you will protect your firm and your clients from potentially catastrophic events. CosmoLex takes Positive Pay very seriously and provides every tool we can to make the service easy to use.