CSULB plans to curb check fraud

By Randi Bemiss, On-Line Forty-Niner

Monday, August 31, 1998

Bad checks totaling $360,000, of which 78 percent consisted of dishonored checks written to pay student fees, were written out to Cal State Long Beach in fiscal year 1997-98. A total of 808 checks were returned by their banks because the accounts they were drawn from had insufficient funds.

In an effort to completely insulate the university against illegal financial transactions, CSULB will look into participating in a free public-service program run by the Los Angeles County District Attorney's Office to curb fraudulent check writing.

Although CSULB collects 93 percent of checks returned by its bank from the check writers through its in-house accounting offices, the district attorney's program is worth investigating, Controller Ray Soliman said.

The Los Angeles County district attorney's office was one of the first counties to implement the program because of all the losses merchants were sustaining. They did not have a place to go, said Armando Fraga, supervising investigator of its major frauds division.

The district attorney's program allows a violator to forego prosecution pending completion of two things. First, an 8-hour check-writing education class for about a $100 fee; second, payment of the check and the merchant's administrative charges and other fees of up to $35 per check.

In 1996, $2,539,888 from 53,462 bad checks was recovered through the program in Los Angeles, according to statistics posted on its Internet site. In 1997, the district attorney's office recovered $2,589,332 from 48,557 checks. So far in 1998, it recovered in excess of $1 million from more than 18,000 bad checks.

Consideration of the district attorney's program comes after a recent crackdown on the use of counterfeit bills on campus, which prompted CSULB to approve the purchase of an estimated $40,000 in new bill-collecting machines, which dispense parking permits.

As with the fraudulent bill problem, where there is an increase in the use of bills of smaller denominations, Soliman says returned checks at CSULB are mostly smaller checks around $10. These checks would not prompt action by the district attorney's program because they are less than the $25 minimum check eligibility amount.

CSULB's collection procedure involves the collaboration of several campus offices, including the Cashiers Office, which deposits checks from all check-receiving offices and accounting offices, Soliman said.

Collection efforts will be consolidated by a financial management component to a new CSULB computer system called Collaborative Management System, a project CSULB expects to begin implementing in the late fall after completing negotiations with vendors.

Completion of the estimated $10 to $12 million project is expected within five years, said Dave Young, the project's director. The new system will also have administrative data about students and the CSULB budget and human resources.

CSULB also has an arrangement where its bank immediately credits the university for the full amount of checks written, Soliman said. Then, the university buys the check back from the bank.

Meanwhile, if a student submits a check to the campus, and the bank reports that it was drawn on an account with insufficient funds, the university sends a written letter with a copy of the dishonored check to the student, who then has 30 days to remit payment.

The university also places a hold on the student's record so he or she cannot use university services, such as registering for classes or obtaining transcripts until payment for the amount of the check, plus a $20 handling fee is remitted, Soliman said.

A record of the bad check will also be made on the student's account. After a student bounces checks on campus twice, the university no longer allows the student check-writing privileges.

CSULB does not use a check verification or guarantee company, such as TeleCheckÆ International Inc. because it prefers to keep student wait time at a minimum, and because the low volume and minimal dollar amounts of dishonored checks are less than the value of service to the students, Soliman said.

Also, students could on rare occasions place a stop payment on a check after it is written, defeating any risk prevention TeleCheck could provide, he said. As with checks under $25, these checks are also ineligible for the district attorney's program.

Aztec Shops Ltd., a not-for-profit auxiliary corporation at San Diego State - like The Forty Niner Shops Inc. at CSULB, which runs the University Bookstore and food services - participates in the program.

With the use of the district attorney's program and other fraud-resisting check services, Aztec has about a 95 percent bad-check recovery rate, said Lois McCoy of Aztec's sales audit office. This is just 2 percent more than CSULB collects through its in-house recovery procedure.

Aztec allows students every opportunity to pay for bad checks, giving them 60 days to pay the check, rather than the 10 days the San Diego County district attorney's office suggests, she said.

Usually by this time, the student pays. Otherwise he or she cannot register for classes the following semester. Aztec also has a full-time employee who handles nothing but bad checks, she said.

For the more difficult cases, where the student does not respond to Aztec's request for payment of a returned check, Aztec notifies the district attorney.

The state's bad check diversion program, described in CA Penal Code Sections 1001.60-65, was adopted in 1988. The statute allows district attorneys to conduct their own programs or to employ private entities to conduct them.

Check-writing class instructors undergo intensive background checks and usually have histories of working in financial institutions or as psychologists, said Paula Hernandez, bad check diversion program community outreach director for the San Diego County district attorney's office.

The classes are often held at local colleges.

"The program pays for itself," Hernandez said. "Classroom rent, desks, calculators, instructor and employee salaries all come from the cost of the check-writing class and administrative fees charged to bad-check writers."

Willful presentation of a bad check is punishable by up to a year in prison under California Penal Code Section 476.

"We try to figure out if there is a crime; that is, if a person intended to steal, or if there was criminal intent, said Sgt. David Berridge of the San Diego Police Department's Financial Crimes Unit.

"We try to prove that by showing what kind of balances were kept in bank accounts - if a person's bank records show balances of no more than $500, and that person has been writing checks for $3,000, that tells us something," Berridge said.

Banking institutions are forthcoming with account information because they usually file the charges, as they are often the victims of fraudulent check writing, he said.

Restitution is then left up to the courts, who may sentence violators to probation or order jail time for the felony offense. Once the district attorney's office notifies Aztec that a debt has been completely paid, SDSU releases any hold on the student's account.

Then, Aztec expunges the information from the student's account record at its discretion - sometimes after a year - though in some cases, it stays on throughout the student's campus career, so that if a second bad check is written, the offending student loses campus check-writing privileges.

Aztec also subscribes to TeleCheck, but only uses it during rush times, such as the first few weeks of a semester, because of a per-check charge and the high volume of checks written, McCoy said.

TeleCheck also offers a check guarantee program, where it buys any returned check that was approved by its verification machine, minus 1 to 2 percent of the check's face value, she said.