NationsBank Corp. says a cash letter recovery system it bought last year helped recover almost $1 million of lost checks in its first use.

The system, from Servantis Systems Inc., uses data from missing checks to initiate automated clearing house transactions.

Using Servantis' Cash Letter Recovery System, "we successfully recovered all of the lost items . . . in a short period of time with minimal effort," said Greg Brown, vice president with NationsBank's operations center in Tampa, Fla.

The Charlotte, N.C.-based superregional first used the system after discovering that bundles containing $962,000 of checks were missing.

"It would have taken 10 of our staff eight hours to manually reconstruct the missing bundles," which contained about 6,000 checks, he said.

The system runs with International Business Machine Corp.'s Check Processing Control System. Lost checks are converted into ACH files, sparing a bank from the arduous task of reconstructing cash letters.

Cash letters are checks plus the amount information and instructions. In the check collection process, banks send cash letters typically containing upward of 50,000 checks each to clearing houses or to Federal Reserve Banks.

Experts said it is not uncommon for checks to be lost during collection, unsurprising given that over 60 billion checks were written in the United States last year.

When checks are lost or destroyed, banks must retrieve check information from pictures taken during the first phase of processing.

Lost cash letters put a bank "between a rock and a hard place," according to Wyn Lewis, managing director with J.D. Carreker & Associates, a check processing consulting firm based in Dallas.

Though he acknowledged that systems such as the Cash Letter Recovery System can speed the recovery process, he noted the risks involved in invoking the little-used ACH rule that permits the conversion of checks into ACH transactions.

"On the one hand, you are facing months of manual work to pull out and send the forward copies," he said. "On the other hand, you have the ACH alternative, and there are a couple of real big negatives."

He said that under the ACH method sending banks are liable for fraudulent items, and that ACH rules allow receivers to return items 60 days after the transaction which "contrasts with 24 hours on a check."

Accounts may close within the 60-day time frame, he said. Any returns sent by the receiving bank come at the expense of the sending bank.

The rule that provides for converting checks into ACH items followed the 1991 airline crash of a courier plane carrying cash letters. First Security Bank of Idaho lost approximately 21,000 checks in the crash and found that converting the checks to electronic transactions would speed the recovery process.

The incident let the National Automated Clearing House Association permit such checks to be collected using the ACH network.

"There is a rule that provides for it, and it works fairly well," said Elliot McEntee, president and chief executive officer of the clearing house group. "About once a month we hear that a bank has lost a cash letter. In each case the ACH network was used to collect those checks."

Mr. Brown said NationsBank was reluctant to invoke the Nacha provision in the case of the $962,000 of missing checks. His reluctance stemmed from the fact that the software converts the entire cash letter, not just the missing bundles.

"We would not have used it except that I wanted to save some time and see if the thing really worked," Mr. Brown said.

He allowed the module, which costs about $10,000, to create the entire ACH file, then edited out the checks that did not need to be recreated.

Based on NationsBank's experience with the software, Servantis modified the system to allow it to recover individual bundles of checks within a cash letter. This capability will be available April 1.

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