What Can Business Owners do to Prevent Loss from ACH Bank Fraud?

There are many types of fraud that affect businesses, but one of the biggest concerns is ACH fraud. ACH stands for Automated Clearing House; this networking system enables the exchange of funds between businesses and individuals through the use of checks, wire transfers, and direct deposits.

There has been an increased number of these cases of fraud as the perpetrator only needs to obtain the checking account number and the bank routing number. This means that anyone who has a check from your business has all the information needed to steal money from your account via a fraudulent ACH transfer.

Another way criminals can gain access to your banking information is by tricking you into suppling bank information via phishing emails or introducing viruses onto business computers in order to remotely gain access to the business’ important information. Once the hacker has the necessary information, it is easy to change account information to block the original owner and authorize fraudulent transactions. The hacking and siphoning of funds is done so quickly that by the time the victim becomes aware of the fraud, the criminal has often already moved on to his or her next victim.

The ACH is responsible for more than $41 trillion dollars each year. With so much money being filtered through this network, the potential for criminal activity, specifically fraud, is limitless. Based upon a report by the Association of Financial Professionals, in 2012 the average loss incurred by payments fraud was $20,300.

The loss of funds is just the beginning of the nightmare for most business owners. The next few days and weeks in which the account holder tries to rectify the situation can prove to be very challenging.

One of the biggest problems with commercial banking fraud is the lack of understanding about the aftermath of this situation. Many business owners assume the same rules of personal banking apply to commercial business accounts, but this is not the case. Commercial business account holders have less time to report cases of fraud, and have more liability and less protection as compared to personal account holders. For example, personal account holders may have upwards of 60 days to report any case of fraud, while many commercial claims are dismissed after only 24 hours. Unfortunately, business owners often find out the weakness of their coverage after they have already fallen victim.

Personal and business accounts are governed by different rules and restrictions. Personal accounts are governed under Federal Reserve Regulation E (12 C.F.R. Part 205). This ensures coverage and reimbursement for lost funds due to fraudulent activity. Commercial accounts are not covered by this as they are classified under the Uniform Commercial Code, and the banks’ policies are typically much less generous in the event of fraud. The burden is on the business owner to notify the bank immediately if there is a disputed transaction.

Because dealing with issues of fraud can pose a serious problem to businesses, it is best to be proactive. Business owners should learn about their bank’s account policies and take the proper steps to reduce the possibility of fraud and be prepared if it does happen.

How to Protect Your Business

  • Be aware of your bank’s policy for reporting fraud.
  • Consider switching to online banking and monitoring your accounts daily.
  • Secure your computer with the use of anti-virus or anti-spyware software.
  • Set up fraud alerts to be sent to you via email or text message.
  • Review your general liability insurance policy and consider adding coverage for loss due to bank fraud.
  • Consider using credit cards instead of checks for business expenses. Credit cards typically have more generous protections in the event of a theft.
  • Educate your staff – they should understand the potential damage that ACH fraud can inflict, and know examples of how such fraud can be prevented, from “low tech” tools (shredding financial data) to internet and email safe practices (avoiding malware and phishing attempts).

What to do if you find yourself victim of commercial banking fraud

  • Act immediately.
  • Notify your bank of the discrepancies found.
  • Change existing passwords and close accounts.                
  • Call your credit card companies to cancel existing cards.
  • Report the fraud to appropriate law enforcement agencies.
  • Contact an attorney to discuss legal ramifications.

Blog Post Authored by Desiree Lovell Fusco, B.A., M.A., J.D. and Rachel M. Trifon, B.A.