How to Protect Your Business From Check and ACH Fraud

Fraud continues to be on the rise and it’s no longer a matter of if you experience it, but when. It is important for you to proactively protect your business against check fraud and ACH fraud. If you’re not using fraud prevention tools, you may be opening your business up to risks to its time, money, and reputation.

Industry Trends

Checks and ACH debits were the payment methods most impacted by payment fraud activity in 2022. According to the 2023 AFP Payments Fraud and Control Report, 63% of organizations were victims of check fraud in 2022, and 30% were victims of ACH debit fraud. Of those businesses that were victims of payment fraud in 2022, more than one-fourth of organizations (27%) were able to successfully recover at least 75% of funds lost. However, nearly half (44%) were unsuccessful in recouping any of the stolen funds. Checks continue to be the payment method most vulnerable to fraud.

Due to education and more awareness, attempted fraud attacks are on the decline. Companies are validating payment information before sending and are more aware of suspicious emails, decreasing the amount of wire and ACH credit fraud. However, check fraud and ACH fraud have not seen the same decrease in attempts and attacks as other payment methods. As check and ACH payment methods are most susceptible to fraud, it is important to establish policies and procedures and consider implementing fraud protection tools to help combat a potential fraud attack.

Types of Check Fraud

Counterfeit

In a counterfeit scam, a criminal possesses an organization’s account and routing number to recreate the organization’s checks using printers and publishing software to make them look like the original checks. This scenario is more common with larger check scams, such as the secret shopper scam. In a secret shopper scam, the criminal obtains check information from mailboxes, USPS mailboxes, and business mail accumulating outside during non-business hours. These scams may also be committed internally by employees.

Altered

In an altered scam, a criminal uses an existing check and alters the existing information on it. Typically, the scammer will alter the dollar amount or payee on the check. This type of fraud is common when a person can obtain the original check. They alter the information and then deposit or cash the altered check for their benefit. The criminal may obtain the check information from mailboxes, USPS mailboxes, and business mail accumulating outside during non-business hours. These scams may also be committed internally by employees.

Forged, Missing, or Improper Endorsement

In this type of fraud, a criminal forges the endorsement on the back of a legitimate check and deposits into an institution. The criminal may not endorse an item or improperly endorse the check before depositing it.

Mobile Deposit Fraud

Mobile deposit fraud occurs when an individual deposits an item using his or her mobile device. They then take the same check to another bank or check cashing service to receive payment immediately in cash through a withdrawal or ATM.

This scenario often occurs with smaller businesses or consumers. Many times, an employee will deposit a payroll check using their mobile device, then forget they deposited it and bring it into the bank. Ideally, this is only due to human error, but if the employee has malicious intent it can be a way to “stick it” to their employer.

We have also seen this where a person will mobile deposit the check at one bank, then go to another bank or check cashing service and get the money immediately with the same check.

Types of ACH Fraud

ACH Debit Fraud

ACH Debit Fraud occurs when a criminal obtains a routing number and account number from a valid check, then initiates an ACH debit against the company’s accounts. Any company, vendor, or consumer you issue a check to now has your account and routing information.

Procedures to Protect Your Business from Fraud

Check Fraud Control Procedures

Check Positive Pay is most often used by organizations to protect against check fraud. This fraud control provides early detection of fraudulent, altered, or counterfeit checks through a daily verification of checks presented for payment against your check register. Check Positive Pay and other services offer callbacks, device authentication, multi-person approval processes, and batch limits to help protect you from fraud. Other effective check fraud control procedures include daily reconciliation and segregation of accounts by function.

ACH Fraud Control Procedures

The #1 way companies are detecting ACH fraud is by daily reconciliation. Many organizations also safeguard against ACH fraud by utilizing ACH positive pay, fraud review, account verification service, dual authorization, and blocking ACH debits. When utilizing these procedures, ensure your business has a backup plan when someone is out due to illness or vacation.

In 2021, seven out of ten organizations were victims of fraud via payment methods. The threat of check and ACH fraud is very real and, unfortunately, will not be disappearing any time soon. However, there are tools and strategies your business can implement to curb attacks and stay one step ahead of scammers.

Choice Bank Cash Management Officers Amber Determan and Celine Paulson gave a free webinar about how fraudsters are stealing information today and how you can protect your business from check and ACH fraud. View the free on-demand webinar here.

Learn more about Choice Bank’s fraud prevention tools, such as Positive Pay, and request a meeting with our cash management officer at bankwithchoice.com/positivepay.