ACH fraud is a fraudulent activity involving the Automated Clearing House (ACH) network, which is used in the U.S. for processing electronic payments and money transfers between bank accounts. This includes payroll deposits, bill payments, and direct debits. The need for ACH fraud prevention has grown due to the increasing volume of digital payments.
About 93% of US employees receive payment via ACH transfers and even payment apps that use ACH transfers are on the rise. In a survey, it was discovered that 24% of organisations suffered automated clearing house fraud. This is because there has been an increase in digital payments.
In this article, we delve into what is of ACH fraud, the common types and how to avoid business ACH fraud risks.
What is ACH Fraud?
ACH fraud means Automated Clearing House Fraud
ACH fraud is a transfer from a bank account using the Automated Clearing House network without the permission of the account owner. Criminals exploit the ACH network to steal funds by impersonating individuals or organizations.
This underscores the importance of ACH fraud protection and secure ACH fraud payments to safeguard against unauthorised withdrawals.
Common Types of ACH Fraud
1. Data Theft
A fraudster can steal a person's information by hacking into a database or by physically stealing it. They can also gain access to such data through social engineering tactics. Once fraudsters have enough data, they can initiate Automated Clearing House fraud or sell it on the dark web. Protecting sensitive data, performing security audits and maintaining strict IT security practices are some ways to curb ACH fraud. You can also keep physical documents in safes and other storage facilities.
2. Insider threats
When workers use their privileges for personal gain, they become Insider threats. Insiders can make unauthorised transactions or change account information without alerting systems. Regular audits, segregation of duties and transaction monitoring can reduce this risk.
3. Phishing scams
Phishing happens by luring individuals to give out their sensitive data, through malicious links. Once they have your information, they can make unauthorized ACH debits. Educate your users on how to verify authentic requests for sensitive information. Consider implementing email filters and security protocols to detect these malicious sites and links.
4. Business email compromise (BEC)
This is like a phishing scam on a much larger scale. It involves using phishing tactics to impersonate company executives and vendors. To carry out this type of ACH fraud, scammers forge and intercept emails that tell finance personnel to change account information. They then redirect payments to accounts that they control. To curb this, certify procedures like secondary sign-offs by other personnel. Employees should also be trained to recognise phishing emails and probe into instructions to change payment details communicated via email alone.
ACH Fraud Protection: What is it and How is it Done?
ACH fraud protection refers to the tools, practices, and services used to detect, prevent, and respond to fraudulent activities involving the Automated Clearing House (ACH) network, a U.S. system used for electronic payments like direct deposits, bill payments, and bank-to-bank transfers.
What ACH Fraud Protection: What is it and How is it Done?
ACH fraud protection involves tools and practices designed to secure the ACH payment process. These include:
1. Transaction Monitoring:
Real-time tracking of ACH transfers to detect suspicious or unauthorized activity.
2. Multi-Factor Authentication (MFA):
Requiring more than just a password (like SMS codes or biometric data) to authorize ACH transfers.
3. Account Alerts:
Instant notifications for any unusual or unauthorized transactions.
4. Pre-authorization Controls:
Setting up rules so that only approved vendors or recipients can receive ACH payments.
5. User Training:
Educating employees or account holders to recognise phishing scams and social engineering tactics.
6. Data Encryption & Secure Access:
Protecting sensitive bank information and limiting access to it.
7. Vendor Verification:
Verifying any changes in vendor bank details before making new payments.
Why It Matters:
ACH fraud can lead to unauthorized ACH withdrawals, stolen funds, business disruption, and reputational damage. Having strong ACH fraud protection helps:
1. Detect threats early
2. Minimize financial losses
3. Avoid legal issues
4. Strengthen trust in digital payments
Signs You May Be a Victim of ACH Fraud
You can tell you are a victim of ACH fraud by observing these signs:
1. Unauthorized debits
This happens when funds are debited from your account without your permission. Bad actors typically use stolen bank account numbers and routing numbers to carry out these transactions. This is also known as an unauthorized ACH withdrawal, and it’s a major red flag that your account security has been compromised.
2. Changes in vendor information
If your vendor suddenly changes their bank details, you should be cautious. Typically, fraudsters compromise vendors’ systems and redirect payments to their own accounts. If the vendors have not reached out to you via other means to inform you too, you should be suspicious.
3.Unfamiliar login alerts
If you receive alerts about attempts to log into your account at times when you did not try to or from unfamiliar devices, you should suspect a system compromise. It is possible that fraudsters might have gained access to your account details and are trying to access your funds.
How to Prevent ACH Fraud
ACH fraud is a major threat to businesses and societal unrest, but you can fortify your security using these ACH fraud mitigation strategies:
1. Multi-factor authentication
Enforce MFA for all logins and transactions. Always ask for an extra level of verification beyond a username and password. This reduces the chance of unauthorised access even if your logins are leaked
2. Pre-authorized payments
The ACH debit system allows vendors to pre-authorise transactions to the right recipients. Deviations from the original account details can signal an alert and review before processing, preventing ACH fraud.
3. Employee training
Train employees to spot phishing scams from a mile away associated with ACH fraud. Let them learn the proper process for dealing with ACH transfers and suspicious activity reporting.
4. Segregation of duties
Develop a system where employees are authorised to carry out specific tasks like initiating payments, approving transactions and reconciling accounts. This reduces the risk of a single employee having access to all the information needed to manipulate the system and become an insider threat.
5. Real-time monitoring and data encryption
Always use real-time monitoring and transaction monitoring to spot suspicious activities before they have the time to succeed. Make sure that sensitive data is encrypted at all times. This makes it harder for bad actors to steal them and breach your systems.
What to Do If You Suspect ACH Fraud
The most logical thing to do when you suspect ACH fraud is to trace it. Tracing fraud can resolve issues like errors, and suspected fraud faster. The sooner you can trace it, the easier to get the details.
1. Gather information
Your first step should be to gather information about the ACH transaction including the amount, date, transaction ID and the sending and receiving bank account and names.
2. Contact the bank
Contact the bank where the transaction was initiated or the bank where it was sent. Phone calls are more effective in handling these kinds of issues as emails can be delayed. Make sure to provide all the transaction details. If the fraud occurred through an unauthorised ach withdrawal from bank, prompt contact with your financial institution becomes even more urgent.
3. Initiate the trace
Yes, you can track an ACH payment through your bank. Your bank will ask you to fill out a form to formally request a trace and will send this form through the ACH network to the other bank involved to verify if the transaction was processed correctly, the current status of the transaction and other errors involved. ACH traces can take up to several days to complete. Make sure to follow up regularly.
4. Review the results
Once you are done with the trace, the banks involved will provide a report of their findings and the issues they encountered. If it was an error, the banks can reprocess the transaction and adjust account balances. Make sure to document all communications and results of the trace as that can help settle disputes and serve as evidence if you need to take legal action.
Unauthorised ACH Withdrawal
This occurs when someone withdraws money from a bank account without the account holder’s permission. It can happen due to:
- Stolen banking information
- Phishing attacks
- Compromised business systems
- Fake vendor invoices or fraudulently initiated debits
These are all common symptoms of ach transfer fraud, and businesses need to ensure they have strong ach fraud protection measures in place to avoid repeated attacks.
Your first line of defense is ACH fraud detection to identify and stop these activities before losses accumulate.
Conclusion
ACH fraud remains a significant threat, but proactive measures and technologies like ACH protection, transaction monitoring, and employee education can help. Stay vigilant, use strong security protocols, and implement ACH fraud prevention.
Foolproof methods like suspicious activity reporting, transaction monitoring, and multifactor authentication are all proven methods to help mitigate ACH fraud. To learn more and implement these fraud detection and prevention techniques, visit Youverify and ask for a demo today.