Account Fraud – An Old Criminal Activity with Modern Tweaks: How to Stay Protected from Scams

Account Fraud – An Old Criminal Activity with Modern Tweaks: How to Stay Protected from Scams

Written by: Jason Ginsberg, Vice President, Head of Treasury Services, Union Savings Bank

Account fraud is one of the largest challenges facing businesses today. In fact, 45 percent of fraudulent activity in business is related to check fraud alone. The amount of inconvenience, anxiety, headache and, of course, cost that results from account fraud can be quite considerable. The FBI estimated around $18.7 billion lost due to check fraud with more than 500 million checks being forged annually.

With technological advancements in desktops, personal computers and tablets, scanners and mobile devices, fraudsters have also advanced in the way they carry out their criminal activity. Their use of industry lingo, clever schemes and almost undetectable approaches have made it increasingly difficult to identify any threat of account fraud as well as the location of the fraudster.

It’s in every business owner’s interest to eliminate those sleepless nights by becoming knowledgeable about fraud prevention and aware of potential threats to your business accounts. Daily vigilance and the right account controls are the best ways to avoid incurring financial loss due to account fraud.

These six tips will help you learn the most important types of fraud protection, while helping you spot the warning signs of account fraud.

1. Enroll in a Fraud Protection Service

Banks offer efficient fraud protection services, but it is important to get all the details when choosing the level of protection needed for your business. With varying degrees of assets and revenue, all businesses need different levels of security to assist in fraud prevention.

For example, Union Savings Bank’s Positive Pay detects potentially unauthorized disbursement activity and determines account discrepancies by comparing paid items against issued information through an automated alert function. Once the alert is received, the business owner can make the decision to pay or return the flagged items.

There are filters in fraud protection services that allow businesses to see what checks have been issued and deposited to ensure the amounts match. For example, a filter would spot a $100 check being deposited as a $1,000 check and the account holder would be able to dispute the change immediately through an automated alert received from the bank.

While setting up fraud alert protection, businesses can choose to receive these alerts in the form of email, text message, or even through an app notification on a smartphone.

Let your banking partner have your back – and enjoy more time to focus on the front end of your business.

2. Put ACH to Work

Automated Clearing House (ACH) is an electronic network for financial transactions in the U.S. with credit transfers, including direct deposit, payroll and vendor payments. Businesses that choose to utilize ACH must first authorize their bank to debit their accounts for the purpose of bill payments and ensure they have a working computer with a secure internet connection.

How ACH payments work:

  • Business owners must initiate a Direct Deposit or Direct Payment transaction.
  • The business’ bank or financial institution will begin payment processing at the business owner’s request.
  • Payments are then transmitted in batches individually or at regular, pre-determined intervals set forth by the business owner.
  • Transactions are processed as early as the following business day.

Transactions made through ACH assist in fraud protection as they are quicker, safer and easier and eliminate the need for paper checks, making it almost impossible for a fraudster to tamper with the process. Nothing is foolproof, so it is still imperative to handle all alerts immediately, as businesses may only have 24 hours to contest any account discrepancies.

3. Protecting Against Unauthorized Electronic Withdrawals

A common scam is when fraudsters try to withdraw electronic funds from a business account hoping this transaction goes unnoticed.   Without a fraud protection tool in place, your business may be exposed to a potential loss. 

Union Savings Bank’s ACH Positive Pay service will allow you to filter the ACH Debits (electronic withdrawals) that hit your account.  This important tool gives you the ability to recognize unauthorized transactions and act on them accordingly.  Similar to Check Positive Pay, an automated alert would be received notifying the business of this transaction, and giving you the option to return it within the required period of time. 

4. Monitor Your Accounts Daily

Monitoring accounts daily can be quite a difficult task when there are multiple accounts to monitor, but it is an important practice nonetheless as fraudulent activity in checking accounts is much more difficult to deal with than credit accounts.

Credit and debit card transactions can be disputed with the bank and ultimately removed from the line of credit, while replacing the funds already withdrawn from a checking account is a bigger hassle, with no guarantee of those stolen funds being returned.

While bank-provided fraud protection services are the main form of fraud monitoring, businesses must also play a role in the monitoring of check deposits and withdrawals. Uniform Commercial Code Regulations have been revised adding a shared responsibility for check fraud to the business owners.

UCC Regulations are the starting point for determining all rights, responsibilities and liabilities relating to forged, altered and any other check related problems, so it is important to understand what these regulations state and mean to you.

5. Set Internal Business Controls

For most small businesses, there are a select number of employees – maybe just one employee, such as a bookkeeper or office manager – who are allowed to handle the proverbial money. For larger companies, there’s generally more access to funds, from internal accounting teams to outsourced payroll processors.  Whether you’re a start-up or an established business with dedicated departments, you want to create a tight set of internal controls for fraud prevention to flag any suspicious activity immediately.

Account fraud is not just an external occurrence – it can also occur internally. As a small business owner, you can reduce the chances of fraud by implementing good internal controls in terms of billing and payment processes. Poor internal business controls can lead to collusion between employees and any third parties that may copy, alter, steal or forge checks or drain accounts.

Stop Check Fraud is a great resource that discusses several internal controls, such as limiting the number of authorized signers, ensuring regular inventory inspections of stored blank checks and setting up a check reconciliation process.

6. Train Employees to Spot Potential Email Fraud

Business Email Compromise (BEC) is a big culprit for fraud occurrences within a business. BEC can happen in the form of spoofed emails distributed to company employees from their bosses, requesting the wiring of funds or issuing of checks in large sums. These emails will appear as credible, but are in fact a scam, just a replica email developed and distributed by a fraudster.

Be sure your employees have a clear understanding of all internal policies and speak up if they receive any mysterious emails or requests. If an employee request for funds does not make sense or appears to be a violation of an internal policy, always escalate the request and ask for more information before approving the request.

Double-checking on a request is always more important than simply reacting and causing a damaging financial loss to your company, which could potentially put you out of business.

The thought of account fraud can be scary, but the tips outlined here will help you safeguard your company and its assets. One of the best solutions for better peace of mind is enrolling in fraud protection services.

Think it can’t happen to you? It can and there are numerous examples out there of unsuspecting businesses owners whose accounts have been comprised to the tune of hundreds of thousands of dollars in some instances. The best way to protect your business is to take proactive action.

If you’re looking for more advice on fraud protection, make an appointment with your business banker to discuss the best solution to fit your needs.

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Written by: Jason Ginsberg, Vice President, Head of Treasury Services, Union Savings Bank

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