Mitigating ACH and Check Fraud

Check and ACH fraud cost companies millions each year. However, with careful planning, company leaders can do a great deal to reduce their exposure to losses.

When it comes to managing your business, moving money in and out of your bank accounts is a primary part of your everyday operations (I.e., paying employees, paying bills or vendors). Unfortunately, check fraud is one of the largest challenges facing businesses and financial institutions today and the larger the volume of money you’re transacting each day, poses a larger opportunity for criminals to hide a fraudulent transaction in a sea of legitimate ones.

It's critical for companies to be aware of the scope of the problem, the areas of their business that may be open to risk, as well as the steps they can take to protect themselves. Doing so could save money — and help to prevent damage to a company.

The Rise of Check and ACH Fraud

Checks have had a common place in business transactions for quite some time. Unfortunately check fraud is becoming just as common place. The American Bankers Association (ABA) 2019 Deposit Account Fraud Survey found that total attempted check fraud stood at $15.1 billion, while banks prevented $13.8 billion — or 91% of attempts — for a net loss of $1.3 billion.

In a recent 2023 Payments Fraud and Control Survey, the Association for Financial Professionals’ (AFP) found checks continue to be the payment method most vulnerable to fraud, with 63% of respondents reporting their organizations faced fraud activity via checks. Of those who were victims of payments 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.

Given their ease of use, businesses will continue to use checks for the foreseeable future. Common check fraud methods include the forging of signatures or endorsements, the alteration of payee names and dollar amounts, and the creation of counterfeit checks. Like other forms of financial crime, perpetrators look for companies that lack the people, processes and technology to prevent losses.

What about ACH? From paying employees via direct deposit to allowing commuters to reload funds on a bus pass, ACH payments have become a popular and efficient payment gateway to transfer funds between multiple financial institutions. An ACH or “automated clearing house” transfer is one of the cheapest, most commonly accepted, and fastest-growing means of moving money from one account to another. According to Nacha, nearly 30 billion ACH network payments were made in 2022, valued at close to $76.7 trillion.

However, ACH isn't risk free. In its 2019 report, the ABA noted that person-to-person, wire and ACH fraud generated losses of $265 million. While significantly lower than the losses attributable to check fraud, for companies that experience an ACH fraud, the losses are just as damaging, nonetheless.

As companies continue to adjust to a higher number of employees working remote or from home, some companies have fewer internal controls in place to stop fraud. Unlike consumers who have 60 days to notify their bank of an ACH fraud, businesses must do so within two days. To increase the chances of recovering the funds of a fraudulent ACH from the bank of first deposit, companies should notify their bank within 24 hours of seeing a fraudulent ACH post to their account.

How Businesses Can Protect Themselves from Check and ACH Fraud
  1. Positive Pay – Positive Pay is a cash management service BankProv offers to help our business clients protect themselves against fraudulent checks and ACH transactions. Positive Pay can help business owners safeguard their bank accounts against any losses by detecting suspicious transactions before they get processed.
  2. Bank Account Reconciliation – Once a fraudster uncovers a company’s weaknesses and succeeds in passing a bad check, they often repeat the process for as long as it proves successful. Performing daily reconciliation of accounts can substantially reduce check and ACH fraud by confirming the legitimacy of transactions posted against an account and highlighting anomalies quickly.
  3. Require Dual Approvals for Online (or Electronic) Payments – To help minimize the potential for payment fraud, a corporate policy should define which executives can issue and approve check and electronic payments. It should also detail the dollar limits of their authorization. Additionally, the policy should identify who can order new check stock. Once received, blank checks should remain in a secure location, with limited employee access.

In addition to the above risk-mitigation strategies, one of the simplest ways to reduce check fraud is to reduce the number of checks issued. While online payment options are not 100% fraud-proof, by moving to electronic options like ACH and wire, companies can minimize the number of checks in circulation with the potential to fall into a criminal's hands.

For more information, browse our business security resources.

[Updated June 8, 2023]


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