Discovering that your bank account has been compromised is an unfortunate reality for many business owners. Hackers and fraudsters are brazen in their attempts to access account information, evidenced by studies showing 62% of companies are targets of such types of fraud.1
Businesses can mitigate the risks and minimize loss by understanding the three most common types of business account fraud to look for and implementing prevention measures:
Common Types of Business Account Fraud
1. Check fraud
Check fraud is one of the oldest forms of payment fraud and often results in a large financial loss. Once someone gains access to routing and account numbers, they can withdraw money in a variety of ways, including:
Altered checks — valid issued checks are modified with alternate payment amounts or recipients.
Counterfeit checks — fake checks are printed with a business’s routing and account number.
Forged check signatures — stolen blank checks are written out by someone who is not authorized on the account.
Forged check endorsements — valid issued checks are stolen and then endorsed by someone other than the payee.
2. Electronic (ACH) fraud
Using the Automated Clearing House (ACH) network for payroll, bills and vendor payments is more secure than paper checks, but electronic transactions aren’t exempt from fraud. If bank account numbers are compromised, a fraudster can use them to try to initiate a fraudulent ACH transaction, pulling funds from your business account and sending them elsewhere.
3. Wire Fraud
Armed with a routing and account number, fraudsters may try to call a bank and request a wire transfer from your account. Worse, they may even attempt a “phishing” scam by hacking into a company’s e-mail system. Posing as the CEO, for example, they send an email to the accounting department with wire instructions to pay a fake invoice. The person in the finance department follows through on the “CEO’s” request and wires the funds to the “vendor.” Because wire transfers are considered guaranteed funds, victims of wire fraud often have little recourse to recoup their losses.
How to Prevent Business Account Fraud
Monitor accounts frequently
Business owners/managers should review the company’s accounts online daily, or as frequently as possible, to monitor for suspicious activity and limit exposure. Do you recognize every transaction? Be aware of even small unknown withdrawals, since a fraudster may test the waters with a minor transaction first, then attempt to steal larger amounts.
Use prevention tools
Many banks offer tools to help you prevent fraud from occurring:
Positive Pay — an automated service available from the bank that matches checks (account number, check number and dollar amount) against a list of previously authorized payments.
ACH filters — allows you to set up a list of authorized companies that can debit the account. If a debit entry is attempted by a company not on the authorized list, they’ll be blocked and the bank will alert the account holder.
Follow proper procedures
In addition to the tips above, here are some additional steps you can take:
Protect your account information — keep company checks and account numbers in a secure place and implement safeguards like encrypted passwords and locked file cabinets.
Work with your banker — he or she can offer additional fraud prevention tips to help protect your finances.
Use a secure method of communication — this is important when you need to send account information to the bank. When requesting a wire transfer, for example, sending your information via fax or secure email are recommended options.
What if I suspect fraud?
Contact your bank immediately if you notice any suspicious activity on your accounts. Be prepared, as your accounts may need to be shut down and new ones opened.
It’s important for small business owners to educate themselves on all aspects of fraud. For more tips on protecting your business, subscribe to our blog and receive the latest insights from ICB delivered straight to your inbox. Click the button below to subscribe now.
1 2015 AFP Payments Fraud and Control Survey, Association for Financial Professionals, March 2015 https://nacm.org/pdfs/surveyResults/afp-payments-fraud-results.pdf