STRATEGY
FRAUD DETECTION
filter might be needed for a disbursement account. Another method of fraud prevention is reverse posi- tive pay, which allows business owners to review the incoming ACH debits and decide whether to accept or reject them. This decision, however, must be made the following day or the debits will be rejected. Other practical steps to take are to make sure to in- stall firewalls, antivirus, antispyware, and antimalware software on all computers and keep these programs updated. Use complex passwords that must be changed frequently. Always ignore unsolicited e-mails that request you to open something or download something. Using a separate browser for online banking purposes, checking bank accounts daily for unauthorized activity, and accessing financial websites only by entering the URL (as opposed to using links in an email) also can help. Finally, consumers and employees need to moni- tor the performance of computers and devices. Slower processing, changing interfaces, or repeated rebooting can indicate the presence of malware or a virus. Failing to monitor the ACH activity on a business account can be costly. There are many court cases that are pending regarding banks suing their customers and corporate customers suing banks to recapture their lost funds. Under current law, business recovery is much more difficult than it is for consumers. The current court cases — such as Hillary Machinery vs. Plains Capital Bank — the landmark case of a bank suing its own customer, Experi-Metal Inc. vs. Comerica Bank — a case of a customer suing its bank over fraud losses and PATCO vs. Ocean Bank — one of the more recent cases to emerge nationwide —impacting banks and businesses of all sizes illustrate the increase in the rise of ACH fraud. As paper-based payments go the way of the dinosaur, it's important to stay ahead of the latest new forms of technology-enabled crime. ACH transaction fraud can be disastrous for its victims. But by using some of the strategies mentioned here and others, you can reduce your risk and ensure their everyday ACH transac- tions go forward smoothly and into the right hands. •
ACH Fraud A CON THAT CRIMINALS LOVE.
such a high volume of transactions each month. In ad- dition, there are some services that businesses should look at from their banks such as ACH Blocks or ACH Filters and positive pay type services. ACH products typically take two forms: 1. ACH DEBIT BLOCK This service automatically returns all ACH debits and/or credits that are directed to a partic- ular bank account. No customer intervention is neces- sary once the service is set up. 2. ACH DEBIT "FILTER" Automatically returns all ACH items for a designated account, except those that are pre-authorized. Authorized ACH Originators are identified by providing the bank with specific identifier information (e.g., originating company ID, individual ID number, etc.) Some banks offer the flexibility of allowing customers to further fine-tune their payment criteria based on maximum dollar amounts, exact dollar amounts, and maximum number of occurrences. There is also a service similar to "Positive Pay" that allows review of ACH debits before they are posted, with the customer making the decision to accept or re- turn the items individually. The determination of which service to use is a function of what type of activity an account is used for and what specific debit block ser- vices are available from the bank holding the account. For example, it might be reasonable to block debits completely for a depository account, where a debit
by Richard Hart
raud involving the Automated Clearing House Network, which is used by financial institutions to handle direct deposits, checks, bill payments and cash transfers between businesses and individuals, is becoming an increasingly popular way for hackers to siphon money out of the bank accounts of unsuspecting victims, especially real estate and property manage- ment companies. F HOWPERVASIVE IS THIS CRIME? According to a report late last year from the FBI, there has been approximately $100 million in attempt- ed losses due to ACH fraud. Committing the fraud is ridiculously easy. Fraudsters have discovered that they can now do with ACH transactions what they used to do with checks. Only with electronic transfers it is infinitely easier. You only need two pieces of information to pull off ACH fraud; a checking account number and a bank routing number. Criminals typically obtain the informa- tion with a targeted phishing email that tricks the victim into running malicious software which then allows them to install keylogging software and steal bank account
passwords. They also use Trojans that are placed on your computer from an infected website. Once the Trojan is in place, the fraudsters then log keystrokes, looking for logins for bank accounts. They use this information to create their own login and transfer funds out of the accounts or apply payments through the accounts. Many larger schemes use "mules," which are hired accom- plices, usually through work-at-home schemes to either knowingly or unknowingly move funds on their behalf, to move the funds to their overseas accounts.
WHAT ARE SOME BEST PRACTICES ORGANIZATIONS CAN USE TO AVOID ACH FRAUD?
Detection is really the key with ACH fraud, espe- cially around business accounts. Consumers need to alert their institution within 60 days in order to recover funds. Businesses, however, only have as little as one business day. Therefore, monitoring becomes critical. Daily review of the credits and debits of the business is essential in detecting fraudulent activity, especially with property management as you are dealing with
Richard Hart, EA, CAA, is the owner of Hart & Associates Tax Consulting and Preparation Services and a NARPM ® Affiliate Member. He specializes in tax accounting and has earned the credentials of Enrolled Agent and Certified Accep- tance Agent with the Internal Revenue Service. NARPM ® receive information like this article every month through its news magazine, Residential Resource. To join or learn more, visit NARPM.org/join.
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