Machias Savings Bank
Michelle Curtis, vice president of cash management at Machias Savings Bank
Updated: July 8, 2022
How to protect your small business from the most common sources of payment fraud
By Michelle Curtis, Machias Savings Bank
When it comes to fraud, it can be easy to have an “it won’t happen to me” attitude if you’ve never experienced it firsthand, but the reality is that businesses of all sizes are susceptible to fraud. In fact, recent survey results showed that 71% of respondents reported being victims of suspected or actual fraud.
In most cases, a business has no more than 48 hours to discover and report fraud to their bank in order to attempt to recover stolen funds. In some situations, even that's too late. Businesses must take a proactive approach to be aware of the risks and protect themselves.
Take the time to familiarize yourself with the primary sources of payment fraud:
Business Email Compromise (BEC) is a sophisticated email scam targeting businesses that utilize electronic payments via ACH or Wire Transfer. Your employee will receive a fraudulent email requesting a payment that appears to come from a known contact, but in reality, the client’s email has been “spoofed."
This communication is often well done and convincing, with a sense of urgency to push the payment along. The key to this request is that they are also asking to change current payment instructions or requesting new payment instructions, such as changing from ACH to Wire, for example. The best way to prevent this type of fraud is to adopt company procedures to confirm this type of request by contacting the requester at a previously known telephone number.
This simple step is key to preventing this type of payment fraud.
Despite a decline in regular use, checks continue to remain the most susceptible to payment fraud. Even though the pandemic accelerated the use of electronic payments, checks continue to be the most used form of payment by businesses. There are many examples of check fraud, but they generally fall into two categories: payee fraud or fictitious check fraud. In the case of payee fraud, the payee on a legitimate check is changed and the check is presented for payment. Larger dollar amounts are typically the target for this type of fraud, and they can easily slip through if a company's process is to match the check number and dollar amount during reconciliation, but not review any additional information, such is check images.
Fictitious checks, which are created to resemble a business’s check using the correct routing and account number, can also be used to access business funds. Typically, checks are lower dollar amounts to avoid scrutiny, but multiple checks will be presented at one time. These checks can add up quickly and can become lost in the daily posting of legitimate check activity for businesses with heavy check use.
ACH debits and wire payment fraud are often tied to BEC when a payment is requested electronically through a fraudulent email. Although banks continue to tighten security around their online banking platforms, online account take over can still take place. User information is generally obtained via what appears to be an email from the bank. As companies shift from checks to digital payments, they need to make sure that they are updating policies and procedures to identify ACH debits coming from outside the bank promptly when they occur.
What can your small business do to prevent fraud?
● Reconcile your accounts daily via online banking to identify any discrepancies early on.
● Setup online banking alerts to be notified as soon as possible of anything out of the ordinary.
● Utilize a service like Check Positive Pay that compares checks that are paid out against checks that you issue and notifies you immediately if anything doesn’t match up.
● ACH filters from your bank give you control over what electronic withdrawals can post to your accounts.
● Know that your business is protected if something slips through the cracks by investing in fraud insurance to cover unexpected losses.
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