Best Practices to Avoid the Latest ACH & Wire Fraud Scams
The rise in ACH and wire fraud poses a significant threat to businesses, with small companies being particularly vulnerable. These days, it’s reasonably easy for scammers to find the information they need (such as finding your business on LinkedIn) to learn your organizational structure and send phishing emails to attempt to scam you. By exploiting weaknesses in business systems and human behavior, fraudsters use tactics like phishing, malware, and social engineering to access funds or manipulate transactions.
According to recent studies, 80% of organizations experienced payment fraud attempts in 2023, with substantial financial losses and reputational damage as consequences. Small businesses often face disproportionate effects due to their limited resources to recover or combat fraud.
In this article, we’ll discuss how your business can recognize warning signs and implement best practices for prevention.
Understanding ACH Fraud & Wire Fraud
What is ACH Payment Fraud?
Wire fraud typically involves deceit to transfer money illicitly, often through forged emails or phone calls pretending to be trusted contacts. ACH fraud, on the other hand, exploits automated clearinghouse systems for unauthorized transactions. Small businesses, nonprofits, and even government entities are frequent targets.
How Does Wire Transfer Fraud Target Businesses?
Small businesses are particularly vulnerable to wire transfer fraud due to a combination of factors. They often lack the budget for advanced cybersecurity tools or dedicated IT staff to monitor systems and detect fraud attempts. They usually rely on less rigorous financial controls, and employees often lack fraud awareness. Due to limited resources, many small businesses operate reactively rather than proactively regarding cybersecurity.
Scammers will leverage these vulnerabilities by engaging in business email compromise (BEC)—fraudulent emails instructing employees to transfer funds. They may launch phishing attacks using fake emails or websites to steal login credentials. Sometimes, they implant malware—software that captures sensitive data, enabling unauthorized transactions.
Common Types of ACH & Wire Scams
Fraudsters are becoming increasingly sophisticated, exploiting vulnerabilities in digital payment methods like ACH transfers and wire transfers. For businesses, the consequences of ACH and wire fraud can be devastating. In 2023, businesses reported over $2.7 billion in losses from wire transfer fraud, according to the Federal Trade Commission.
Educate yourself and your team about common types of wire and ACH fraud, like those below, as the first line of prevention.
Business Email Compromise (BEC)
BEC scams involve cybercriminals impersonating executives or vendors to trick employees into sending payments to fraudulent accounts. They make their requests seem credible by spoofing email addresses or hacking into legitimate accounts.
Look for subtle misspellings in email addresses, such as “example@xyz-corp.com” vs. “example@xyz_corp.com.” Also, be wary of last-minute changes to payment instructions, especially when they contain a sense of urgency.
Phishing Scams & Social Engineering
Phishing schemes use fake emails or messages to lure employees into revealing sensitive information like login credentials, which can then be used to initiate fraudulent ACH payments.
Social engineering refers to manipulation tactics scammers use to deceive individuals into revealing sensitive information or performing actions that compromise the security of financial systems. These scams take advantage of human emotions like trust, fear, or urgency to trick people into bypassing security systems without needing advanced hacking skills.
Senior Executive Spoofing
Similar to BEC scams, in this scenario, an employee receives an urgent wire or ACH transfer request from a supposed high-level executive. The email address domain will be very close to the company’s actual domain, with the name of a C-level or leadership individual. However, a closer look at the email will show that it is a fraudulent email account. Again, creating a sense of urgency from someone in a leadership position rushes employees to complete the transfer before reviewing and verifying the request.
Vendor Impersonation & Account Takeover
In addition to business email compromising and phishing schemes, fraudsters may fabricate a plausible story or send a fake invoice to convince a target to share confidential data (e.g., bank login credentials) or approve financial transactions.
This can happen via phone or email, pressuring an employee to transfer funds or provide sensitive information without conducting due diligence to verify the request. And they are often deceptively similar to a legitimate email or phone call you’d receive from that vendor.
Best Practices to Prevent ACH Payment & Wire Fraud
Strengthening Internal Payment Processes
To protect your business, strengthening internal processes is essential, including:
Implementing dual controls for ACH payments and wire transfers. This highly effective measure entails one individual initiating the wire payment and another approving the funds to be released.
Requiring multiple approvals for high-value transactions. This helps ensure that no single individual has unchecked authority over financial decisions.
Verifying payment requests directly with the requestor. Always use a known phone number or face-to-face communication to confirm the legitimacy of any account changes. Do NOT respond to the email request to verify!
Match payments to legitimate invoices before sending funds. Invoices may appear genuine at first glance, but vendor impersonators can easily create fake documents.
Confirm the email address and request. That means BEFORE clicking any link, opening/downloading any attachment, or sending any payments.
Focusing on Employee Education & Cybersecurity Awareness
Employee awareness is equally critical in combating ACH scams and wire fraud. Regular training sessions can educate your team on recognizing phishing attempts, understanding social engineering tactics, and identifying fraudulent payment requests. Employees who know the warning signs are less likely to fall for sophisticated scams. Additionally, fostering a culture of caution around financial transactions encourages vigilance at every level of your organization.
For additional information on securing employee education, consult our blog post, “6 Tips to Avoid Small Business Fraud.”
Implementing Robust Cybersecurity
In addition to educating your team on cybersecurity, incorporate these security measures and tools to safeguard business devices and accounts.
Multi-factor authentication (MFA) is an essential safeguard for all financial and email accounts, adding a barrier even if credentials are compromised.
Advanced firewalls and endpoint security solutions can block unauthorized access to systems.
Regular software updates and patches close vulnerabilities that criminals often exploit.
Investing in cybersecurity tools and practices is another layer of protection.
Monitoring transactions in real-time can also make a significant difference.
Fraud detection tools that flag unusual payment patterns, such as large sums to unfamiliar accounts or transactions to high-risk regions, provide an early warning system for potential fraud.
Recognizing Warning Signs of Financial Scams
ACH and Wire Transfer Red Flags
Recognizing the warning signs of fraud is a vital skill for any business. Unusual payment requests should always raise red flags, especially those made under tight deadlines. Similarly, subtle differences in email addresses—such as replacing a hyphen with an underscore—can indicate phishing attempts. Alerts of logins from unfamiliar devices or locations often suggest an account has been compromised. A mismatch in bank account details, especially when compared to previously documented information for a vendor, is another sign that should prompt immediate verification.
Monitoring for Suspicious Activity
Use tools to flag unusual or high-risk transactions in real-time. Setting up ACH risk scoring and transaction monitoring systems helps identify anomalies. And at least yearly, consult the Federal Trade Commission’s Guide to Scams and Your Small Business.
The Growing Threat of ACH and Wire Transfer Fraud
ACH and wire fraud are becoming more common and costly. Recent data reveals that losses from ACH fraud alone have exceeded $1 billion, with incidents rising sharply year over year. Meanwhile, wire transfer fraud remains one of the most damaging scams, with the FBI reporting a near doubling of business email compromise incidents in the past five years. These statistics underscore the importance of proactive measures to protect your business.
While fraud prevention requires effort and vigilance, the risks of inaction are far greater. Enhancing procedures, educating employees, and utilizing advanced cybersecurity tools can significantly minimize the risk of ACH payment fraud and wire transfer scams. By remaining alert to warning signs and verifying every payment instruction, businesses can stay ahead of fraudsters in an increasingly complex digital landscape.
Protect Your Business Against ACH & Wire Fraud
ACH and wire fraud can devastate a business, but vigilance and strong preventive measures can significantly reduce your risk. You can protect your business from these increasingly sophisticated scams by staying informed, training your team, and leveraging robust cybersecurity tools.
Stay alert to warning signs, and always verify payment instructions before acting. In the face of rising financial scams, proactive defense is your best strategy.
Which additional layer of fraud prevention will you put in place today? Book an introductory call with JLS Accounting for assistance or more information.