Written by David DiPiero, CAMS, Vice President, Compliance Officer
Business owners are facing so many challenges in today’s environment. Supply shortages, labor shortages, and transportation issues are plaguing industries across the country. While these are the types of issues presented daily in the media, there is one issue that is hitting business hard across the country that has not gained as much attention: Business fraud.
Business fraud isn’t as rare as one might think. Check and ACH (Automated Clearing House) fraud are the most common ways that businesses are being impacted. The recent statistics for business fraud are staggering. A recent study by KPMG surveyed more than 600 executives across multiple industries and revealed that fraud is very common, has increased in severity, and is expected to become more frequent. In this study, 71% of the firms surveyed experienced some sort of fraud in 2022. A commonly held myth is that fraud only hits the larger businesses, so small businesses don’t need to worry. However, small businesses are more likely to be victims of fraud than larger organizations. In fact, according to the Association of Certified Fraud Examiners (ACFE)*, organizations with less than 100 employees experienced higher median of losses (at $150,000 per event!) than organizations with over 100 employees. As a business owner, it is important to know how you can protect your assets and help prevent fraud from impacting you.
Identify and Report Unauthorized Transactions Immediately
When fraud does occur, it can be difficult to figure out what to do next. Many business owners believe that when a fraudulent transaction hits a business account, their bank will reimburse the account holder in the same manner as a consumer account. However, that is not the case. If you are a business account holder, you have a smaller window of time than consumers to report fraud. You also have more liability and less protection as compared to consumer account holders. For example, personal account holders have upwards of 60 days to report any case of electronic payment fraud to their financial institution; businesses have only 24 hours to report fraudulent electronic payment fraud, including unauthorized ACH transfers.
Rules for Reporting Fraud
Consumer and business bank account protections are governed by different rules and restrictions. Consumer electronic transactions are governed under Federal Reserve Regulation E (12 C.F.R. Part 205) and National ACH Association (NACHA) rules. These rules both indicate that the consumer will not be liable for an unauthorized transaction if that consumer disputes the transaction within a reasonable timeframe. This ensures the consumer is reimbursed for lost funds due to fraudulent activity or unauthorized ACH transfers.
Business clients do not have the same protections. Federal protection for businesses that experience ACH fraud falls under the Uniform Commercial Code (UCC). The burden is on the business to notify the financial institution immediately if there is a disputed transaction. After 24 hours, all the liability for fraudulent transactions shifts from the financial institution to the business.
Be Proactive in Protecting Against Fraud
As mentioned earlier, check fraud is one of the most common ways fraudsters can gain access to your funds. Windsor Federal offers products and services to help mitigate fraud on business accounts. Our Cash Management Team is happy to discuss these products and services to see how they can be implemented for your business. In the meantime, there are some simple steps you can take now to help reduce your risk of becoming part of the statistics and being impacted by fraud:
Contact your bank immediately if you suspect account fraud.
Enroll in online banking and monitor your accounts daily for unusual transactions or unauthorized ACH transfers.
Set up alerts in online banking to be notified immediately, via email or text message, of unexpected account activity.
Review your business liability insurance policy and consider adding coverage for loss due to account fraud.
We're Here to Help!
If you would like to set up an appointment with someone from our Cash Management Team, please email Cashmanagement@windsorfederal.com, call 860-688-8511, or visit any of our branch locations.